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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended September 30, 1997
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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 0-1160
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THE PROVIDENCE GAS COMPANY
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(Exact name of registrant as specified in its charter)
Rhode Island 05-0203650
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
100 Weybosset Street, Providence, Rhode Island 02903
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 401-272-5040
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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NONE NONE
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of class)
Indicate by checkmark 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 ___
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-
affiliates of the Registrant, as of December 3, 1997: $0
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:
Common Stock, $1.00 Par Value: 1,243,598 shares outstanding at
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December 3, 1997.
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DOCUMENTS INCORPORATED BY REFERENCE
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NONE
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
<S> <C> <C>
Item 1 - Business
General I-1
Gas Supply I-2
Rates and Regulations I-3
Competition and Marketing I-5
Employees I-6
Special Factors Affecting the Gas Industry I-6
FERC Regulations I-7
Environmental Regulations I-8
Other Standards I-9
Item 2 - Properties I-10
Item 3 - Legal Proceedings I-10
Item 4 - Submission of Matters to a Vote of Security Holders I-10
PART II
Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters II-1
Item 6 - Selected Financial Data II-2
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations II-3
Item 8 - Financial Statements and Supplementary Data II-11
Report of Independent Public Accountants II-32
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure II-33
PART III
Item 10 - Directors and Executive Officers of the Registrant III-1
Item 11 - Executive Compensation III-6
Item 12 - Security Ownership of Certain Beneficial Owners
and Management III-6
Item 13 - Certain Relationships and Related Transactions III-6
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports
on Form 8-K IV-1
Supplemental Schedules IV-3
Signatures IV-7
</TABLE>
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PART I
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ITEM 1. BUSINESS
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The Providence Gas Company (the Registrant or ProvGas) and its subsidiary and
their representatives may from time to time make written or oral statements,
including statements contained in the Registrant's filings with the Securities
and Exchange Commission (SEC), which constitute or contain "forward-looking"
statements as that term is defined in the Private Securities Litigation Reform
Act of 1995 or by the SEC in its rules, regulations, and releases. All
statements other than statements of historical facts included in this Form 10-K
regarding the Registrant's financial position and strategic initiatives and
addressing industry developments are forward-looking statements. Where, in any
forward looking statement, the Registrant, or its management, expresses an
expectation or belief as to future results, such expectation or belief is
expressed in good faith and believed to have a reasonable basis, but there can
be no assurance that the statement of expectation or belief will result or be
achieved or accomplished. The following are factors which could cause actual
results to differ materially from those anticipated, and include but are not
limited to: general economic, financial and business conditions; changes in, or
the failure to comply with, government regulations; competition in the energy
services sector; regional weather conditions; the availability and cost of
natural gas; development and operating costs; the success and costs of
advertising and promotional efforts; the availability and terms of capital; the
business abilities and judgment of personnel; the ability of the Registrant to
modify or redesign its computer systems to work properly in the year 2000;
unanticipated environmental liabilities; the costs and effects of unanticipated
legal proceedings; the impacts of unusual items resulting from ongoing
evaluations of business strategies and asset valuations; and changes in business
strategy.
General
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The Registrant, a Rhode Island corporation, was organized in 1847 and became a
wholly-owned subsidiary of Providence Energy Corporation (Providence Energy)
through a reorganization on February 1, 1981. The outstanding shares of common
stock of Providence Energy are presently listed on the New York Stock Exchange.
The executive offices of the Registrant are located at 100 Weybosset Street,
Providence, Rhode Island 02903, telephone (401) 272-5040.
The Registrant is engaged in natural gas distribution, serving approximately
165,000 customers in Providence and Newport, Rhode Island, and in 23 other
cities and towns in Rhode Island. The service territory encompasses
approximately 370 square miles and has a population of approximately 817,000.
For the year ended September 30, 1997, residential sales accounted for
approximately 67% of total company firm sales, with commercial and industrial
sales representing, in the aggregate, approximately 33%. For the years ended
September 30, 1996 and 1995, residential sales represented approximately 60% and
48%, respectively, of the total sales, with commercial and industrial sales
representing, in the aggregate, approximately 40% and 52%, respectively, of firm
sales.
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The Registrant's gas distribution system consists of approximately 2,300 miles
of gas mains ranging in size from 2 to 36 inches in diameter, approximately
139,000 services (a service is a pipe connecting a gas main with piping on a
customer's premises), approximately 161,000 gas meters, and the necessary
pressure regulators. The Registrant has regulating and metering facilities at
eight points of delivery from Algonquin Gas Transmission Company (Algonquin) and
one from Tennessee Gas Pipeline Company, which the Registrant believes to be
adequate for receiving gas into its distribution system.
The natural gas industry is subject to numerous challenges, many of which
affect the Registrant in varying degrees. Significant industry challenges
affecting the Registrant include: the ability to adapt to the regulatory changes
occurring at the national level under the framework of the Federal Energy
Regulatory Commission (FERC) Order 636 and the ability to gain local approval
through the Rhode Island Public Utilities Commission (RIPUC) for new rates
tailored to customers' specific needs and market conditions.
Gas Supply
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The Registrant has entered into a full requirements contract with Duke Energy
Trading and Marketing, LLC (DETM) to provide all of its gas supply needs
beginning October 1, 1997 and continuing through September 30, 2000. DETM is a
joint venture of Duke Energy (60%) and Mobil (40%). DETM will provide all gas
supplies required by the Registrant, while the Registrant is committed to
purchase all supplies exclusively from DETM. Supplies required by the
Registrant's firm sales customers will be purchased at a single, fixed commodity
price for the entire contract period. In order to provide this service, DETM,
for the contract period, will take responsibility for the Registrant's pipeline
capacity resources not previously released, all storage contracts and all LNG
capacity. Under the contract, DETM will purchase all working gas in storage
including both LNG and contract storage as of October 1, 1997. All supply
resources assigned to DETM will revert back to the Registrant on October 1,
2000. The contract was entered into following a competitive bidding process.
As well as providing supply for firm customers at a fixed price, DETM will
provide gas at market prices to cover the Registrant's non-firm sales customer's
needs and to make up the supply imbalances of transportation customers. DETM
will also provide various other services to the Registrant's transportation
service customers including enhanced balancing, standby and the storage and
peaking services available under the Registrant's recently approved FT-2 storage
service effective December 1, 1997. DETM will receive the supply related
revenues from these services in exchange for providing the supply management
inherent in these services.
Included in the DETM contract are a number of other important features. The
Registrant has retained the right to continue to make portfolio changes to
reduce supply costs. To the extent the Registrant makes such changes the
Registrant must keep DETM whole for the value lost over the remainder of the
contract period. The contract relieves the Registrant of the need to perform
certain upstream supply management functions which will make it possible for the
Registrant to take on the additional supply management workload required by the
further unbundling
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of firm sales customers without major staffing additions.
During 1997, the Registrant purchased 84% of its gas supply in the production
area with transportation and storage provided by firm pipeline contracts.
Liquefied natural gas (LNG) provided 3% of gas supply requirements. The
remaining 13% was purchased in the market area, generally on an interruptible
basis. The Registrant maintains contracts sufficient to meet 100% of its firm
winter demand using firm supply and firm storage and pipeline transportation.
When not using capacity for its own sales, the Registrant released the
capacity or used it to make off-system sales. In fiscal 1997, the Registrant
received $7.2 million in revenue from released capacity, a 26% increase over the
$5.7 million of revenue generated in 1996. The revenues reduce the firm
customers' gas cost, making the Registrant more competitive.
Rates and Regulation.
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The Registrant is subject to the regulatory jurisdiction of the RIPUC with
respect to rates and charges, standards of service, accounting and other
matters. The standards set by the RIPUC affect all aspects of the Registrant's
business, including its ability to market to new customers and to meet
competition from other fuel suppliers. (see "Competition and Marketing.") In
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August 1997, the RIPUC approved the Price Stabilization Plan Settlement
Agreement, (the Plan or Energize R.I.) among the Registrant, the Rhode Island
Division of Public Utilities and Carriers (the Division), The Energy Council of
Rhode Island, and the George Wiley Center. Effective October 1, 1997 through
September 30, 2000, Energize R.I. provides customers with an initial price
decrease of approximately four percent and a three-year price freeze. Under
Energize R.I., the GCC will be suspended for the entire three-year term of the
Plan. Any excess or deficiency between amounts billed and actual incurred gas
costs will be retained or borne by the Registrant. Energize R.I. also requires
the Registrant to make significant capital investments to improve its
distribution system. Capital investments required by Energize R.I. are estimated
to total approximately $26 million over its three-year term. In addition, the
Registrant is required to fund the Demand Side Management Program Rebate
Assistance Program and the Low Income Weatherization Program at annual levels of
$.5 million and $.2 million, respectively. Energize R.I. also calls for the
Registrant to fund the Low Income Assistance Program at an annual level of $1.0
million. Finally, Energize R.I. also continues the process of unbundling by
requiring the Registrant to provide unbundled service offerings up to 10 percent
per year of firm system throughput.
As part of Energize R.I., the Registrant will amortize approximately $4.0
million of environmental costs previously charged to the accumulated
depreciation reserve over a ten year period. All environmental costs incurred
during the term of Energize R.I. will also be amortized over a ten year period.
Under Energize R.I. the Registrant may earn up to 10.9 percent annually on its
average common equity of up to $81.0 million, $86.2 million and $92.0 million in
fiscal 1998, 1999, and 2000, respectively. In addition, the Registrant may not
earn less than a 7 percent return on common equity under the Plan. In the event
that the Registrant earns in
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excess of 10.9 percent or less than 7 percent, the Registrant will defer
revenues or costs through a deferred revenue account over the term of the Plan.
Any balance in the deferred revenue account at the end of the Plan will be
refunded to or recovered from customers in a manner determined by all parties
and approved by the RIPUC.
The IRP will be terminated as a result of Energize R.I.. In addition to the
funding for the demand side management program and low income weatherization
programs, the IRP provided for a performance-based ratemaking mechanism. The
Registrant was able to record its annual share of the performance-based
ratemaking mechanism in both 1997 and 1996, which resulted in a $1.5 million
increase to operating margin in each of those years.
Under the IRP, the Registrant was required to return all margins earned from
non-firm sales to firm customers through the GCC. As a result of Energize R.I.,
the Registrant will be able to retain all margins earned from non-firm
customers.
The following table sets forth the results of the Registrant's applications
before the RIPUC for rate increases since 1990.
<TABLE>
<CAPTION>
Annualized Annualized Authorized
Date of Rate Increase Date Rates Rate Increase Return on
Application Requested Effective Granted (*) Common Equity
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<S> <C> <C> <C> <C>
5/17/90 $15,800,000 03/15/91 $9,176,000 12.8%
1/15/93 9,100,000(**) 11/14/93 694,000 11.2
2/16/95 14,880,000(***) 12/17/95 4,161,572(****) 10.9
</TABLE>
(*) Although the RIPUC reviews and approves all changes in gas costs billed to
customers through the Gas Charge Clauses (GCC), such changes are not part of the
general rate filings described above. See Footnotes 1 and 10 in the Notes to
the Consolidated Financial Statements filed herewith as Item 8.
(**) Rate increase requested on January 15, 1993 of $9.1 million was
recalculated to $6,970,000 on September 14, 1993 due to cost of service
adjustments reflecting cost savings.
(***) Rate increase requested on February 16, 1995 of $14.9 million was revised
to $13,222,000 on July 19, 1995 due to lower projected costs.
(****) The allowed annualized revenue increase of $4,161,572 is comprised of an
initial award of $3,990,000 plus a revenue adjustment of $171,572 due to
approval of a reconsideration motion.
The Registrant has been working closely with the RIPUC to develop a new rate
structure that will allow the Registrant to offer unbundled services designed to
meet the needs of its largest customers, such that those customers would have
the option to purchase natural gas directly from suppliers and use the
Registrant to transport the gas. The Registrant believes that this rate
structure will foster a more competitive and flexible gas market in Rhode Island
and allow it to remain competitive by offering commercial/industrial businesses
value-added services at competitive prices.
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In May 1996, the RIPUC approved a Rate Design Settlement Agreement among the
Registrant, the Division, The Energy Council of Rhode Island (TEC-RI) and a
consortium of oil heat organizations. The Agreement began a process of
unbundling natural gas service in Rhode Island, enabling customers to choose
their gas suppliers. The Agreement went into effect June 2, 1996. This initial
step was available to approximately 120 of the largest commercial and industrial
customers. In August 1997, the RIPUC approved a plan, "Business Choice", to
further expand the availability of unbundled services to an additional 3,400
large and medium commercial and industrial customers. The Registrant plans to
commence Business Choice in December 1997.
The Agreement also included changes to the Registrant's gas cost recovery
mechanism. Specifically, the agreement replaced the previous CGA with GCC
effective June 2, 1996. In addition to the commodity and related pipeline
transportation costs historically included in the CGA, the GCC provided for the
recovery of: (1) inventory financing costs; (2) working capital associated with
gas supply purchases; (3) bad debt expenses associated with the gas revenue
portion of customer bills; and (4) a substantial portion of LNG operating and
maintenance expenses, all of which were previously recovered in base rates.
Similar to the former CGA, the GCC provided for reconciliation of total gas
costs billed with the actual cost of gas incurred. Any excess or deficiency in
amounts billed as compared to costs incurred is deferred and either refunded to,
or recovered from, customers over a subsequent period. Under Energize R.I., the
GCC will be suspended, and as a result, the Registrant will retain or bear any
excess or deficiency between total gas costs billed and actual gas costs
incurred.
On October 8, 1996, the RIPUC approved a one year Pilot Hedging Program
Agreement between the Registrant and the Division. The objective of the pilot
program was to mitigate the impact of natural gas price escalation through
utilization of Financial Risk Management (FRM) tools, to develop a more balanced
gas supply cost approach and, finally, to study in more detail some of the
benefits and costs associated with the program. The FRM tools were limited to
the use of options, including calls, puts, and collars, under the pilot program.
The total expenditures for the purchase and exercise of the FRM tools and the
net proceeds from the sale of FRM tools were flowed through the Variable Gas
Cost component of the GCC and could not exceed $800,000. The total
expenditures, net of sales proceeds made under the program in 1997 were
approximately $154,000. The program expired on September 30, 1997 and was not
extended since its objectives were met through Energize R.I., described above.
The Registrant held no open positions at September 30, 1997.
Competition and Marketing.
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The Registrant experienced modest customer growth in both the residential and
commercial/industrial markets. In all, the average annual number of customers
rose one percent to 165,000. This customer growth was achieved in an
underperforming local economy that is now showing signs of improvement. The
Providence Place Mall began construction in early 1997 and brings an estimated
3,000 construction jobs and more than 2,800 permanent jobs in sales, management
and maintenance. The Fixed Income Group of Fidelity Investments will bring to
Rhode Island 2,500 new jobs and a $75 million state-of-the-art facility, the
direct result of a creative package of land, lease and tax
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incentives offered by the State of Rhode Island. Also, the newly expanded T.F.
Green Airport, and the arrival of Southwest Airlines, have begun to
significantly improve the competitiveness of transportation options.
In 1998, the Registrant's core marketing efforts will continue to focus on
adding profitable new load and building loyalty with existing customers. The
Registrant will continue joint marketing with the local network of heating
contractors to promote heating conversions of customers on existing gas mains.
In addition, the Registrant will extend its coupon rebate program for high
efficiency heating equipment offered in combination with participating
manufacturers and local distributors.
As a result of the Rate Design Settlement Agreement approved in May 1996, the
Registrant was allowed to offer unbundled services to approximately 120 of its
largest customers. These customers are now able to purchase natural gas
directly from suppliers and use the Registrant to transport the gas. In
December 1997, the Registrant will commence Business Choice, a plan which will
further expand the availability of unbundled services to an additional 3,400
large and medium commercial and industrial customers. The Registrant believes
that this rate structure will foster a more competitive and flexible gas market
in Rhode Island and allow it to remain competitive by offering
commercial/industrial businesses value-added services at competitive prices.
In 1996, the Registrant implemented a Demand Side Management Program, which
furnishes rebates to customers installing new technologies, such as gas fired
air conditioning, cogeneration and gas motors. These technologies use
proportionately more natural gas during the summer months, when the distribution
system has available capacity. The DSM Program also allows for the utilization
of existing resources, such as mains, services and year-round supply contracts.
These programs will continue to be funded under Energize R.I.
Employees
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As of September 30, 1997, the Registrant had 530 full-time employees.
Approximately 275 production, distribution and customer service employees are
covered by a five-year collective bargaining agreement with Local 12431 of the
United Steelworkers of America, which became effective in January 1996.
The agreement was developed by a labor-management negotiations committee and
can be reopened for any reason at any time in order to allow for the committee
to deal with new issues as they arise, which results in increased flexibility in
the use of employees. This will result in increased job security and will
position the Registrant to reduce costs and increase levels of customer service.
The agreement calls for a general wage increase of 3.25% each year from 1997 to
2000.
Additionally, in March 1996, a 38 month Labor Agreement was ratified by Local
12431-02 of the United Steelworkers of America, which represents approximately
92 office and clerical employees. The agreement calls for a 8.44% wage increase
over 38 months.
Special Factors Affecting the Natural Gas Industry
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The natural gas industry is subject to numerous legislative and regulatory
requirements, standards and restrictions that are subject to change and that
affect the Registrant to varying degrees. Significant industry factors that
have affected or may affect the Registrant from time to time include: lack of
assurance that rate increases can be obtained from regulatory authorities in
adequate amounts on a timely basis; changes in the regulations governing the
Registrant's operations; reductions in the prices of oil and propane, which can
make those fuels less costly than natural gas in some markets; increases in the
price of natural gas; and competition with other gas sources for industrial
customers, including potential attempts to bypass the Registrant's facilities.
FERC Regulations
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In recent years the FERC has been attempting to increase competition with
regard to the transportation and sale of natural gas in interstate commerce.
Beginning in late 1985, FERC began promulgating orders allowing all industry
participants access to pipeline transportation on an open, nondiscriminatory
basis to the extent of available capacity.
Recent FERC orders are in furtherance of its policy to make gas transportation
and alternate supply sources more accessible to all parties, including local
distribution companies and their customers. Such open access allows the
Registrant to obtain its supply through a more competitive national gas pipeline
system, where and when capacity is available.
FERC Order 636 and other related orders (the Orders) have significantly changed
the structure and types of services offered by pipeline transportation
companies. The most significant components of the restructuring occurred in
November 1993. In response to these changes, the Registrant successfully
negotiated new pipeline transportation and gas storage contracts.
At the same time, a number of contracts with gas suppliers have been
negotiated to complement the transportation and storage contracts. The portfolio
of supply contracts was designed to be market responsive and diversified with
respect to contract lengths, source location, and other contract terms.
To meet the requirements of the Orders, the pipelines have incurred
significant costs, collectively known as transition costs. The majority of
these costs will be reimbursed by the pipelines' customers, including
the Registrant. Based upon current information, the Registrant anticipates its
transition costs to be approximately $21.7 million, of which $16.2 million has
been included in the GCC and is currently being collected from customers. The
remaining minimum obligation of $5.5 million has been recorded in the
accompanying consolidated balance sheets (filed herewith as Item 8) along with a
regulatory asset anticipating future recovery through the GCC. As part of the
supply contract described in "Gas Supply", which is effective October 1, 1997,
----------
DETM will assume liability for these transition costs during the contract's
three-year term. At the end of the three year term of the contract, the
Registrant will assume any remaining liability, which cannot be estimated at
September 30, 1997.
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Environmental Regulations
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Federal, state and local laws and regulations establishing standards and
requirements for the protection of the environment have increased in number and
in scope within recent years. The Registrant cannot predict the future impact
of such standards and requirements, which are subject to change and can take
effect retroactively. The Registrant continues to monitor the status of these
laws and regulations. Such monitoring involves the review of past activities
and current operations, and may include expending funds to investigate or clean-
up certain sites. To the best of its knowledge, subject to the following, the
Registrant believes it is in substantial compliance with such laws and
regulations.
At September 30, 1997, the Registrant was aware of four sites at which future
costs may be incurred.
The Registrant has been designated as a potentially responsible party (PRP)
under the Comprehensive Environmental Response Compensation and Liability Act of
1980 at two sites at Plympton, Massachusetts on which waste material is alleged
to have been deposited by disposal contractors employed in the past either
directly or indirectly by the Registrant and other PRP's. With respect to one
of the Plympton sites, the Registrant has joined with other PRP's in entering
into an Administrative Consent Order with the Massachusetts Department of
Environmental Protection. The costs to be borne by the Registrant, in
connection with both Plympton sites, are not anticipated to be material to the
financial condition of the Registrant.
During 1995, the Registrant voluntarily began a study at its primary gas
distribution facility located in Providence, Rhode Island. This site formerly
contained a manufactured gas plant operated by the Registrant. As of September
30, 1997, approximately $1.8 million has been spent primarily on studies at this
site. In accordance with state laws, such a voluntary study is monitored by the
Rhode Island Department of Environmental Management (DEM). The purpose of this
study was to determine the extent of environmental contamination at the site.
The Registrant has completed the study which indicates that remediation will be
required. The Registrant has several remediation options for the site and is
currently negotiating with DEM and contractors to arrive at the best
alternative. At September 30, 1997, the Registrant has compiled a preliminary
range of costs based on remediation alternatives, ranging from $1.7 million to
in excess of $5.0 million. However, because of the uncertainties associated
with environmental assessment and remediation activities, the future cost of
remediation could be higher than the alternatives noted above. Based on the
proposals for remediation work, the Registrant has accrued $1.7 million at
September 30, 1997, for anticipated future remediation costs at this site.
Tests conducted following the discovery of an abandoned underground oil
storage tank at the Registrant's Westerly, Rhode Island operations center in
1996 confirm the existence of contaminants at this site. The Registrant is
currently conducting tests at this site, the costs of which are being shared
equally with the prior owner, to determine the nature and extent of the
contamination. Due to the early stages of investigation, management cannot offer
any conclusions as to whether any remediation will be required at this site. In
addition, in 1997, contamination from scrapped meters and regulators was
discovered at this
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site. The Registrant has reported this to the DEM and the Rhode Island
Department of Health and is in the process of remediation. It is anticipated
that remediation will cost between $50,000 and $100,000. Accordingly, the
Registrant has accrued $50,000 at September 30, 1997 for anticipated future
remediation costs.
In prior rate cases filed, the Registrant requested that environmental
investigation and remediation costs be recovered by inclusion in its
depreciation factors consistent with the rate recovery treatment for all types
of cost of removal. Accordingly, environmental investigation costs of
approximately $2.3 million and an estimated $1.7 million for environmental
remediation costs have been charged to the accumulated depreciation reserve at
September 30, 1997. Of the environmental investigation costs incurred,
approximately $0.9 million and $1.0 million were recorded in the years ended
September 30, 1997 and 1996, respectively, while the remainder were incurred in
prior years.
Due to the materiality of the Registrant's environmental investigation and
remediation expenditures, the Registrant sought new treatment of these amounts.
As a result, in accordance with the Price Stabilization Plan Settlement
Agreement described in "Rates and Regulation", which is effective October 1,
--------------------
1997, all environmental investigation and remediation costs incurred through
September 30, 1997, as well as all costs incurred during the three-year term of
the Plan, will be amortized over a ten-year period. Additionally, it is the
Registrant's practice to consult with the RIPUC on a periodic basis when, in
management's opinion, significant amounts might be expended for environmental-
related costs.
Management has begun discussions with other parties who may assist the
Registrant in paying any future costs at the above sites. Management believes
that its program for managing environmental issues, combined with rate recovery
and financial contributions from others, will likely avoid any material adverse
effect on its results of operations or its financial condition as a result of
the ultimate resolution of the above sites.
Other Standards
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The Registrant is also subject to standards prescribed by the Secretary of
Transportation under the Natural Gas Pipeline Safety Act of 1968 with respect to
the design, installation, testing, construction and maintenance of pipeline
facilities. The enforcement of these standards has been delegated to the RIPUC
and management believes that the Registrant is in substantial compliance with
all present requirements imposed by such agency.
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ITEM 2. PROPERTIES
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In addition to the Registrant's gas distribution system and storage
facilities, which constitute the principal properties of the Registrant, the
Registrant owns several buildings and other facilities in Newport, Providence
and Westerly that house its offices and provide floor space for its distribution
and maintenance facilities.
Substantially all the foregoing properties are mortgaged as collateral for the
outstanding First Mortgage bonds of the Registrant.
ITEM 3. LEGAL PROCEEDINGS
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The Registrant is involved in legal and administrative proceedings in the
normal course of business, including certain proceedings involving material
amounts in which claims have been or may be made. However, management believes,
after review of insurance coverage and consultation with legal counsel, that the
ultimate resolution of the legal proceedings to which it is or can at the
present time be reasonably expected to be a party, will not have a materially
adverse effect on the Registrant's results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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Not applicable.
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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
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MATTERS
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Not applicable. The Registrant is a wholly-owned subsidiary of Providence
Energy Corporation.
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ITEM 6. SELECTED FINANCIAL DATA
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THE PROVIDENCE GAS COMPANY
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SELECTED FINANCIAL DATA
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SUMMARY OF OPERATIONS
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FOR THE YEARS ENDED SEPTEMBER 30
--------------------------------
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(Thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating revenues $210,673 $210,601 $180,043 $219,143 $206,050
Cost of gas sold 117,357 118,051 98,985 133,315 124,677
-------- -------- -------- -------- --------
Operating margin 93,316 92,550 81,058 85,828 81,373
-------- -------- -------- -------- --------
Operating expenses,
excluding taxes 59,540 59,673 53,536 54,588 51,754
Taxes, other than income 13,456 12,831 11,597 12,413 12,468
Federal income taxes 4,489 4,418 3,027 4,369 3,507
-------- -------- -------- -------- --------
Total operating expenses 77,485 76,922 68,160 71,370 67,729
-------- -------- -------- -------- --------
Operating income 15,831 15,628 12,898 14,458 13,644
Other, net 371 976 798 409 (3)
-------- -------- -------- -------- --------
Income before interest
expense 16,202 16,604 13,696 14,867 13,641
Interest expense 7,431 7,294 7,181 6,121 6,546
-------- -------- -------- -------- --------
Net income 8,771 9,310 6,515 8,746 7,095
Dividends on preferred stock (626) (696) (696) (696) (696)
-------- -------- -------- -------- --------
Net income applicable to
common stock 8,145 8,614 5,819 8,050 6,399
Common dividends 4,777 4,627 4,577 4,501 4,427
-------- -------- -------- -------- --------
Income reinvested in
the corporation $ 3,368 $ 3,987 $ 1,242 $ 3,549 $ 1,972
======== ======== ======== ======== ========
Weighted average common
shares outstanding 1,243.6 1,243.6 1,243.6 1,243.6 1,243.6
======== ======== ======== ======== ========
Earnings per common share $ 6.55 $ 6.93 $ 4.68 $ 6.47 $ 5.15
======== ======== ======== ======== ========
Common dividends $ 3.84 $ 3.72 $ 3.68 $ 3.62 $ 3.56
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
OTHER FINANCIAL DATA
--------------------
SEPTEMBER 30
------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Gas plant-at original cost $290,614 $270,149 $253,438 $230,926 $213,218
Gas plant-net of depreciation 181,979 171,453 161,956 151,394 141,929
Total assets 242,143 237,515 214,727 221,177 141,868
Capitalization:
Long-term debt 72,372 72,455 74,482 60,078 62,163
Redeemable cumulative
preferred stock 6,400 8,000 8,000 8,000 8,000
Common Stockholder's
investment 78,240 74,844 71,020 69,841 64,861
Shares of common stock at
year-end 1,243.6 1,243.6 1,243.6 1,243.6 1,243.6
Book value per share $ 62.91 $ 60.18 $ 57.11 $ 56.16 $ 52.16
======== ======== ======== ======== ========
</TABLE>
II-2
<PAGE>
Item 7
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Summary
- -------
The Registrant's current operating revenues and operating margin have increased
over last year while net income has decreased, as shown in the table below:
<TABLE>
<CAPTION>
(000's)
Percent
1997 1996 Change Change
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Operating revenues $210,673 $210,601 $ 72 0.0
Operating margin 93,316 92,550 766 0.8
Net income 8,771 9,310 (539) (5.8)
</TABLE>
RESULTS OF OPERATIONS - 1997 VS 1996
Operating Revenue and Operating Margin
- --------------------------------------
During the current year, the Registrant experienced normal weather as opposed to
colder-than-normal weather in 1996, which resulted in 1997 temperatures that
were 5.2 percent warmer than 1996. The decrease in heating load due to the
warmer temperatures resulted in decreased margin of approximately $1.7 million,
which was offset by increased margin of $0.7 million as a result of load growth
and an increase in the customer base of 1,601 or 1.0 percent. Primarily as a
result of the warmer temperatures experienced in 1997, residential sales
decreased 565 million cubic feet (MMcf) or 4.0 percent. The Registrant's
commercial and industrial firm sales decreased approximately 1,598 MMcf, or 16.9
percent as a result of warmer weather and customer migrations from sales service
to transportation service in connection with unbundling natural gas service in
Rhode Island. In 1996, approximately 120 of the largest commercial and
industrial customers were eligible for unbundled service offerings. In December
1997, an additional 3,400 large and medium commercial and industrial customers
are eligible. This migration of customers to transportation does not have a
material effect on margin.
The decrease due to weather was also offset by increases in margin of $0.8
million as a result of the rate increase effective December 17, 1995 and $0.4
million as the result of an increase in revenues associated with the phase-in of
post-retirement expenses related to Statement of Financial Accounting Standards
(SFAS) No. 106. The remaining increase in margin was due to improved operating
efficiencies in the tracking and delivery of gas.
Interruptible and other volumes remained consistent with last year. Operating
margin from interruptible and other sales did not affect the Registrant's
operating margin or results of operations because the Rhode Island Public
Utilities Commission (RIPUC) required the Registrant to return any margins
earned from these non-firm customers to firm customers through the Gas Charge
Clause (GCC). Beginning October 1, 1997, under the Price Stabilization Plan
Agreement discussed in Note 9 to the accompanying financial statements, the
Registrant will retain all margins
II-3
<PAGE>
earned from these non-firm sales.
The Registrant's transportation volumes increased approximately 1,345 MMcf as
the result of the unbundling process described above. As the deregulation
process continues, the Registrant expects transportation revenues and volumes
will continue to increase as customers migrate from sales to transportation.
Operating and Maintenance Expenses
- ----------------------------------
Overall, operating and maintenance expenses have decreased approximately $1.0
million, or 2.0 percent, versus last year. The Registrant has a $0.8 million
decrease in outside services due to expenditures made in the prior year to
develop new energy service offerings as well as expenses related to the
Integrated Resource Plan (IRP). This decrease was offset by an increase in the
Registrant's labor of $0.8 million related to cost of living and negotiated
union contract increases. This increase in labor was offset by an increase in
capitalized labor and administrative expenses of $0.7 million. This increase was
the result of increased capital projects in 1997 as well as an increase in
expenses allocated to capital projects. The Registrant also incurred increased
post-retirement benefit expenses of $0.3 million as the result of the continued
phasing of these expenses into the Registrant's rates in 1997. The remaining
decrease of $0.6 million relates primarily to cost controls instituted by the
Registrant.
The Registrant continually reviews its operating expenses in order to keep
expenses as low as possible. However, the Registrant's expenses will vary based
on weather and other factors.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization expense increased approximately $0.8 million, or
7.3 percent, primarily as the result of increased capital additions, including
technology related assets with shorter depreciable lives as well as an increase
in depreciation rates that became effective with the rate increase on December
17,1995.
Taxes
- -----
Taxes have increased approximately $0.7 million, or 4.0 percent, primarily as a
result of increased property taxes due to increased capital spending as well as
increased property tax rates in 1997.
Other, net
- ----------
Other, net decreased approximately $0.6 million. The decrease was primarily due
to regulatory changes of $0.9 million in 1996 as the result of the rate decision
effective December 17, 1995 offset by increases in the allowance for funds used
during construction of $0.2 million as the result of increased capital spending.
Interest Expense
- ----------------
Interest expense for 1997 was stable when compared to 1996. Interest expense
increased approximately $0.2 million primarily as the result of an increase in
interest on long-term debt due to the issuance of Series R
II-4
<PAGE>
bonds in December of 1995.
RESULTS OF OPERATIONS - 1996 VS 1995
Operating Revenue and Operating Margin
- --------------------------------------
During 1996, the Registrant has experienced colder-than-normal weather resulting
in temperatures averaging 16.8% colder than 1995. The increase in heating load
due to the colder temperatures represented approximately $5.7 million in
increased operating margin. As a result of the colder temperatures experienced
during 1996, residential sales, which provide the Registrant with its greatest
source of revenues, increased 1,687 million cubic feet (MMcf), or 13.5% over
1995. Also contributing to the increase was a net increase in the average annual
number of customers during 1996 over 1995 of 1,643 or 1%. This increase
contributed approximately $300,000 of operating margin.
Additionally, the Rhode Island Public Utilities Commission (RIPUC) approved a
rate increase effective December 17, 1995. Operating margin for 1996 increased
approximately $3.2 million versus 1995 as a result of the rate increase. As a
result of the RIPUC's approval in February 1996 of the Integrated Resource
Plan's (IRP) performance-based ratemaking mechanism, the Registrant recorded an
increase in operating margin of $1.5 million in 1996 as a result of gas cost
savings achieved for the twelve-month plan period which ended June 1996. These
savings were somewhat offset by a one-time charge to operating and maintenance
expenses of $800,000 to fund a low income assistance program as discussed below.
The IRP settlement agreement covers a three-year period. The Registrant's
ability to record up to $1.5 million in operating margin annually is dependent
upon achieving certain levels of gas cost savings for each plan year. Also see
Liquidity and Capital Resource discussion.
Interruptible and other volumes decreased approximately 2,300 MMcf versus 1995,
primarily as a result of a decrease in non-firm sales of approximately 1,200
MMcf and a decrease in sales for resale of approximately 1,300 MMcf. These
decreases were offset by an increase in special contracts of approximately 200
MMcf. The decrease in interruptible and other sales did not have an impact on
the Registrant's operating margin or results of operations because the RIPUC
requires the Registrant to return any margins earned from these non-firm
customers to firm customers through the Gas Charge Clauses(GCC).
In addition, the Registrant's operating margin increased approximately $200,000
due to an increase in revenues to account for the phase-in of expenses
associated with Statement of Financial Accounting Standards (SFAS) No. 106.
Operating and Maintenance Expenses
- ----------------------------------
Overall, operating and maintenance expenses have increased approximately $4.6
million or 10.6% versus 1995. The Registrant had an increase of $1.1 million in
its uncollectible revenue provision due to the increased operating revenues
resulting from the colder-than-normal weather experienced during the year. As a
result of the Registrant's improved earnings, performance incentive compensation
expense increased approximately $700,000 in 1996 versus 1995. Also, there were
increased wage expenses of approximately $800,000 related to performance, cost
of
II-5
<PAGE>
living and negotiated union contract increases, as well as overtime pay due to
the colder-than-normal weather. Additionally, in connection with the RIPUC's
approval of the IRP in February 1996, the Registrant had a one-time charge of
$800,000 to fund a low income assistance program, as well as $100,000 of costs
associated with the regulatory proceeding. Finally, approximately $200,000 of
expenses relating to the phase-in of SFAS No. 106 costs were incurred, as well
as expenses of approximately $600,000 for outside services associated with the
development of new energy service offerings. The remaining $300,000 is
attributable to increases in general operating costs.
The Registrant continually reviews its operating expenses in order to keep
expenses as low as possible. However, the Registrant's expenses will vary based
on weather and other factors.
Taxes
- -----
Taxes have increased approximately $2.6 million, or 17.9%, during 1996. The
increase in taxes, mainly Federal income and state gross earnings tax, resulted
from higher pretax income and higher operating revenues, respectively.
Interest Expense
- ----------------
Overall, interest expense for 1996 was stable when compared to 1995. A decrease
in weighted average short-term borrowings caused short-term interest expense to
decrease approximately $700,000 for the current year. The Registrant's long-term
interest expense for the current year has increased approximately $800,000 as a
result of the Series R First Mortgage Bond issuance in December 1995.
Future Outlook
- --------------
In August 1997, the RIPUC approved the Price Stabilization Plan Settlement
Agreement (the Plan or Energize R.I.) among the Registrant, the Rhode Island
Division of Public Utilities and Carriers (the Division), The Energy Council of
Rhode Island (TEC-RI) and the George Wiley Center. Effective October 1, 1997
through September 30, 2000, Energize R.I. provides customers with an initial
price decrease of approximately four percent and a three-year price freeze.
Under Energize R.I., the GCC will be suspended for the entire term. Any excess
or deficiency between amounts billed and actual gas costs incurred will be
retained or borne by the Registrant. Energize R.I. also requires the Registrant
to make significant capital investments to improve its distribution system.
Capital investments required by Energize R.I. are estimated to total
approximately $26 million over its three-year term. Similar to the Integrated
Resource Plan approved by the RIPUC in February 1996, which is superseded by
Energize R.I., the Registrant is required to fund the Demand Side Management
Rebate Assistance Program and the Low Income Weatherization Program at annual
levels of $.5 million and $.2 million, respectively. In addition, Energize R.I.
calls for the Registrant to fund the Low Income Assistance Program at an annual
level of $1.0 million. Energize R.I. also continues the process of unbundling
by requiring the Registrant to provide unbundled service offerings up to 10
percent per year of firm system throughput.
As part of Energize R.I., the Registrant will amortize approximately $4.0
II-6
<PAGE>
million of environmental costs previously charged to the accumulated
depreciation reserve over a ten-year period. All environmental costs incurred
during the term of Energize R.I. will also be amortized over a ten-year period.
Under Energize R.I. the Registrant may earn up to 10.9 percent annually on its
average common equity of up to $81.0 million, $86.2 million and $92.0 million in
fiscal 1998, 1999 and 2000, respectively. In addition the Registrant may not
earn less than a 7 percent return on common equity. In the event that the
Registrant earns in excess of 10.9 percent or less than 7 percent, the
Registrant will defer revenues or costs through a deferred revenue account. Any
balance in the deferred revenue account at the end of the Plan will be refunded
to or recovered from customers in a manner to be determined by all parties and
approved by RIPUC.
In May 1996, the RIPUC approved a Rate Design Settlement Agreement among the
Registrant, the Division, TEC-RI and a consortium of oil-heat organizations.
The Agreement begins a process of unbundling natural gas service in Rhode Island
enabling customers to choose their gas suppliers. The Agreement went into effect
June 2, 1996. This initial step was available to approximately 120 of the
largest commercial and industrial customers. In August 1997, the RIPUC approved
a plan, Business Choice, to further expand the availability of unbundled
services to an additional 3,400 medium and large commercial and industrial
customers. The Registrant plans to commence Business Choice in December 1997.
As described in Note 1 to the consolidated financial statements, the Registrant
complies with the provisions of Statement of Financial Accounting Standards No.
71, "Accounting for the Effects of Certain Types of Regulation" (SFAS No. 71).
In the event the Registrant determines that it no longer meets the criteria for
following SFAS No. 71, the accounting impact would be an extraordinary, noncash
charge to operations of an amount that could be material.
Criteria that give rise to the discontinuance of SAFS No. 71 include: (1)
increasing competition that restricts the Registrant's ability to establish
prices to recover specific costs and (2) a significant change in the manner in
which rates are set by regulators from cost-based regulation to another form of
regulation. The Registrant periodically reviews these criteria to ensure the
continuing application of SFAS No. 71 is appropriate. Based on a current
evaluation of the various factors and conditions that are expected to impact
future cost recovery, the Registrant believes that its regulatory assets are
probable of future recovery.
In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, "Earnings per Share", effective for financial statements issued for
periods ending after December 15, 1997. SFAS No. 128 replaces the presentation
of primary earnings per share with the presentation of basic earnings per share
on the face of the income statement. Basic earnings excludes dilution and is
calculated by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Earnings per share
calculated under SFAS no. 128 would have been unchanged for the periods
presented.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
II-7
<PAGE>
Income" and No. 131, "Disclosures about Segments of an Enterprise and Related
Information". SFAS No. 130, which is effective for fiscal years beginning after
December 15, 1997, requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 131, which is effective for financial statements
for periods beginning after December 15, 1997, requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. These statements require additional disclosure only and
will not affect the financial position or results of operations of the
Registrant.
Effective October 1, 1997, the Registrant will adopt the provisions of Statement
of Position (SOP) 96-1, "Environmental Remediation Liabilities". This Statement
provides authoritative guidance for recognition, measurement, display and
disclosure of environmental remediation liabilities in financial statements.
The Registrant has recorded environmental remediation liabilities of
approximately $1.7 million at September 30, 1997. SOP 96-1 is not expected to
have a material impact on the Registrant's financial position or results of
operations upon adoption.
Liquidity and Capital Resources
- -------------------------------
During 1997, the Registrant experienced a substantial increase in its net cash
provided by operations primarily due to a decrease in deferred gas costs as the
result of the timing of the recovery of incurred gas costs through the GCC, as
discussed in Note 1 of the accompanying financial statements. This increase was
offset by a decrease in cash flow due to increased inventories of approximately
$2.2 million. On October 1, 1997, these inventories will be transferred at book
value to Duke Energy Trading and Marketing, L.L.C. (DETM) under the terms of the
Registrant's new gas supply contract described in Note 7 to the accompanying
consolidated financial statements.
Capital expenditures for 1997 of $20.2 million, which includes $2.4 million of
equipment financed through long-term debt and capital leases, were stable when
compared to 1996 capital expenditures of $20.3 million. As a result of Energize
R.I. discussed in Note 9 to the accompanying financial statements, the
Registrant is committed to making significant capital improvements to its
distribution system during its three-year term. These improvements will be made
by expanding the distribution system into economically developed areas of Rhode
Island as well as accelerating the replacement of mains and services. The
Registrant anticipated its capital expenditures over the next three years to
total approximately $75 million.
During 1997, the Registrant entered into notes with five-year maturities in the
amount of $3.3 million in order to finance capital expenditures. The notes have
interest rates ranging from 4.9 to 7.5 percent. The Registrant meets seasonal
cash requirements and finances its capital expenditures on an interim basis
through short-term borrowings. As of September 30, 1997, the Registrant had
lines of credit totaling $53.0 million with borrowings outstanding of $20.4
million.
II-8
<PAGE>
The Registrant, like most owners of computer software, will be required to
modify or replace significant portions of its software so that it will function
properly in the year 2000. The Registrant has performed a Year 2000 impact
assessment and is currently pursuing viable options, including renovation and
replacement of existing systems, to ensure that its computer software
applications and hardware will be Year 2000 compliant.
In February 1997, the Registrant redeemed 16,000 shares of its preferred stock
at the par value totaling $1.6 million in accordance with the annual sinking
fund requirement.
During the next two years, the Registrant intends to make a debt offering of $15
million to finance its capital expenditures and energy service offerings.
The Registrant's parent company's ability to pay dividends is largely dependent
upon receipt of dividends from the Registrant. Approximately $19 million of the
Registrant's retained earnings were available for dividends at the end of fiscal
1997 under the most restrictive terms of the Registrant's First Mortgage Bond
Indenture.
In August 1997, the RIPUC approved Energize R.I., which provides customers with
an initial price decrease of approximately four percent and a three-year price
freeze.
In addition, Energize R.I. suspends the GCC, which results in the Registrant
retaining or bearing any excess or deficiency between gas costs billed and gas
costs incurred. Energize R.I. requires the Registrant to make significant
capital investments to improve its distribution system. Capital investments
required by Energize R.I. are expected to total $26 million during its term.
Energize R.I. also requires the Registrant to provide funding of the Low-Income
Assistance Program, the DSM Rebate Program, and the Low-Income Weatherization
Program at an annual level of $1 million, $0.5 million, and $0.2 million,
respectively.
Under Energize R.I., the Registrant is allowed to earn a 10.9 percent return an
average common equity of up to $81.0 million, $86.2 million, and $92.0 million
in fiscal 1998, 1999, and 2000, respectively.
As a result of Energize R.I., the three-year Settlement Agreement regarding the
IRP approved by the RIPUC in February 1996 was terminated. The Settlement
Agreement called for (1) $0.5 million of annual funding associated with the DSM
Rebate Program; (2) $0.2 million of annual funding associated with a Low-Income
Weatherization Program; and (3) a performance-based ratemaking mechanism. In
1997 and 1996, the Registrant was able to record its annual share of the
performance-based ratemaking mechanism under this agreement which resulted in
$1.5 million of operating margin in each of those years.
The savings to fund the rate decrease and freeze under Energize R.I. were
generated by ongoing cost control initiatives and a full requirements contract
with DETM. Under the contract, which runs from October 1, 1997 through September
30, 2000, supplies required by the Registrant's firm sales customers will be
purchased at a single, fixed commodity price for
II-9
<PAGE>
the entire contract period.
In order to provide this service, DETM will take responsibility for the
Registrant's pipeline capacity resources, storage contracts, and liquefied
natural gas capacity. Under the contract, DETM will provide all gas supplies
required by the Registrant while the Registrant must purchase all supplies
exclusively from DETM. All non-firm gas supply will be provided at market
prices.
II-10
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
<TABLE>
<CAPTION>
THE PROVIDENCE GAS COMPANY
--------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
SEPTEMBER 30
------------
1997 1996
---- ----
(Thousands of Dollars)
ASSETS
------
<S> <C> <C>
Gas plant, at original cost (notes 1, 4, 7, and 10) $290,614 $270,149
Less - Accumulated depreciation and utility plant
acquisition adjustments 108,478 98,563
-------- --------
182,136 171,586
-------- --------
Current assets:
Cash and temporary cash investments (notes 1 and 8) 778 923
Accounts receivable, less allowance of $1,739 in 1997
and $2,983 in 1996 (notes 1, 3 and 7) 13,120 14,001
Unbilled revenues (note 1) 2,658 2,333
Deferred gas costs (notes 1 and 7) 7,151 13,128
Inventories, at average cost -
Liquefied natural gas, propane and underground storage 18,001 15,794
Materials and supplies 1,166 1,151
Prepaid and refundable taxes (note 2) 3,293 3,215
Prepayments 966 1,465
-------- --------
47,133 52,010
-------- --------
Deferred charges and other assets
(notes 1, 3, 6, 7, 9 and 10) 12,874 13,919
-------- --------
Total assets $242,143 $237,515
======== ========
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization (see accompanying statement) $157,012 $155,299
-------- --------
Current liabilities:
Notes payable (notes 5 and 8) 20,410 20,800
Current portion of long-term debt (note 4) 3,707 2,023
Accounts payable (notes 6 and 7) 16,114 16,480
Accrued taxes (note 10) 2,529 1,867
Accrued vacation 1,658 1,673
Customer deposits 3,430 3,956
Other 4,639 5,036
-------- --------
52,487 51,835
-------- --------
Deferred credits and reserves:
Accumulated deferred Federal income taxes (note 2) 20,598 19,903
Unamortized investment tax credits (note 2) 2,354 2,510
Other (notes 6, 7 and 10) 9,692 7,968
-------- --------
32,644 30,381
-------- --------
Commitments and contingencies (note 7) - -
Total capitalization and liabilities $242,143 $237,515
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
II-11
<PAGE>
THE PROVIDENCE GAS COMPANY
--------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE FISCAL YEARS ENDED
--------------------------
SEPTEMBER 30
------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(Thousands, except per share amounts)
<S> <C> <C> <C>
Operating revenues $210,673 $210,601 $180,043
Cost of gas sold 117,357 118,051 98,985
-------- -------- --------
Operating margin 93,316 92,550 81,058
-------- -------- --------
Operating expenses:
Operation and maintenance 47,135 48,116 43,486
Depreciation and amortization 12,405 11,557 10,050
Taxes -
State gross earnings 6,023 6,061 5,005
Local property and other 7,433 6,770 6,592
Federal income (note 2) 4,489 4,418 3,027
-------- -------- --------
Total operating expenses 77,485 76,922 68,160
-------- -------- --------
Operating income 15,831 15,628 12,898
Other, net (notes 1 and 10) 371 976 798
-------- -------- --------
Income before interest expense 16,202 16,604 13,696
-------- -------- --------
Interest expense:
Long-term debt 6,042 5,889 5,086
Other 1,609 1,498 2,197
Interest capitalized (220) (93) (102)
-------- -------- --------
7,431 7,294 7,181
-------- -------- --------
Net income 8,771 9,310 6,515
Preferred dividends (note 4) (626) (696) (696)
-------- -------- --------
Net income applicable to common stock $ 8,145 $ 8,614 $ 5,819
======== ======== ========
Earnings per common share (note 13) $ 6.55 $ 6.93 $ 4.68
======== ======== ========
Weighted average common shares outstanding
(note 13) 1,243.6 1,243.6 1,243.6
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
II-12
<PAGE>
THE PROVIDENCE GAS COMPANY
--------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE FISCAL YEARS ENDED SEPTEMBER 30
---------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(Thousands of Dollars)
Cash provided by (used for)
Operating Activities:
- --------------------
<S> <C> <C> <C>
Net income $ 8,771 $ 9,310 $ 6,515
Items not requiring cash:
Depreciation and amortization 12,533 11,686 10,026
Charges as a result of regulatory action - (1,453) -
Deferred Federal income taxes 622 1,968 2,010
Amortization of investment tax credits (156) (158) (158)
Changes in assets and liabilities which provided (used) cash:
Accounts receivable 881 (194) 3,857
Unbilled revenues (325) 304 240
Deferred gas costs 5,977 (11,932) 14,153
Inventories (2,222) (5,542) 1,310
Prepaid and refundable taxes (186) 2,064 (869)
Prepayments 499 (137) 130
Accounts payable (366) 2,584 (4,143)
Accrued taxes 662 62 (194)
Accrued vacation, customer deposits and other (938) 1,494 569
Deferred charges and other 2,529 1,236 (1,658)
-------- -------- --------
Net cash provided by operations 28,281 11,292 31,788
-------- -------- --------
Investment activities:
- ---------------------------
Expenditures for property, plant and equipment, net (20,214) (20,346) (19,124)
-------- -------- --------
Financing activities:
- --------------------
Issuance of mortgage bonds - 15,000 -
Redemption of preferred stock (1,600) - -
Issuance of long-term debt 1,345 - -
Payments on long-term debt (2,164) (1,954) (2,081)
Increase (decrease) in notes payable, net (390) 1,463 (5,363)
Cash dividends on preferred shares (note 4) (626) (696) (696)
Cash dividends on common shares (4,777) (4,627) (4,577)
-------- -------- --------
Total (8,212) 9,186 (12,717)
-------- -------- --------
Increase (decrease) in cash and cash equivalents (145) 132 (53)
Cash and cash equivalents at beginning of year 923 791 844
-------- -------- --------
Cash and cash equivalents at end of year $ 778 $ 923 $ 791
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for -
Interest (net of amount capitalized) $ 7,305 $ 6,561 $ 6,456
Income taxes (net of refunds) $ 2,215 $ 2,367 $ 1,414
Schedule of noncash investing activities
Capital lease obligations for equipment $ 437 $ - $ -
Other long-term debt for equipment $ 1,983 $ - $ -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
II-13
<PAGE>
THE PROVIDENCE GAS COMPANY
--------------------------
CONSOLIDATED STATEMENTS OF CAPITALIZATION
-----------------------------------------
SEPTEMBER 30
------------
<TABLE>
<CAPTION>
1997 1996
---- ----
(Thousands of Dollars)
<S> <C> <C>
Stockholder's investment: (notes 4 and 6)
Common stock, $1 Par, Authorized - 2,500,000 shares
Outstanding - 1,243,598 shares in 1997 and 1996 $ 1,244 $ 1,244
Amount paid in excess of par 37,685 37,657
Retained earnings 39,311 35,943
-------- --------
78,240 74,844
-------- --------
Cumulative preferred stock (notes 4 and 8):
Redeemable 8.7% series, $100 par
Authorized - 80,000 shares
Outstanding - 64,000 shares in 1997 and
80,000 shares in 1996 6,400 8,000
-------- --------
Long-term debt (notes 4, 7 and 8):
First Mortgage Bonds, secured by utility property -
Series M, 10.25%, due July 31, 2008 10,000 10,000
Series N, 9.63%, due May 30, 2020 10,000 10,000
Series O, 8.46%, due September 30, 2022 12,500 12,500
Series P, 8.09%, due September 30, 2022 12,500 12,500
Series Q, 5.62%, due November 30, 2003 11,200 12,800
Series R, 7.50%, due December 15, 2025 15,000 15,000
Other long-term debt 3,207 -
Capital Leases 1,672 1,678
-------- --------
76,079 74,478
Less-current portion 3,707 2,023
-------- --------
72,372 72,455
-------- --------
Total capitalization $157,012 $155,299
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
II-14
<PAGE>
THE PROVIDENCE GAS COMPANY
--------------------------
CONSOLIDATED STATEMENTS OF CHANGES
----------------------------------
IN COMMON STOCKHOLDER'S INVESTMENT
----------------------------------
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1997
--------------------------------------------
<TABLE>
<CAPTION>
Shares Amount
Issued and Outstanding Paid in
---------------------- Excess Retained
Number Amount of Par Earnings
-------------------------------------------
(Thousands)
<S> <C> <C> <C> <C>
Balance, September 30, 1994 1,244 $1,244 $37,883 $30,714
Add (deduct):
Net income - - - 6,515
Cash dividends on common shares
($3.68 per share) - - - (4,577)
Cash dividends on preferred
shares ($8.70 per share) - - - (696)
Accrual for stock
compensation plans - - (87) -
Amortization of deferred
compensation - - 24 -
------- ------- ------- -------
Balance, September 30, 1995 1,244 1,244 37,820 31,956
Add (deduct):
Net income - - - 9,310
Cash dividends on common shares
($3.72 per share) - - - (4,627)
Cash dividends on preferred
shares ($8.70 per share) - - - (696)
Accrual for stock
compensation plans - - (227) -
Amortization of deferred
compensation - - 64 -
------- ------- ------- -------
Balance, September 30, 1996 1,244 1,244 37,657 35,943
Add (deduct):
Net income - - - 8,771
Cash dividends on common shares
($3.84 per share) - - - (4,777)
Cash dividends on preferred
shares ($8.70 per share) - - - (626)
Accrual for stock
compensation plans - - (110) -
Amortization of deferred
compensation - - 138 -
------- ------- ------- -------
Balance, September 30, 1997 1,244 $ 1,244 $37,685 $39,311
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
II-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.SIGNIFICANT ACCOUNTING POLICIES
Consolidation. The consolidated financial statements include the accounts of
The Providence Gas Company and its wholly-owned subsidiary (the Registrant or
ProvGas). Revenues from the natural gas distribution business are reflected in
the accompanying consolidated statements of income to arrive at operating
income. Results of nonutility operations are presented after operating income in
the accompanying consolidated statements of income. All significant intercompany
transactions have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements. The preparation
of financial statements in conformity with Generally Accepted Accounting
Principles (GAAP) requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Regulation. The Registrant is subject to regulation by the Rhode Island
Public Utilities Commission (RIPUC). The accounting policies of ProvGas conform
to GAAP as applied in the case of regulated public utilities and are in
accordance with the regulator's accounting requirements and rate making
practices.
Operating Revenues. Operating revenues consist principally of gas sales. The
Registrant records accrued utility revenues based on estimates of gas volumes
consumed and not billed at the end of an accounting period in order to match
revenues with related costs.
Lease Accounting. The Registrant leases water heaters and other appliances to
customers under finance leases. These leases are recorded on the accompanying
balance sheet at the gross investment in the leases less unearned income.
Unearned income is recognized in such a manner as to produce a constant periodic
rate of return on the net investment in the finance leases.
Gas Plant. Gas plant is stated at the original cost of construction. In
accordance with the uniform system of accounts prescribed by the RIPUC, the
difference between the original cost of gas plant acquired and the cost to
ProvGas is recorded as a Utility Plant Acquisition Adjustment and is being
amortized over periods ranging from 1 to 24 years.
Impairment of Long-Lived Assets. Statement of Financial Accounting Standards
No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of", which became effective for the
Registrant in 1997, established accounting standards for the impairment of long-
lived assets. SFAS No. 121 also required that regulatory assets which
II-16
<PAGE>
are no longer probable of recovery through future revenues be charged to
earnings. SFAS No. 121 did not have an impact on the Registrant's financial
position or results of operations upon adoption.
Depreciation. Depreciation is provided on the straight-line basis at rates
designed to amortize the cost of depreciable plant over its estimated useful
life. The composite depreciation rate expressed as a percentage of the average
depreciable gas plant in service was approximately 3.85 percent for 1997 and
1996 and 3.75 percent for 1995 and 1994.
The Registrant retires property units by charging original cost, cost of
removal, including environmental investigation and remediation costs, and
salvage value to accumulated depreciation.
Gas Charge Clause. In May 1996, the RIPUC approved a Rate Design Settlement
Agreement. The Agreement included changes to the Registrant's gas cost recovery
mechanism. Specifically, the Agreement replaced the previous Cost of Gas
Adjustment Clause (CGA) with Gas Charge Clauses (GCC) effective June 2, 1996.
In addition to the commodity and related pipeline transportation costs
historically included in the CGA, the GCC provides for the recovery of: (1)
inventory financing costs; (2) working capital associated with gas supply
purchases; (3) bad debt expenses associated with the gas revenue portion of
customer bills; and (4) a substantial portion of liquefied natural gas operating
and maintenance expenses, all of which were previously recovered in base rates.
Similar to the former CGA, the GCC provides for reconciliation of total gas
costs billed with the actual cost of gas incurred. Any excess or deficiency in
amounts billed as compared to costs incurred is deferred and either refunded to,
or recovered from, customers over a subsequent period.
As a result of the Price Stabilization Plan described in Note 9, the GCC will
be suspended for the period of October 1, 1997 through September 30, 2000. Any
excess or deficiency in amounts billed as compared to costs incurred, will be
retained or borne by the Registrant.
Allowance for Funds Used During Construction. The Registrant capitalizes
interest and an allowance for equity funds in accordance with established
policies of the RIPUC. The rates used are based on the actual cost of debt and
the allowed equity return. Interest capitalized is shown as a reduction of
interest expense and the equity allowance is included in other, net.
Deferred Charges and Other Assets. The Registrant defers and amortizes
certain costs in a manner consistent with authorized or probable rate making
treatment. Deferred financing costs are amortized over the life of the security
while the remaining deferred charges and other assets are amortized over a
recovery period specified by the RIPUC.
Deferred Charges include the following:
- --------------------------------------
<TABLE>
<CAPTION>
(thousands)
1997 1996
-------- --------
<S> <C>
</TABLE>
II-17
<PAGE>
<TABLE>
<S> <C> <C>
Cost of fuel assistance program $ 808 $ 1,271
Pension costs 7,272 6,823
Unamortized debt expense 1,901 2,109
Post-retirement benefits 691 1,041
Deferred rate case expense 164 242
Pipeline interconnection costs - 309
Other deferred charges 2,038 2,124
------- -------
Total $12,874 $13,919
======= =======
</TABLE>
Temporary Cash Investments. Temporary cash investments are short-term, highly
liquid investments with original maturities to the Registrant of not more than
90 days.
Reclassifications. Certain prior year amounts have been reclassified for
consistent presentation with the current year.
2. FEDERAL INCOME TAXES
The Registrant records income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", which
requires deferred taxes to be provided for all temporary differences.
The following is a summary of the provision for Federal income taxes for the
three years ended September 30:
<TABLE>
<CAPTION>
(thousands of dollars) 1997 1996 1995
- ------------------------------------------------------------
<S> <C> <C> <C>
Current $ 3,898 $ 2,821 $ 1,288
Deferred 622 1,968 2,010
------- ------- -------
Total Federal income tax
provision $ 4,520 $ 4,789 $ 3,298
======= ======= =======
Income tax is charged to the
following:
Charged to operating expenses $ 4,489 $ 4,418 $ 3,027
Included in other, net 31 371 271
------- ------- -------
Total Federal income tax
provision $ 4,520 $ 4,789 $ 3,298
======= ======= =======
</TABLE>
The effective Federal income tax rates and the reasons for their differences
from the statutory Federal income tax rates are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory Federal income tax rates 34.0% 34.0% 34.0%
Reversing temporary differences (.2) .3 (.1)
Amortization of investment tax credits (.4) (.4) (.6)
Other .6 .1 .3
---- ---- ----
Effective Federal income tax rate 34.0% 34.0% 33.6%
==== ==== ====
</TABLE>
II-18
<PAGE>
The Registrant's deferred tax assets and liabilities for each of the two
years in the period ended September 30 are the result of the following temporary
differences:
<TABLE>
<CAPTION>
1997 1996
---- ----
(thousands of dollars)
<S> <C> <C>
Long-term deferred taxes
- ------------------------
Tax assets
Unamortized ITC $ 828 $ 883
Other 316 370
Tax liabilities
Property related (20,942) (19,527)
Pension costs (222) (519)
Deferred charges (578) (1,110)
-------- --------
Net deferred tax liability included in
accompanying consolidated balance
sheets $(20,598) $(19,903)
======== ========
Prepaid taxes
- -------------
Tax assets
Accounts receivable reserves $ 424 $ 1,255
Property tax reserves (245) (400)
Alternative minimum tax 672 876
Other 787 822
Tax liabilities
Employee severance 56 56
Other (111) (79)
-------- --------
Net prepaid taxes 1,583 2,530
Prepaid gross earnings tax and other 1,710 685
-------- --------
Net prepaid and refundable taxes
included in accompanying consolidated
balance sheets $ 3,293 $ 3,215
======== ========
</TABLE>
Investment tax credits are amortized through credits to other, net over the
estimated lives of related property.
3. LEASE RECEIVABLES
The Registrant presently finances the installation of water heaters and other
appliances for its customers under one to three year finance agreements.
Previously, the Registrant leased water heaters and appliances to customers
under 10-year sales-type leases.
II-19
<PAGE>
<TABLE>
<CAPTION>
Future minimum lease payments to be received are:
- ------------------------------------------------
(thousands of dollars)
<S> <C>
1998 $ 529
1999 491
2000 397
2001 342
------
1,759
Amount representing interest 312
------
Amount representing principal $1,447
======
</TABLE>
4. CAPITALIZATION
A. Long-Term Debt
In December 1995, the Registrant issued $15 million of First Mortgage Bonds.
These First Mortgage Bonds are designated as Series R (7.5%) and will mature in
December 2025. The net proceeds provided by this indebtedness were used to pay
down the Registrant's short-term debt.
The terms of the various indentures, as supplemented, under which the First
Mortgage Bonds were issued, contain restrictions which provide that dividends
may not be paid on common stock of the Registrant under certain conditions.
Approximately $19 million of the Registrant's retained earnings were available
for dividends under the most restrictive terms of the Registrant's First
Mortgage Bond indenture.
The Registrant's First Mortgage Bonds are secured by a lien on substantially all
of the tangible and real property.
As of September 30, 1997, the annual sinking fund requirements and maturities of
long-term debt for the next five fiscal years are $2,509,000.
B. Other Long-term Debt
During 1997, the Registrant financed equipment purchases of approximately
$3,328,000 through the issuance of long-term notes to IBM Credit Corporation.
The notes have five-year terms and interest rates ranging from 4.9 to 7.5
percent. As of September 30, 1997, the maturities of these long-term notes over
the next five years are $686,000 in 1998, $639,000 in 1999, $675,000 in 2000,
$713,000 in 2001, and $490,000 in 2002.
C. Redeemable Preferred Stock
The Registrant's preferred stock, which consists of 64,000 shares of $100 par
value, has an 8.7% cumulative annual dividend rate payable on a quarterly basis,
and has no voting power or privileges unless there is a default in the payment
of dividends or sinking fund obligation. The stock is subject to a cumulative
annual sinking fund requirement of 16,000 shares per year at par ($1,600,000)
plus accrued or unpaid dividends which commenced in February 1997. Accordingly,
16,000 shares were redeemed by the
II-20
<PAGE>
Registrant at par value in February 1997.
5. NOTES PAYABLE
The Registrant meets seasonal cash requirements and finances its construction
program on an interim basis through short-term bank borrowings. As of September
30, 1997, the Registrant had lines of credit totaling $53,000,000 with
borrowings outstanding of $20,410,000. The Registrant pays a fee for its
committed lines of credit rather than maintaining compensating balances. The
weighted average interest rate for borrowings outstanding at the end of the
years was 5.79% in 1997, 5.65% in 1996 and 5.98% in 1995.
6. Employee Benefits
A. Retirement Plans
The Registrant has two pension plans providing retirement benefits for
substantially all of its employees. The benefits under the plans are based on
years of service and the employee's final average compensation. It is the
Registrant's policy to fund at least the minimum required contribution.
The following table sets forth the funding status of the pension plans and
amounts recognized in the Registrant's consolidated balance sheets at September
30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation, including
vested benefit obligation of $(37,961) as of
September 30, 1997 and $(36,288) as
of September 30, 1996 $(44,889) $(42,403)
======== ========
Projected benefit obligation for service
rendered to date $(60,143) $(57,003)
Plan assets at fair value (primarily listed
stocks, corporate bonds and U.S. bonds) 76,348 62,941
-------- --------
Excess of plan assets over projected
benefit obligation 16,205 5,938
Unrecognized net gain (23,731) (13,144)
Unrecognized prior service cost 2,820 3,100
Unrecognized net transition asset
being recognized over 15 years
from October 1, 1985 (409) (545)
-------- --------
Net accrued pension cost included in other
deferred credits and accounts payable at
September 30, 1997 and 1996 $ (5,115) $ (4,651)
======== ========
</TABLE>
II-21
<PAGE>
Net pension cost for fiscal years 1997, 1996 and 1995 included the following
components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 1,818 $1,702 $ 1,535
Interest cost on benefit obligations 4,569 4,246 3,857
Annual return on plan assets (16,428) (7,473) (10,293)
Net amortization and deferral 10,506 2,085 5,708
-------- ------ -------
Net periodic pension cost 465 560 807
Adjustments due to regulatory
action (465) (427) (408)
-------- ------ -------
Net periodic pension cost recognized $ - $ 133 $ 399
========= ====== =======
</TABLE>
The discount rate and rate of increase in future compensation levels used for
all years presented in determining the projected benefit obligation were 8
percent and 6 percent, respectively. The expected long-term rate of return on
assets was 9 percent.
The Registrant recovers pension costs in rates when such costs are funded.
Therefore, the amount by which funding differs from pension expense, determined
in accordance with GAAP, is deferred and recorded as a regulatory asset or
liability.
B. Post-retirement Benefits Other Than Pensions
The Registrant currently offers retirees who have attained age 55 and worked 5
years for the Registrant, healthcare and life insurance benefits during
retirement (the Plan). These benefits are similar to the benefits offered to
active employees. Although retirees are not required to make contributions to
the Plan currently, future contributions may be required if the cost of the Plan
exceeds certain limits.
Since 1993, the post-retirement benefit costs for active employees are recorded
on an accrual basis, ratably over their service periods. Benefits of
$10,526,000 earned prior to 1993 have been deferred as an unrecognized
transition obligation, which the Registrant will amortize over a 20-year period.
The Registrant funds its post-retirement benefit obligations to a Voluntary
Employee Benefit Association (VEBA) Trust. Contributions to the VEBA Trust to
fund such obligations totaled $1,372,000 in 1997, $1,454,000 in 1996 and
$1,561,000 in 1995.
The Registrant recovers its post-retirement benefit obligations in rates to the
extent allowed by the RIPUC. The RIPUC generally allows such costs to be
recovered if amounts are funded into tax favored investment funds, such as the
VEBA Trust. Accordingly, the Registrant will fully recover its 1997, 1996 and
1995 post-retirement benefit obligations because such amounts were funded into
the VEBA Trust. In addition, in September 1996, the RIPUC approved a ratable
recovery of the cumulative unrecovered difference of $1,041,000 during 1997,
1998 and 1999. Of the total post-retirement benefit obligations, $1,718,000,
$1,454,000, $1,231,000 and were included in rates during 1997, 1996 and 1995,
respectively.
The Plan's costs and accumulated post-retirement benefit obligation for 1997,
1996 and 1995 are calculated by the Registrant's actuaries using assumptions and
estimates which include:
II-22
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Healthcare cost annual growth rate 10.2% 11.4% 12.6%
Healthcare cost annual growth rate - long-term 6.0 6.0 6.0
Expected long-term rate of return (union) 8.5 8.5 8.5
Expected long-term rate of return (non-union) 5.5 5.5 5.5
Discount rate 8.0 8.0 8.0
</TABLE>
The healthcare cost annual growth rate significantly impacts the estimated Plan
obligation and annual expense. For example, in 1997, a one percent change in
the above rates would change the obligation by $799,000 and would change the
annual expense by $85,000.
The obligations and assets of the Plan at September 30, 1997 and 1996 are (in
thousands):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated post-retirement
benefit obligation:
Current retirees $ (6,626) $ (6,975)
Active employees-eligible for
benefits (1,361) (889)
Active employees (3,761) (3,876)
-------- ---------
Total post-retirement benefit
obligation (11,748) (11,740)
Plan assets at fair value 4,704 3,106
-------- ---------
Unfunded post-retirement benefit
obligation (7,044) (8,634)
Unrecognized transition
obligation 8,421 8,947
Unrecognized net (gain) or loss (1,360) (313)
-------- ---------
Prepaid post-retirement
benefit obligations included
in the Registrant's consolidated
balance sheets $ 17 $ -
======== =========
</TABLE>
The Registrant's actuarial determined Plan
costs for 1997, 1996 and 1995 include:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 228 $ 222 $ 230
Interest cost 896 896 909
Actual return on plan assets (278) (98) (28)
Amortization and deferral 526 434 450
------ -------- ---------
Total annual plan costs $1,372 $ 1,454 $ 1,561
====== ======== =========
</TABLE>
C. Supplemental Retirement Plans
The Registrant provides certain supplemental retirement plans for key employees.
The projected benefit obligation is approximately $1,375,000 which is being
accrued over the service period of
II-23
<PAGE>
these key employees. The supplemental retirement plans are unfunded. The
Registrant expensed $612,000, $310,000 and $150,000 related to these benefits in
1997, 1996 and 1995, respectively.
D. Performance and Equity Incentive Plan
During 1992, the Board of Directors of Providence Energy, with subsequent
approval of Providence Energy's common shareholders, adopted the Providence
Energy Corporation Performance and Equity Incentive Plan (the Plan). The Plan
provides that up to 225,000 shares of common stock may be granted to key
employees including employees of the Registrant, at no cost to the employees.
Key employees who receive common shares, are entitled to receive dividends, but
assumption of full beneficial ownership vests on the fifth anniversary of the
grant date provided the participant is still employed by Providence Energy
Corporation or one of its subsidiaries. Vesting may be accelerated under certain
circumstances. The Plan also provides for cash compensation to key employees.
The executive compensation incentive awards paid by the Registrant under this
Plan totaled approximately $439,000 for 1997, $381,000 for 1996 and $248,000 for
1995. Amounts paid in cash are charged to expense when earned. However,
amounts paid in restricted stock are deferred and amortized to expense over the
five-year vesting period.
Of the $248,000 1995 award, $167,000 was paid in cash during fiscal 1996. Of
the $381,000 1996 award, $269,000 was paid in cash during fiscal 1997. Of the
$439,000 1997 award, $297,000 will be paid in cash during 1998. Grant shares
totaling 5,989, 4,491 and 5,371 were purchased by the Registrant for key
employees during 1997, 1996 and 1995, respectively.
E. Restricted Stock Incentive Plan
The Restricted Stock Incentive Plan provides that up to 60,000 shares of common
stock may be granted to employees of Providence Energy and its subsidiaries,
including the Registrant, with at least three months of service, who are not
officers or covered by a collective bargaining agreement, at no cost to the
employee. All participants are entitled to receive dividends, however, full
beneficial ownership vests on the third anniversary of the date of the grant
provided that the participant is still employed by Providence Energy or one of
its subsidiaries. Vesting may be accelerated under certain circumstances.
Awards under the Restricted Stock Incentive Plan to employees of the Registrant
totaled approximately $146,000 in 1996 consisting of 7,954 shares. There were
no awards under the Restricted Stock Incentive Plan in 1997. All amounts
awarded under the Restricted Stock Incentive Plan are deferred and amortized to
expense over a three-year period.
7.COMMITMENTS AND CONTINGENCIES
II-24
<PAGE>
A. Legal Proceedings
The Registrant is involved in legal and administrative proceedings in the normal
course of business, including certain proceedings involving material amounts in
which claims have been or may be made. However, management believes, after
review of insurance coverage and consultation with legal counsel, that the
ultimate resolution of the legal proceedings to which it is or can at the
present time be reasonably expected to be a party, will not have a materially
adverse effect on the Registrant's results of operations or financial
conditions.
B. Leases
The Registrant has a capital lease with Algonquin Gas Transmission Company
(Algonquin) for storage space in a liquefied natural gas (LNG) tank. The
capital lease arrangement also provides that Algonquin lease from the
Registrant, for a corresponding term at an annual amount of $150,000, the land
on which the tank is situated. The Registrant also leases certain information
systems equipment under capital leases.
Property under Capital Leases:
- ------------------------------
<TABLE>
<CAPTION>
(thousands of dollars) 1997 1996
- --------------------------------------------------------
<S> <C> <C>
Gas plant $ 6,116 $ 6,116
Information systems 1,988 1,551
Accumulated depreciation (6,484) (6,072)
------- -------
$ 1,620 $ 1,595
======= =======
</TABLE>
Commitments for Capital Leases:
- -------------------------------
<TABLE>
<CAPTION>
LNG Computer
(thousands of dollars) Storage Equipment Total
- ----------------------------------------------------------------
<S> <C> <C> <C>
1998 $ 136 $ 492 $ 628
1999 136 484 620
2000 136 297 433
2001 135 111 246
2002 - 35 35
------- ------ ------
$ 543 $ 1,419 1,962
======= =======
Amount representing interest 290
------
Amount representing principal $1,672
======
</TABLE>
C. OPERATING LEASES
The Registrant also leases facilities and equipment under operating leases with
a total future obligation of $354,000 as of September 30, 1997.
D. GAS SUPPLY
As part of the Price Stabilization Plan Settlement Agreement described in Note
9, the Registrant has entered into a full requirements gas supply contract with
Duke Energy Trading and Marketing L.L.C. (DETM) for a term of three years.
Under the
II-25
<PAGE>
contract, DETM guarantees to meet the Registrant's supply requirements. The
Registrant, however, must purchase all of its gas supply exclusively from DETM.
Under the contract, the Registrant will transfer responsibility for its pipeline
capacity resources, storage contracts, and LNG capacity to DETM. As a result,
the Registrant's gas inventories at September 30, 1997 of approximately $18
million will be sold for book value to the supplier on October 1, 1997.
As a result of Federal Energy Regulatory Commission (FERC) Order 636 and other
related orders (the Orders), pipeline transportation companies have incurred
significant costs, collectively known as transition costs. The majority of
these costs will be reimbursed by the pipeline's customers, including the
Registrant. The Registrant estimates its transition costs to be approximately
$21.7 million, of which $16.2 million has been included in the GCC and collected
from customers through September 30, 1997. The remaining minimum obligation of
$5.5 million has been recorded in the accompanying consolidated balance sheet
along with a regulatory asset anticipating future recovery. As part of the above
supply contract, DETM will assume liability for these transition costs during
the contract's three-year term. At the end of the three-year term of the
contract, the Registrant will assume any remaining liability, which cannot be
estimated at September 30, 1997.
E. ENVIRONMENTAL MATTERS
Federal, state and local laws and regulations establishing standards and
requirements for the protection of the environment have increased in number and
in scope within recent years. The Registrant cannot predict the future impact
of such standards and requirements which are subject to change and can take
effect retroactively. The Registrant continues to monitor the status of these
laws and regulations. Such monitoring involves the review of past activities
and current operations, and may include expending funds to investigate or clean
up certain sites. To the best of its knowledge, subject to the following
paragraphs, the Registrant believes it is in substantial compliance with such
laws and regulations.
At September 30, 1997, the Registrant was aware of four sites at which future
costs may be incurred.
The Registrant has been designated as a "potentially responsible party" (PRP)
under the Comprehensive Environmental Response Compensation and Liability Act of
1980 at two sites in Plympton, Massachusetts on which waste material is alleged
to have been deposited by disposal contractors employed in the past either
directly or indirectly by the Registrant and other PRPs. With respect to one of
the Plympton sites, the Registrant has joined with other PRPs in entering into
an Administrative Consent Order with the Massachusetts Department of
Environmental Protection. The costs to be borne by the Registrant, in
connection with both Plympton sites, are not anticipated to be material to the
financial condition of the Registrant.
II-26
<PAGE>
During 1995, the Registrant voluntarily began a study at its primary gas
distribution facility located in Providence, Rhode Island. This site formerly
contained a manufactured gas plant operated by the Registrant. As of September
30, 1997, approximately $1.8 million has been spent primarily on studies at this
site. In accordance with state laws, such a voluntary study is monitored by
Rhode Island Department of Environmental Management (DEM). The purpose of this
study was to determine the extent of environmental contamination at the site.
The Registrant has completed the study, which indicated that remediation will be
required. The Registrant has several remediation options for the site and is
currently negotiating with DEM and contractors to arrive at the best
alternative. At September 30, 1997, the Registrant has compiled a preliminary
range of costs based on remediation alternative, ranging from $1.7 million to in
excess of $5.0 million. However, because of the uncertainties associated with
environmental assessment and remediation activities, the future cost of
remediation could be higher than the alternatives noted above. Based on the
proposals for remediation work, the Registrant has accrued $1.7 million at
September 30, 1997, for anticipated future remediation costs at this site.
Tests conducted following the discovery of an abandoned underground oil storage
tank at the Registrant's Westerly, Rhode Island operations center in 1996
confirm the existence of contaminants at this site. The Registrant is currently
conducting tests at this site, the costs of which are being
shared equally with the prior owner, to determine the nature and extent of the
contamination. Due to the fact that the testing is in its early stages,
management cannot conclude as to whether any remediation will be required at
this site. In addition, in 1997, contamination from scrapped meters and
regulators was discovered at this site. The Registrant has reported this to the
DEM and the Rhode Island Department of Health and is in the process of
remediation. It is anticipated that remediation will cost between $50,000 and
$100,000. Accordingly, the Registrant has accrued $50,000 at September 30, 1997
for anticipated future remediation costs.
In prior rate cases filed, the Registrant requested that environmental
investigation and remediation costs be recovered by inclusion in its
depreciation factors consistent with the rate recovery treatment for all types
of cost of removal. Accordingly, environmental investigation costs of
approximately $2.3 million and an estimated $1.7 million for environmental
remediation costs have been charged to the accumulated depreciation reserve at
September 30, 1997. Of the environmental investigation costs incurred,
approximately $0.9 million and $1.0 million were recorded in the years ended
September 30, 1997 and 1996, respectively, while the remainder were incurred in
prior years.
Due to the materiality of the Registrant's environmental investigation and
remediation expenditures, the Registrant sought new treatment of these amounts.
As a result, included in the Price Stabilization Plan Settlement Agreement
described in Note
II-27
<PAGE>
9, which is effective October 1, 1997, all environmental investigation and
remediation costs incurred through September 30, 1997, as well as all costs
incurred during the three-year term of the Plan, will be amortized over a 10-
year period.
Additionally, it is the Registrant's practice to consult with the RIPUC on a
periodic basis when, in management's opinion, significant amounts might be
expended for environmental related costs.
Effective October 1, 1997, the Registrant will adopt the provisions of Statement
of Position (SOP) 96-1, "Environmental Remediation Liabilities". This Statement
provides authoritative guidance for recognition, measurement, display, and
disclosure of environmental remediation liabilities in financial statements. SOP
96-1 is not expected to have a material impact on the Registrant's financial
position or results of operation upon adoption.
Management has begun discussions with other parties who may assist the
Registrant in paying future costs at the above sites. Management believes that
its program for managing environmental issues, combined with rate recovery and
financial contributions from others, will likely avoid any material adverse
effect on its results of operations or its financial condition as a result of
the ultimate resolution of the above sites.
F. FUEL ASSISTANCE PROGRAM
The Registrant participates in the State of Rhode Island's Fuel Assistance
Program, the Percentage of Income Payment Plan. As a result, the Registrant has
agreed to accept partial payment on certain customer accounts from various state
agencies. As of September 30, 1997, $629,000 was due from the State of Rhode
Island related to gas consumed by customers over the last two years.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
disclosures for the following financial instruments:
Cash, Cash Equivalents and Short-Term Debt
- ------------------------------------------
The carrying amount approximates fair value due to the short-term maturity of
these instruments.
Long-Term Debt and Preferred Stock
- ----------------------------------
The fair value of long-term debt and preferred stock is estimated based on
currently quoted market prices for similar types of issues.
The carrying amounts and estimated fair values of the Registrant's financial
instruments at September 30, 1997 and 1996 are as follows (in thousands):
II-28
<PAGE>
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C> <C> <C>
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
Cash and cash equivalents $ 778 $ 778 $ 923 $ 923
Short-term debt 20,410 20,410 20,800 20,800
Long-term debt 76,079 84,039 74,478 77,924
Preferred stock 6,400 7,030 8,000 8,395
</TABLE>
The difference between the carrying amount and the fair value of the
Registrant's preferred stock and long-term debt, if they were settled at amounts
reflected above, would be recovered in the Registrant's rates over a prescribed
amortization period. Accordingly, any settlement should not result in a material
impact on the Registrant's financial position or results of operations.
9. RATE CHANGES
A. Price Stabilization Plan Settlement Agreement
In August 1997, the RIPUC approved the Price Stabilization Plan Settlement
Agreement (Energize R.I. or the Plan) among the Registrant, the Rhode Island
Division of Public Utilities and Carriers (the Division), The Energy Council of
Rhode Island, and the George Wiley Center. Effective for the period from
October 1, 1997 to September 30, 2000, Energize R.I. provides customers with a
price decrease of approximately four percent in addition to a three-year price
freeze. Under Energize R.I., the GCC will be suspended for the entire term.
Energize R.I. also requires the Registrant to make significant capital
investments to improve its distribution system. Capital investments required by
Energize R.I. are estimated to total approximately $26 million over its three-
year term. In addition, Energize R.I. requires the Registrant to fund the Low-
Income Assistance Program at an annual level of $1 million, the Demand Side
Management Rebate Program at an annual level of $500,000 and the Low-Income
Weatherization Program at an annual level of $200,000. Energize R.I. also
continues the process of unbundling by requiring the Registrant to provide
unbundled service offerings up to 10 percent per year of firm system throughput.
As part of Energize R.I., the Registrant will amortize approximately $4 million
of environmental costs previously charged to the accumulated depreciation
reserve. These costs and all environmental costs incurred during the term of the
Plan will be amortized over a 10-year period. In addition, as part of the Plan,
the Registrant will write-off approximately $1.5 million of previously deferred
revenues in October 1997.
Under Energize R.I., the Registrant may earn up to 10.9 percent annually on its
average common equity of up to $81.0 million, $86.2 million, and $92.0 million
in fiscal 1998, 1999, and 2000, respectively. In addition, the Registrant may
not earn less than a seven percent return on average common equity under the
Plan. In the event that the Registrant earns in excess of 10.9 percent
II-29
<PAGE>
or less than seven percent, the Registrant will defer revenues or costs through
a deferred revenue account over the term of the Plan. Any balance in the
deferred revenue account at the end of the Plan will be refunded to or recovered
from customers in a manner to be determined by all parties and approved by the
RIPUC.
B. Rate Increase
In February 1995, the Registrant filed for rate relief requesting an approximate
eight percent general rate increase. The major issues contributing to the rate
request were an increase in depreciation due to capital spending, an increase in
working capital needs, and an increase in capital expenditures.
On November 17, 1995, the RIPUC issued its decision on the rate request made by
the Registrant in February 1995. In its decision, the RIPUC authorized the
Registrant to increase its rates to recover additional annual revenues in the
amount of $3,990,000. Subsequent to the issuance of the rate decision, the
RIPUC approved the Registrant's motion to reconsider a revenue adjustment of
$171,572. That approval increased the overall rate increase to $4,161,572.
10. HEDGING
On October 8, 1996, the RIPUC approved a one-year Pilot Hedging Program
Settlement Agreement (the "Settlement Agreement")between the Registrant and the
Division. The Agreement allowed the Registrant to use options, including calls,
puts and collars, in order to reduce the impact of changes in the price of
natural gas. The total expenditures for the purchase and exercise of Financial
Risk Management (FRM) tools and the net proceeds from the sale of FRM tools were
flowed through the Variable Gas Cost component of the GCC and could not exceed
$800,000. The total expenditures made under the program in 1997, net of sales
proceeds, were approximately $154,000.
The Registrant did not hold any open contracts at September 30, 1997. The
Settlement Agreement expired on September 30, 1997. The Settlement Agreement was
not extended since its objectives were met through the Price Stabilization Plan
Settlement Agreement described in Note 9.
11. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share", effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 replaces the presentation of primary earnings
per share with the presentation of basic earnings per share on the face of the
income statement. Basic earnings per share excludes dilution and is calculated
by dividing income available to common stockholders by weighted average number
of common shares outstanding for the period. Earnings per share calculated under
SFAS No. 128 would have been unchanged for the periods presented.
II-30
<PAGE>
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and
SAFS No. 131, "Disclosures about Segments of an Enterprise and Related
Information". SFAS No. 130, which is effective for fiscal years beginning after
December 15, 1997, requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 131, which is effective for financial statements
for periods beginning after December 15, 1997, requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. These statements require additional disclosure only and
will not affect the financial position or results of operations of the
Registrant.
12. UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is unaudited quarterly financial information for the two years
ended September 30, 1997 and 1996. Quarterly variations between periods are
caused primarily by the seasonal nature of gas sales and the availability of
gas.
<TABLE>
<CAPTION>
(thousands, except per share amounts)
Quarter Ended
---------------------------------------
Dec. 31 Mar. 31 June 30 Sept. 30
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Fiscal 1997
- ----------------------------------------------------------------------
Operating revenues $61,673 $76,590 $40,679 $31,731
Operating income (loss) 6,216 8,568 2,148 (1,101)
Net income (loss)
applicable to
common stock 4,284 6,640 329 (3,108)
Net income (loss) per share
applicable to
common stock* 3.44 5.34 .26 (2.49)
Fiscal 1996
- ----------------------------------------------------------------------
Operating revenues $57,270 $79,261 $42,522 $31,548
Operating income (loss) 6,289 9,376 898 (935)
Net income (loss)
applicable to common
stock 4,880 7,419 (921) (2,764)
Net income (loss) per share
applicable to
common stock* 3.92 5.97 (.74) (2.22)
</TABLE>
* Calculated on the basis of weighted average shares outstanding during the
quarter.
II-31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors of Providence Gas Company:
We have audited the accompanying consolidated balance sheets and the
consolidated statements of capitalization of Providence Gas Company (a Rhode
Island corporation and wholly-owned subsidiary of Providence Energy Corporation)
as of September 30, 1997 and 1996, and the related consolidated statements of
income, changes in common stockholders' investment and cash flows for each of
the three years in the period ended September 30, 1997. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Providence
Gas Company as of September 30, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the accompanying
index to the financial statements are presented for purposes of complying with
the Securities and Exchange Commission's rules and are not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein, in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Boston, Massachusetts
November 4, 1997
II-32
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
Not applicable.
II-33
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The following information is furnished with respect to the executive officers of
the Registrant:
<TABLE>
<CAPTION>
Year Office
Name and Age Office First Held
- ------------ --------------- -----------
<S> <C> <C> <C>
James H. Dodge (57) Chairman, President and Chief
Executive Officer 1992
James DeMetro (49) Senior Vice President, Energy
Services 1996
Gary S. Gillheeney (42) Senior Vice President, Chief
Financial Officer and
Treasurer 1996
Robert W. Owens (49) Senior Vice President, Gas
Distribution 1996
Alycia L. Goody (45) Vice President, General Counsel
and Secretary 1994
James A. Grasso (43) Vice President, Public and
Government Affairs 1997
William D. Mullin (49) Vice President, Economic
Development and Operations 1996
Bruce G. Wilde (51) Vice President, Administration
and Assistant Secretary 1996
Gary L. Beland (47) Assistant Vice President,
Gas Supply 1996
Peter J. Gill (38) Controller and Assistant
Treasurer 1996
Timothy S. Lyons (36) Assistant Vice President,
Pricing and Regulation 1996
</TABLE>
Mr. Dodge was elected President and Chief Executive Officer in August 1990
after the retirement of Louis R. Hampton. Mr. Dodge subsequently became Chairman
of the Board in January 1992. Prior to his employment with the Registrant, he
was President and Chief Executive Officer of Vermont Gas Systems, Inc. Vermont
Gas Systems, Inc. is a regulated public utility which sells natural gas to a
portion of the population of the State of Vermont.
Mr. DeMetro was elected Senior Vice President, Energy Services in February of
1996. For four years prior thereto, Mr. DeMetro served the Registrant as Vice
President, Energy Services. For more than five years prior thereto, Mr. DeMetro
served the Brooklyn Union Gas Company, a regulated natural gas utility, in
various management
III-1
<PAGE>
positions, most recently as Manager, Rates and Regulation.
Mr. Gillheeney was elected Senior Vice President and Chief Financial Officer
in February 1996 and Treasurer in January 1994. For more than two years prior to
February 1996, Mr. Gillheeney served the Registrant as Vice President, Financial
and Information Services, as well as Treasurer. For more than five years prior
thereto, Mr. Gillheeney served the Registrant in various management positions,
most recently as Assistant Treasurer and Controller.
Mr. Owens was elected Senior Vice President, Gas Distribution in February
1996. For more than two years prior thereto, Mr. Owens served the Registrant as
Vice President, Operations. For more than five years prior thereto, Mr. Owens
served the Registrant in various management positions, most recently as Vice
President, Treasurer and Chief Financial Officer.
Ms. Goody was elected Vice President, General Counsel and Secretary in
December 1994. For two years prior thereto, Ms. Goody served Providence Energy
Corporation and ProvGas as General Counsel and Corporate Secretary. For four
years prior to that, Ms. Goody served the Registrant as Corporate Counsel.
Mr. Grasso was elected Vice President, Public and Government Affairs in May of
1997. For three years prior thereto, Mr. Grasso served as Director of Public and
Government Relations of PanEnergy Corporation and Algonquin Gas Transmission
Company. For ten years prior thereto, Mr. Grasso served as Manager of Land,
Public and Government Relations of Algonquin Gas Transmission Company.
Mr. Mullin was elected Vice President, Economic Development and Operations in
February 1996. For more than two years prior thereto, Mr. Mullin served the
Registrant as Vice President, Corporate Relations. For five years prior
thereto, he served the Registrant in various management positions, most recently
as Vice President, Operations.
Mr. Wilde was elected Vice President, Administration in February 1996 and
Assistant Secretary in May 1994. For more than a year prior to his election as
Vice President, Administration, Mr. Wilde served the Registrant as Vice
President, Human Resources. For more than five years prior thereto, Mr. Wilde
served the Registrant in various management positions, most recently as
Assistant Vice President for Personnel.
Mr. Beland was elected Assistant Vice President, Gas Supply in February 1996.
For two years prior thereto, Mr. Beland served as Director of Gas and
Transportation Services. For more than five years prior thereto, Mr. Beland
served the Niagra Mohawk Power Corp., a regulated natural gas utility, in
various management positions, most recently as Manager, Gas Supply Planning.
Mr. Gill was elected Controller and Assistant Treasurer in February 1996. For
two years prior thereto, Mr. Gill served the Registrant as Director of Planning.
For four years prior thereto, Mr. Gill served the Registrant as Director of
Budgeting.
III-2
<PAGE>
Mr. Lyons was elected Assistant Vice President, Pricing and Regulation in
February of 1996. For two years prior thereto, Mr. Lyons served the Registrant
as Director of Pricing. For two years prior thereto, Mr. Lyons served the
Registrant as Director of Rates. Prior to his employment with the Registrant,
Mr. Lyons served Boston Gas, a regulated natural gas utility as Director of
Rates and Revenue Analysis.
III-3
<PAGE>
DIRECTORS OF THE REGISTRANT
- ---------------------------
The following information is furnished with respect to the Directors of the
Registrant.
<TABLE>
<CAPTION>
Name Director Since Expiration of Term
---- -------------- ------------------
<S> <C> <C>
Gilbert R. Bodell, Jr. 1980 1998
James H. Dodge 1991 2000
John H. Howland 1993 1999
Douglas H. Johnson 1993 1999
William Kreykes 1996 1999
Paul F. Levy 1995 1998
Romolo A. Marsella 1993 1999
M. Anne Szostak 1995 1998
Kenneth W. Washburn 1975 2000
W. Edward Wood 1995 1998
</TABLE>
Gilbert R. Bodell, Jr. is Chairman and former President, Frontier
Manufacturing Company (textile); former Vice President, Valley Lace Co. and
Esten Dyeing and Finishing Co.
James H. Dodge has been Chairman since January 1992 and President and Chief
Executive Officer of the Registrant since August 1990; from 1984 through August
1990: President and Chief Executive Officer of Vermont Gas Systems, Inc. (a
regulated natural gas utility) and affiliated companies.
John H. Howland is President and Chief Executive Officer, Original Bradford
Soap Works, Inc. (textiles).
Douglas H. Johnson is President and Managing Partner, M. Van Leesten
Associates, Inc. (business and urban planning consultants) since October 1991;
from 1980 to October 1991: President and Chief Executive Officer, Peerless
Precision, Inc. (aerospace manufacturing company).
William Kreykes is President and Chief Executive Officer, Lifespan Corporation
since December 1994; from October 1990 to December 1994: President and Chief
Executive Officer, Rhode Island Hospital.
Paul F. Levy is Adjunct Professor, Massachusetts Institute of Technology; from
1992 to 1995, Visiting Lecturer; from 1987 to 1992: Executive Director,
Massachusetts Water Resources Authority (a public authority).
III-4
<PAGE>
Romolo A. Marsella is President, Marsella Development Corporation (real estate
development).
M. Anne Szostak is Senior Vice President, Fleet Financial Group; from 1991 to
1995: Chairman of the Board, Fleet Bank of Maine; from 1991 to 1994: President
and Chief Executive Officer, Fleet Bank of Maine; and from 1988 to 1991: Vice
President, Fleet Financial Group.
Kenneth W. Washburn is Chairman and President, Union Wadding company
(manufacturers of non-woven textiles).
W. Edward Wood is President and Chief Executive Officer, Coaxial
Communications of Central Ohio and Coaxial Communications of Southern Ohio
(Effective January 1998). From 1991 to 1997: President, BDS Management Group
(management and consulting services to a variety of private businesses); from
November 1990 to May 1991: Chief of Staff to Governor-elect and Governor of
Rhode Island: from January to November 1990; Chief of Staff, Phoenix Associates
III (private investment group).
III-5
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
For the information called for by this item, reference is made to pages 7 to
14 of the Providence Energy Corporation's proxy statement filed December 16,
1997 with the Securities and Exchange Commission for the annual meeting of
shareholders to be held January 15, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Not applicable. All of the Registrant's voting securities are held by
Providence Energy Corporation.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Not applicable.
III-6
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
THE PROVIDENCE GAS COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
(a) Financial Statements and Schedules
----------------------------------
Consolidated Balance Sheets--September 30, 1997 and 1996
Consolidated Statements of Income for the years ended September 30, 1997, 1996
and 1995
Consolidated Statements of Cash Flows for the years ended September 30, 1997,
1996 and 1995
Consolidated Statements of Capitalization--September 30, 1997 and 1996
Consolidated Statements of Changes in Common Stockholder's Investment for the
years ended September 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Schedule II. Reserves for the years ended September 30, 1997, 1996 and 1995.
Schedules I to XIII not listed above are omitted as not applicable
or not required under Regulation S-X.
(b) Reports on Form 8-K
-------------------
No reports were filed on Form 8-K during the latest quarter of the
Registrant's fiscal year ended September 30, 1997.
(c) Exhibits
--------
The following exhibits are filed as part of this report:
3.1 Charter (incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-1 (Registration No.2-72726)).
3.2 Bylaws. (Filed as Exhibit 3.2 to the Report on Form 10-K of the Registrant
in Form 10-K for the year ended September 30, 1993, incorporated herein by
this reference.)
4.1 Indenture dated as of August 1, 1981 from The Providence Gas Company to
St. Louis Union Trust Company, Trustee, filed as Exhibit 4.1 to
Registration Statement of The Providence Gas Company on Form S-1
(Registration No. 2-72726), incorporated herein by this reference.
4.2 First Supplemental Indenture dated as of May 1, 1986 from The Providence
Gas Company to Centerre Trust Company of St. Louis, Trustee (filed as
Exhibit 4 (b) to Registration Statement of The Providence Gas Company on
Form S-3 (Registration No. 33-5023), incorporated herein by this
reference).
4.3 First Mortgage Indenture dated as of January 1, 1922, as supplemented by
First through Twelfth Supplemental Indentures,
IV-1
<PAGE>
(incorporated by reference to Exhibit 10.10 in the Registrant's
Registration Statement on Form S-1 (Registration No. 2-72726)).
4.4 Fourteenth, Fifteenth and Sixteenth Supplemental Indentures dated as of
August 1, 1988, June 1, 1990 and November 1, 1992, respectively
(incorporated by reference to Exhibit 4 to the report of Providence Energy
Corporation (Commission File No. 1-10032) to the Securities and Exchange
Commission on Form 10-Q for the quarter ended March 31, 1993).
4.5 Seventeenth Supplemental Indenture dated as of November 1, 1993.(Filed as
Exhibit 4.5 to the report of the Registrant in Form 10-K for the year
ended September 30, 1993, incorporated herein by this reference.)
4.6 Eighteenth Supplemental Indenture dated as of December 1, 1995. (Filed as
exhibit 4.6 to the report of the Registrant in Form 10-K for the year
ended September 30, 1995, incorporated herein by this reference.)
10.1 Material contracts listed in Exhibits 10 (a) through 10 (ff) (excluding
Exhibits 10 (x), 10 (y), 10 (cc) and 10 (dd)) to Registration Statement of
Providence Energy Corporation on Form S-2 (Registration No. 33-24125),
incorporated herein by this reference.
10.2 Management contract dated October 29, 1997 between James H. Dodge,
Chairman, President and Chief Executive Officer of the Registrant.
10.3 Management contract dated October 29, 1997 between James DeMetro, Senior
Vice President, Energy Services of the Registrant.
10.4 Management contract dated October 29, 1997 between Robert W. Owens, Senior
Vice President, Gas Distribution of the Registrant.
10.5 Management contract dated October 29, 1997 between Gary S. Gillheeney,
Senior Vice President, Chief Financial Officer and Treasurer of the
Registrant.
10.6 Management contract dated October 29, 1997 between Alycia L. Goody, Vice
President, General Counsel and Secretary of the Registrant.
10.7 Management contract dated October 29, 1997 between William D. Mullin, Vice
President, Economic Development and Operations of the Registrant.
10.8 Management contract dated October 29, 1997 between Bruce G. Wilde, Vice
President, Administration and Assistant Secretary of the Registrant.
22 Subsidiaries of the Registrant.
IV-2
<PAGE>
Supplemental Schedule
Schedule II
PROVIDENCE GAS COMPANY
----------------------
RESERVES FOR THE YEARS ENDED
----------------------------
SEPTEMBER 30, 1997, SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
-------------------------------------------------------------
(Thousands of Dollars)
<TABLE>
<CAPTION>
Charges
for
Which
Additions Reserves
Balance Charged Other Were Balance
9/30/96 to Operations Add (Deduct) Created 9/30/97
------- ------------- ------------ -------- -------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM
ASSETS:
Accounts receivable
Allowance for
doubtful accounts $ 2,974 $ 4,872 $ -- $ 6,156 $ 1,690
Allowance for lease
receivables -
current --
other 9 94 -- 54 49
------- ------- ------- ------- -------
Total $ 2,983 $ 4,966 $ -- $ 6,210 $ 1,739
======= ======= ======= ======= =======
Allowance for lease
receivables -
long-term $ 403 $ 138 $ -- $ 140 $ 401
======= ======= ======= ======= =======
DEFERRED CREDITS AND
RESERVES:
Accumulated deferred
income taxes $19,903 $ 695 $ -- $ -- $20,598
------- ------- ------- ------- -------
Unamortized investment
tax credit 2,510 -- -- 156 2,354
------- ------- ------- ------- -------
Other-
Liability and
damage reserve 561 281 -- 221 621
Other 7,407 1,267 915(B) 518 9,071
------- ------- ------- ------- -------
Total other 7,968 1,548 915 739 9,692
------- ------- ------- ------- -------
Total deferred
credits and
reserves $30,381 $ 2,243 $ 915 $ 895 $32,644
======= ======= ======= ======= =======
</TABLE>
IV-3
<PAGE>
SCHEDULE II (cont'd)
<TABLE>
<CAPTION>
Charges
for
Which
Additions Reserves
Balance Charged Other Were Balance
9/30/95 to Operations Add (Deduct) Created 9/30/96
------- ------------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM
ASSETS:
Accounts receivable
Allowance for
doubtful accounts $ 1,916 $4,884 $ -- 3,826 $ 2,974
Allowance for lease
receivables -
current 313 -- -- 313 --
other 80 17 -- 88 9
------- ------ ------ ------ ------
Total $ 2,309 $4,901 $ -- $4,227 $ 2,983
======= ====== ====== ====== =======
Allowance for lease
receivables -
long-term $ 651 $1,179 $ -- $1,427 $ 403
======= ====== ====== ====== =======
DEFERRED CREDITS AND
RESERVES:
Accumulated deferred
income taxes $17,892 $1,968 $ 43(C) $ -- $19,903
------- ------ ------ ------ -------
Unamortized investment
tax credit 2,668 -- -- 158 2,510
------- ------ ------ ------ -------
Other-
Liability and
damage reserve 334 520 -- 293 561
Other 5,140 1,303 1,727(B) 763 7,407
------- ------ ------ ------ -------
Total other 5,474 1,823 1,727 1,056 7,968
------- ------ ------ ------ -------
Total deferred
credits and
reserves $26,034 $3,791 $1,770 $1,214 $30,381
======= ====== ====== ====== =======
</TABLE>
IV-4
<PAGE>
SCHEDULE II (cont'd)
<TABLE>
<CAPTION>
Charges
for
Which
Additions Reserves
Balance Charged Other Were Balance
9/30/94 to Operations Add (Deduct) Created 9/30/95
------- ------------- ------------ ------- --------
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM
ASSETS:
Accounts receivable
Allowance for
doubtful accounts $ 2,606 $3,113 $ -- $3,803 $ 1,916
Allowance for lease
receivables -
current 347 -- -- 34 313
other 80 -- -- -- 80
------- ------ ------- ------ -------
Total $ 3,033 $3,113 $ -- $3,837 $ 2,309
======= ====== ======= ====== =======
Allowance for lease
receivables -
long-term $ 951 $ -- $ (200) $ 100 $ 651
======= ====== ======= ====== =======
DEFERRED CREDITS AND
RESERVES:
Accumulated deferred
income taxes $14,786 $2,010 $ 1,096(C) $ -- $17,892
------- ------ ------- ------ -------
Unamortized investment
tax credit 2,826 -- -- 158 2,668
------- ------ ------- ------ -------
Other-
Liability and
damage reserve 421 400 -- 487 334
Other 5,735 621 408(A) 1,624 5,140
------- ------ ------- ------ -------
Total other 6,156 1,021 408 2,111 5,474
------- ------ ------- ------ -------
Total deferred
credits and
reserves $23,768 $3,031 $ 1,504 $2,269 $26,034
======= ====== ======= ====== =======
</TABLE>
(A) Includes adjustment to the regulatory pension liability.
(B) Principally an accrual for environmental investigation and remediation
costs in addition to adjustment to the regulatory pension liability.
C) Represents adjustment to the regulatory asset and liability for FAS No. 109
activity.
IV-5
<PAGE>
Date December 23, 1997
--------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JAMES H. DODGE Chairman, President, and CEO 12-23-97
- ---------------------------- (Principal Executive Officer) --------
James H. Dodge
/s/ GARY S. GILLHEENEY Senior Vice President, 12-23-97
- ---------------------------- Chief Financial Officer and --------
Gary S. Gillheeney Treasurer
/s/ GILBERT R. BODELL, JR. Director 12-23-97
- ---------------------------- --------
Gilbert R. Bodell, Jr.
/s/ JOHN H. HOWLAND Director 12-23-97
- ---------------------------- --------
John H. Howland
/s/ DOUGLAS H. JOHNSON Director 12-23-97
- ---------------------------- --------
Douglas H. Johnson
/s/ WILLIAM KREYKES Director 12-23-97
- ---------------------------- --------
William Kreykes
/s/ PAUL F. LEVY Director 12-23-97
- ---------------------------- --------
Paul F. Levy
/s/ ROMOLO A. MARSELLA Director 12-23-97
- ---------------------------- --------
Romolo A. Marsella
/s/ M. ANNE SZOSTAK Director 12-23-97
- ---------------------------- --------
M. Anne Szostak
/s/ KENNETH W. WASHBURN Director 12-23-97
- ---------------------------- --------
Kenneth W. Washburn
/s/ W. EDWARD WOOD Director 12-23-97
- ---------------------------- --------
W. Edward Wood
</TABLE>
IV-6
<PAGE>
Contents Exhibit 10.2
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Term of Employment 1
Section 2. Position and Responsibilities 2
Section 3. Standard of Care 2
Section 4. Compensation 3
Section 5. Expenses 4
Section 6. Employment Terminations 5
Section 7. Change in Control 9
Section 8. Confidentiality and Noncompetition 13
Section 9. Indemnification 14
Section 10. Outplacement Assistance 14
Section 11. Assignment 14
Section 12. Dispute Resolution and Notice 15
Section 13. Miscellaneous 15
Section 14. Governing Law 16
</TABLE>
<PAGE>
Providence Energy Corporation
Employment Agreement
This EMPLOYMENT AGREEMENT is made, entered into, and is effective as of this
29th day of October, 1997 (hereinafter referred to as the "Effective Date"), by
and between Providence Energy Corporation, together with its subsidiaries and
affiliates (hereinafter referred to as the "Company"), a Rhode Island
corporation having its principal offices at Providence Rhode Island and James H.
Dodge (hereinafter referred to as the "Executive").
WHEREAS, the Executive is presently employed by the Company in the capacity of
President, Chief Executive Officer and as Chairman of the Board of Directors of
the Company;
WHEREAS, the Executive possesses considerable experience and an intimate
knowledge of the business and affairs of the Company, its policies, methods,
personnel, and operations; and
WHEREAS, the Company recognizes that the Executive's contribution has been
substantial and meritorious and, as such, the Executive has demonstrated unique
qualifications to act in an executive capacity for the Company; and
WHEREAS, the Company is desirous of assuring the continued employment of the
Executive in the above stated capacity, and Executive is desirous of having such
assurance.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and
agreements of the parties set forth in this Agreement, and of other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
Section 1. Term of Employment
The Company hereby agrees to employ the Executive and the Executive hereby
agrees to continue to serve the Company, in accordance with the terms and
conditions set forth herein, for an initial period of five (5) years, commencing
as of the Effective Date of this Agreement, as indicated above; subject,
however, to earlier termination as expressly provided in Section 6 herein.
The initial five (5) year period of employment automatically shall be extended
for three (3) additional years at the end of the initial five (5) year term, and
then again after each successive year thereafter. However, either party may
terminate this Agreement at the end of the initial five (5) year period, or at
the end of any successive term thereafter, by giving the other party written
notice of intent not to renew, delivered at least ninety (90) calendar days
prior to the end of such initial period or successive term.
In the event such notice of intent not to renew is properly delivered by the
Company, this Agreement, along with all corresponding rights, duties, and
covenants, shall automatically expire
1
<PAGE>
at the end of the initial period or successive term then in progress, with the
exception of the provisions contained in Section 8 herein (which shall survive
such expiration). However, upon the effective date of the expiration, the
Company shall provide to the Executive a continuation of his Base Salary (at the
rate then in effect, as provided in Paragraph 4.1 herein) for a period of twenty
four (24) months, paid in equal monthly installments in accordance with the
normal payroll practices of the Company. The Company also shall provide to the
Executive all benefits to which the Executive has a vested right to at that time
including, but not limited to, the retirement benefits described in Paragraph
4.4 herein, and the retiree medical insurance benefits described in Paragraph
4.6 herein.
However, regardless of the above, if at any time during the initial period of
employment, or successive term, a Change in Control of the Company occurs (as
defined in Section 7 herein), then this Agreement shall become immediately
irrevocable for the longer of: (a) five (5) years beyond the month in which the
effective date of such Change in Control occurs; or (b) until all obligations of
the Company hereunder have been fulfilled, and until all benefits provided
hereunder have been paid.
Section 2. Position and Responsibilities
During the term of this Agreement, the Executive agrees to serve as President,
Chief Executive Officer and Chairman of the Board of the Company. In his
capacity as President, Chief Executive Officer and Chairman of the Board of the
Company, the Executive shall report directly to the Board of Directors, and
shall maintain the level of duties and responsibilities as in effect as of the
Effective Date, or such higher level of duties and responsibilities as he may be
assigned during the term of this Agreement. The Executive shall have the same
status, privileges, and responsibilities normally inherent in such capacities in
corporations of similar size and character.
Section 3. Standard of Care
During the term of this Agreement, the Executive agrees to devote substantially
his full time, attention, and energies to the Company's business and shall not
be engaged in any other business activity, whether or not such business activity
is pursued for gain, profit, or other pecuniary advantage. However, subject to
Section 8 herein, the Executive may serve as a director of other companies so
long as such service is not injurious to the Company. The Executive covenants,
warrants, and represents that he shall:
(a) Devote his full and best efforts to the fulfillment of his employment
obligations; and
(b) Exercise the highest degree of loyalty and the highest standards of conduct
in the performance of his duties.
This Section 3 shall not be construed as preventing the Executive from investing
assets in such form or manner as will not require his services in the daily
operations of the affairs of the companies in which such investments are made.
2
<PAGE>
Section 4. Compensation
As remuneration for all services to be rendered by the Executive during the term
of this Agreement, and as consideration for complying with the covenants herein,
the Company shall pay and provide to the Executive the following:
4.1 Base Salary. The Company shall pay the Executive a Base Salary in an amount
which shall be established from time to time by the Board of Directors of the
Company or the Board's designee provided, however, that such Base Salary shall
not be less than $282,000 per year. This Base Salary shall be paid to the
Executive in equal monthly installments throughout the year, consistent with the
normal payroll practices of the Company.
The annual Base Salary shall be reviewed at least annually following the
Effective Date of this Agreement, while this Agreement is in force, to ascertain
whether, in the judgment of the Board or the Board's designee, such Base Salary
should be increased, based primarily on the performance of the Executive during
the year and on the then current rate of inflation. If so increased, the Base
Salary as stated above shall, likewise, be increased for all purposes of this
Agreement.
4.2 Annual Cash Incentive Compensation. The Company shall provide the Executive
with the opportunity to earn an annual cash incentive compensation payment, at a
level which is in accordance with the provisions of the Performance and Equity
Incentive Plan or any such successor plan, and which is commensurate with the
opportunity typically offered to executives having the same or similar duties
and responsibilities as the Executive at companies similar in size and character
to the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing and/or amending the Performance and Equity Incentive Plan
so long as such changes are similarly applicable to all executives generally.
4.3 Long-Term Incentives. The Company shall provide the Executive the
opportunity to earn a long-term incentive award, at a level which is in
accordance with the provisions of the Performance and Equity Incentive Plan or
any such successor plan, and which is commensurate with the opportunity
typically offered to executives having the same or similar duties and
responsibilities as the Executive at companies similar in size and in character
to the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing, and/or amending the Performance and Equity Incentive
Plan, so long as such changes are similarly applicable to all executives
generally.
4.4 Retirement Benefits. The Company shall provide to the Executive
participation in all Company qualified defined benefit and defined contribution
retirement plans, subject to the eligibility and participation requirements of
such plans. In addition, the Company shall provide to the Executive
participation in the Supplemental Retirement Plan and all other nonqualified
retirement programs typically offered to executives having the same or similar
duties and
3
<PAGE>
responsibilities at the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing, and/or amending the nonqualified retirement programs, so
long as such changes are similarly applicable to all executives generally.
4.5 Employee Benefits. During the term of this Agreement, and as otherwise
provided within the provisions of each of the respective plans, the Company
shall provide to the Executive all benefits to which other executives and
employees of the Company are entitled to receive, as commensurate with the
Executive's position. Such benefits shall include, but not be limited to, group
term life insurance, whole life insurance, comprehensive health and major
medical insurance, dental insurance, vision insurance, and short-term and long-
term disability.
The Executive shall be entitled to paid vacation in accordance with the standard
written policy of the Company with regard to vacations of employees. The
Executive shall likewise participate in any additional benefit as may be
established during the term of this Agreement, by standard written policy of the
Company.
4.6 Perquisites. The Company shall provide to the Executive, at the Company's
cost, all perquisites to which other executives of the Company are entitled to
receive and such other perquisites which are suitable to the character of
Executive's position with the Company and adequate for the performance of his
duties hereunder.
4.7 Right to Change Plans. By reason of Paragraphs 4.5, and 4.6 herein, the
Company shall not be obligated to institute, maintain, or refrain from changing,
amending, or discontinuing any benefit plan, program, or perquisite, so long as
such changes are similarly applicable to executive employees generally.
4.8 Deferrals. The Company may permit the Executive to defer the Executive's
receipt of the payment of up to one hundred (100%) percent of the cash component
of the Executive's Annual Incentive Compensation. If any such deferral election
is permitted, the Company shall, in its sole discretion, establish rules and
procedures for such payment deferrals.
Section 5. Expenses
The Company shall pay, or reimburse the Executive, for all ordinary and
necessary expenses, in a reasonable amount, which the Executive incurs in
performing his duties under this Agreement including, but not limited to,
travel, entertainment, professional dues and subscriptions, and all dues, fees,
and expenses associated with membership in various professional, business, and
civic associations and societies of which the Executive's participation is in
the best interest of the Company.
Section 6. Employment Terminations
6.1 Termination Due to Retirement. In the event the Executive's employment is
terminated, while this Agreement is in force, by reason of Retirement (as
defined under the then established
4
<PAGE>
rules of the Company's tax-qualified retirement plan), the Executive's benefits
shall be determined in accordance with the Company's retirement, survivor's
benefits, insurance, and other applicable programs of the Company then in
effect.
Upon the effective date of such termination, the Company's obligation to pay and
provide to the Executive Base Salary, Annual Cash Incentive Compensation and
Long-Term Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3 herein,
respectively), shall immediately expire. However, the Executive shall receive a
pro rata portion of the total annual incentive compensation (both cash and long-
term), calculated at target, to which he would be entitled during the year in
which he retires, and shall receive all rights and benefits that he is vested
in, pursuant to other plans and programs of the Company including, but not
limited to, the retirement benefits as described in Paragraph 4.4 herein.
6.2 Termination Due to Death. In the event of the death of the Executive during
the term of this Agreement, or during any period of Disability during which he
is receiving compensation pursuant to Paragraph 6.3 herein, the Company shall
pay to the Executive's surviving spouse, or other beneficiary as so designated
by the Executive during his lifetime, or to the Executive's estate, as
appropriate, all benefits to which the Executive had a vested right to pursuant
to this Agreement.
6.3 Termination Due to Disability. In the event that the Executive becomes
Disabled during the term of this Agreement and is, therefore, unable to perform
his duties herein for a period of more than ninety (90) calendar days in the
aggregate, during any period of twelve (12) consecutive months, or in the event
of the Board's reasonable expectation that the Executive's Disability will exist
for more than a period of ninety (90) calendar days, the Company shall have the
right to terminate the Executive's active employment as provided in this
Agreement. However, the Board shall deliver written notice to the Executive of
the Company's intent to terminate for Disability at least thirty (30) calendar
days prior to the effective date of such termination.
A termination for Disability shall become effective upon the end of the thirty
(30) day notice period. Upon such effective date, the Company's obligation to
pay and provide to the Executive Base Salary, Annual Bonus, and Long-Term
Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3, respectively), shall
immediately expire. However, the Executive shall receive a pro rata portion of
the total annual incentive compensation (both cash and long-term), calculated at
target, to which he would be entitled during the year in which disability occurs
and shall receive all rights and benefits that he is vested in, pursuant to
other plans and programs of the Company, including, but not limited to, short-
and long-term disability benefits, and retirement benefits as described in
Paragraph 4.4.
The term "Disability" shall mean, for all purposes of this Agreement, the
incapacity of the Executive, due to injury, illness, disease, or bodily or
mental infirmity, to engage in the performance of substantially all of the usual
duties of employment with the Company as contemplated by Section 2 herein, such
Disability to be determined by the Board of Directors of the Company upon
receipt and in reliance on competent medical advice from one or more
5
<PAGE>
individuals, selected by the Board, who are qualified to give such professional
medical advice.
If the Executive and the Company shall not be in agreement as to whether the
Executive has suffered a Disability for the purposes of this Agreement, the
matter shall be referred to a panel of three medical doctors, one of which shall
be selected by the Executive, one of which shall be selected by the Company, and
one of which shall be selected by the two doctors as so selected, and the
decision of a majority of the panel with respect to the question of whether the
Executive has suffered a Disability shall be binding upon the Executive and the
Company. The expenses of any such referral shall be borne by the party against
whom the decision of the panel is rendered. The Executive may be required by the
Company to submit to medical examination at any time during the period of his
employment hereunder, but not more often than quarter-annually, to determine
whether a Disability exists for the purposes of this Agreement.
It is expressly understood that the Disability of the Executive for a period of
ninety (90) calendar days or less in the aggregate during any period of twelve
(12) consecutive months, in the absence of any reasonable expectation that his
Disability will exist for more than such a period of time, shall not constitute
a failure by him to perform his duties hereunder and shall not be deemed a
breach or default and the Executive shall receive full compensation for any such
period of Disability or for any other temporary illness or incapacity during the
term of this Agreement.
6.4 Voluntary Termination by the Executive. The Executive may terminate this
Agreement at any time by giving the Board of Directors of the Company written
notice of intent to terminate, delivered at least thirty (30) calendar days
prior to the effective date of such termination (such period not to include
vacation). The termination automatically shall become effective upon the
expiration of the thirty (30) day notice period.
Upon the effective date of such termination, the Company shall pay to the
Executive his full Base Salary, at the rate then in effect as provided in
Paragraph 4.1 herein, through the effective date of termination, plus all other
benefits to which the Executive has a vested right to at that time including,
but not limited to, accrued vacation pay. The Company also shall provide to the
Executive the vested retirement benefits described in Paragraph 4.4 herein. With
the exception of the covenants contained in Sections 8.1, 8.3 and 8.4 herein
(which shall survive such termination), the Company and the Executive thereafter
shall have no further obligations under this Agreement.
6.5 Involuntary Termination by the Company Without Cause. At all times prior to
six (6) full calendar months before the effective date of a Change in Control
(as defined in Section 7.2), or at any time more than two (2) years after the
effective date of a Change in Control (as defined in Section 7.2), the Board may
terminate the Executive's employment, as provided under this Agreement, at any
time, for reasons other than death, Disability, Retirement, or for Cause, by
notifying the Executive in writing of the Company's intent to terminate, at
least thirty (30) calendar days prior the effective date of such termination.
Upon the effective date of such termination, following the expiration of the
thirty (30) day notice
6
<PAGE>
period, the Company shall pay to the Executive in twenty-four (24) equal monthly
installments an amount equal to two (2) times the Executive's annual Base Salary
then in effect. Additionally, the Company shall continue to provide the
Executive with health and welfare benefits for the twenty-four (24) month time
period.
In the event that, during the twenty-four (24) month period following the
effective date of termination, the Executive becomes employed at the same or
greater annual Base Salary than that which was in effect during the year in
which termination occurred, the Company's obligation to make payments under this
section will immediately cease upon the date of the Executive's re-employment.
In the event that, during the twenty-four (24) month period following the
effective date of termination, the Executive becomes employed at a lesser annual
Base Salary than that which was in effect during the year in which termination
occurred, then upon the date of the Executive's re-employment, the Company's
obligation to make payments under this section will be limited to a monthly
amount reflecting the difference between the Executive's Base Salary at the date
of re-employment and the Executive's Base Salary during the year in which
termination occurred. The continuation of health and welfare benefits shall be
discontinued prior to the end of the twenty-four (24) month period in the event
the Executive has available substantially similar benefits from a subsequent
employer.
Further, the Company shall pay the Executive all other benefits to which the
Executive has a vested right at the time, according to the provisions of the
governing plan or program. With the exceptions of the covenants contained in
Section 8 herein (which shall survive such termination) the Company and the
Executive thereafter shall have no further obligations under this Agreement.
If the Executive's employment is terminated for any of the reasons set forth in
Section 7.1 herein, the Executive shall be entitled to receive the benefits
provided in Section 7.1 herein in lieu of the benefits set forth in this Section
6.5.
6.6 Termination For Cause. Nothing in this Agreement shall be construed to
prevent the Board from terminating the Executive's employment under this
Agreement for "Cause." Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the unanimous
vote of the entire membership of the Board at a meeting of such Board duly
called and held for that purpose (after reasonable notice to the Executive and
an opportunity for the Executive, together with the Executive's counsel, to be
heard by the Board) finding that in the good faith opinion of the Board that the
Executive was guilty of conduct set forth in the second paragraph of this
Section 6.6 and specifying the particulars thereof in detail. In the event the
Board determines that Cause exists, the Board shall deliver written notice to
the Executive of the facts and circumstances leading to the Board's
determination. Upon receipt of this written notification, all provisions of this
Agreement shall terminate, except for the confidentiality and noncompete
provisions of Section 8 herein (which shall survive such termination). The
Company shall pay the Executive his full Base Salary and accrued vacation time
through the date notice of a for Cause termination is delivered to the
Executive, plus all
7
<PAGE>
other benefits to which the Executive has a vested right to at that time. The
Company and the Executive thereafter shall have no further obligations under
this Agreement (other than the Executive's obligations under Section 8 hereof).
"Cause" shall be determined by the Board in the exercise of good faith and
reasonable judgment; and shall mean the willful misconduct, fraud, conviction of
a felony, consistent gross neglect of duties, or wanton negligence by the
Executive in the performance of his duties hereunder, or the material breach by
the Executive of the terms of this Agreement.
6.7 Termination for Good Reason. At any time during the term of this Agreement,
including during the six (6) full calendar month period prior to the effective
date of a Change in Control (as defined in Section 7.2) or the twenty four (24)
month period following the effective date of a Change in Control (as defined in
Section 7.2), the Executive may terminate this Agreement for Good Reason (as
defined below) by giving the Board of Directors of the Company thirty (30)
calendar days written notice of intent to terminate, which notice sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
such termination.
Upon the expiration of the thirty (30) day notice period, the Good Reason
termination shall become effective, and the Company shall pay and provide to the
Executive the benefits set forth in this Section 6.7 (or, in the event of
termination for Good Reason within the six (6) full calendar month period prior
to the effective date of a Change in Control, or within twenty-four (24)
calendar months following the effective date of a Change in Control, the
benefits set forth in Section 7.1 herein).
Good Reason shall mean, without the Executive's express written consent, the
occurrence of any one or more of the following:
(a) The assignment of the Executive to duties materially inconsistent with the
Executive's authorities, duties, responsibilities, and status as an
officer of the Company, or a reduction or alteration in the nature or
status of the Executive's authorities, duties, or responsibilities from
those in effect during the immediately preceding fiscal year;
(b) The Company's requiring the Executive to be based at a location which is at
least fifty (50) miles further from the Executive's current primary
residence than is such residence from the Company's current headquarters,
except for required travel on the Company's business to an extent
substantially consistent with the Executive's business obligations as of
the Effective Date;
(c) A reduction by the Company in the Executive's Base Salary as in effect on
the Effective Date, as provided in Section 4.1 herein, or as the same
shall be increased from time to time;
(d) A material reduction in the Executive's level of participation in any of
the Company's
8
<PAGE>
short- and/or long-term incentive compensation plans, or employee benefit
or retirement plans, policies, practices, or arrangements in which the
Executive participates as of the Effective Date; provided, however, that
reductions in the levels of participation in any such plans shall not be
deemed to be "Good Reason" if the Executive's reduced level of
participation in each such program remains substantially consistent with
the average level of participation of other executives who have positions
commensurate with the Executive's position; or
(e) The failure of the Company to obtain a satisfactory agreement from any
successor to the Company to assume and agree to perform this Agreement,
as contemplated in Section 11.1 herein.
Upon a termination of the Executive's employment for Good Reason at any time
other than the six (6) full calendar month period prior to the effective date of
a Change in Control or the twenty-four (24) month period following the effective
date of a Change in Control, the Executive shall be entitled to receive the same
payments and benefits as he is entitled to receive following an involuntary
termination of his employment by the Company without Cause, as specified in
Section 6.5 herein. The payment of Base Salary shall be made to the Executive in
a lump sum payment within thirty (30) calendar days following the effective date
of employment termination. Upon a termination for Good Reason within the six (6)
full calendar month period prior to the effective date of a Change in Control,
or within the twenty-four (24) months following the effective date of a Change
in Control, the Executive shall be entitled to receive the payments and benefits
set forth in Section 7.1 herein in lieu of those set forth in this Section 6.7.
The Executive's right to terminate employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason herein.
Section 7. Change in Control
7.1 Employment Terminations in Connection with a Change in Control. In the
event of a Qualifying Termination (as defined below) within six (6) full
calendar months prior to the effective date of a Change in Control, or within
twenty-four (24) months following the effective date of a Change in Control,
then in lieu of all other benefits provided to the Executive under the
provisions of this Agreement, the Company shall pay to the Executive in a lump
sum payment and provide him with the following severance benefits (hereinafter
referred to as the "Severance Benefits"):
(a) An amount equal to three (3) times the highest rate of the Executive's
annualized Base Salary rate in effect at any time up to and including the
effective date of termination;
(b) An amount equal to three (3) times the Executive's target incentive award
(both cash and long-term) established for the fiscal year in which the
Executive's effective date of
9
<PAGE>
termination occurs;
(c) An amount equal to the Executive's unpaid Base Salary and accrued vacation
pay through the effective date of termination;
(d) An amount equal to the Executive's unpaid targeted annual bonus,
established for the plan year in which the Executive's effective date of
termination occurs, multiplied by a fraction, the numerator of which is
the number of completed days in the then-existing fiscal year through the
effective date of termination, and the denominator of which is three
hundred sixty-five (365);
(e) A continuation of the welfare benefits of medical insurance, dental
insurance, and group term life insurance for three (3) full years after
the effective date of termination. These benefits shall be provided to
the Executive at the same premium cost, and at the same coverage level,
as in effect as of the Executive's effective date of termination.
However, in the event the premium cost and/or level of coverage shall
change for all employees of the Company, the cost and/or coverage level,
likewise, shall change for the Executive in a corresponding manner.
The continuation of these welfare benefits shall be discontinued prior to
the end of the three (3) year period in the event the Executive has
available substantially similar benefits from a subsequent employer, as
determined by the Company's Board of Directors or the Board's designee.
(f) A lump-sum cash payment of the actuarial present value equivalent of the
aggregate benefits accrued by the Executive as of the effective date of
termination under the terms of any and all supplemental retirement plans
in which the Executive participates. For purposes of determining "final
average pay" under such programs, the Executive's actual pay history as
of the effective date of termination shall be used.
For purposes of this Section 7, a Qualifying Termination shall mean any
termination of the Executive's employment other than: (1) by the Company for
Cause (as provided in Section 6.6 herein); (2) by reason of death, Disability
(as provided in Section 6.2 herein), or Retirement (as such term is then defined
in the Company's tax qualified defined benefit retirement plan; [provided that a
termination which qualifies as a Retirement and which would otherwise qualify as
a termination for Good Reason under Section 6.7 herein will be deemed to be a
Qualifying Termination)]; or (3) by the Executive without Good Reason (as
provided in Section 6.7 herein.)
7.2 Definition of "Change in Control." A Change in Control of the Company shall
be deemed to have occurred as of the first day any one or more of the following
conditions shall have been satisfied:
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(a) Any individual, corporation (other than the Company), partnership, trust,
association, pool, syndicate, or any other entity or any group of persons
acting in concert becomes the beneficial owner, as that concept is
defined in Rule 13d-3 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, of securities of
the Company possessing twenty percent (20%) or more of the voting power
for the election of directors of the Company;
(b) There shall be consummated any consolidation, merger, or other business
combination involving the Company or the securities of the Company in
which holders of voting securities of the Company immediately prior to
such consummation own, as a group, immediately after such consummation,
voting securities of the Company (or, if the Company does not survive
such transaction, voting securities of the corporation surviving such
transaction) having less than sixty percent (60%) of the total voting
power in an election of directors of the Company (or such other surviving
corporation);
(c) During any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the directors of the Company cease
for any reason to constitute at least a majority thereof unless the
election, or the nomination for election by the Company's shareholders,
of each new director of the Company was approved by a vote of at least
two-thirds (2/3) of the directors of the Company then still in office who
were directors of the Company at the beginning of any such period; or
(d) There shall be consummated any sale, lease, exchange, or other transfer (in
one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company (on a consolidated basis)
to a party which is not controlled by or under common control with the
Company.
7.3 Excise Tax Equalization Payment. In the event that the Executive becomes
entitled to Severance Benefits or any other payment or benefit under this Plan,
or under any other agreement with or plan of the Company (in the aggregate, the
"Total Payments"), if any of the Total Payments will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may
hereafter be imposed), the Company shall pay to the Executive in cash an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive after deduction of any Excise Tax upon the Total Payments and any
Federal, state and local income tax and Excise Tax upon the Gross-Up Payment
provided for by this Section 7.3 (including FICA and FUTA), shall be equal to
the Total Payments. Such payment shall be made by the Company to the Executive
as soon as practical following the effective date of termination, but in no
event beyond thirty (30) days from such date.
7.4 Tax Computation. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amounts of such Excise Tax:
(a) Any other payments or benefits received or to be received by the Executive
in connection
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with a Change in Control of the Company or the Executive's termination of
employment (whether pursuant to the terms of this Plan or any other plan,
arrangement, or agreement with the Company, or with any person (which
shall have the meaning set forth in Section 3(a)(9) of the Securities
Exchange Act of 1934, including a "group" as defined in Section 13(d)
therein) whose actions result in a Change in Control of the Company or
any person affiliated with the Company or such persons) shall be treated
as "parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the
opinion of tax counsel as supported by the Company's independent auditors
and acceptable to the Executive, such other payments or benefits (in
whole or in part) do not constitute parachute payments, or unless such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code, or are otherwise not subject to the
Excise Tax;
(b) The amount of the Total Payments which shall be treated as subject to the
Excise Tax shall be equal to the lesser of: (i) the total amount of the
Total Payments; or (ii) the amount of excess parachute payments within
the meaning of Section 280G(b)(1) (after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred payment or benefit shall
be determined by the Company's independent auditors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
Federal income taxation in the calendar year in which the Gross-Up Payment is to
be made, and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the effective
date of termination, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes.
7.5 Subsequent Recalculation. In the event the Internal Revenue Service adjusts
the computation of the Company under Section 7.4 herein so that the Executive
did not receive the greatest net benefit, the Company shall reimburse the
Executive for the full amount necessary to make the Executive whole, plus a
market rate of interest, as determined by the Committee.
7.6 Payment of Legal Fees. To the extent permitted by law, the Company shall
pay all legal fees, costs of litigation, prejudgment interest, and other
expenses incurred in good faith by the Executive as a result of the Company's
refusal to provide the severance benefits under this Section 7 to which the
Executive becomes entitled under this Agreement, or as a result of the Company's
contesting the validity, enforceability, or interpretation of this Agreement, or
as a result of any conflict (including conflicts related to the calculation of
parachute payments) between the parties pertaining to this Agreement.
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Section 8. Confidentiality and Noncompetition
8.1 Confidentiality. During the term of this Agreement and thereafter in
perpetuity, the Executive will not directly or indirectly divulge or appropriate
to his own use, or to the use of any third party, and "trade secrets" (as
defined in Section 8.3), other secret or confidential information, knowledge or
financial information of the Company or any of the Company's subsidiaries or
affiliates (hereinafter, the Company and its subsidiaries and affiliates shall
be collectively referred to as the "Company Group"), except as may be in the
public domain other than by violation of this Agreement.
8.2 Noncompetition. From the date hereof until two (2) years after the
termination of his employment hereunder, the Executive will not (i) directly or
indirectly own any equity or proprietary interest in (except for ownership of
shares in a publicly traded company not exceeding five percent (5%) of any class
of outstanding securities), or be an employee, agent, director, advisor, or
consultant to or for any corporation (other than the Company Group), business
enterprise or any person engaged anywhere in the State of Rhode Island or the
Commonwealth of Massachusetts, whether on his own behalf or on behalf of any
person other than the Company Group, in the manufacture, procuring, sale,
marketing, promotion or distribution of any product or product lines functioning
competitively with any product or product lines of the Company Group during the
term of this Agreement, and the Executive will not assist in, manage or
supervise any of the foregone activities; (ii) undertake any action to induce or
cause any customer or client of the Company Group to discontinue any part of its
business with the Company Group; (iii) cause, induce or in any way facilitate
the employment by any other persons or organization of any employee of or
consultant to the Company Group, provided, that this covenant shall become
operative only upon the termination of the Executive's employment; or (iv) take
or assist directly or indirectly in the taking, by acting as consultant to a
third party or otherwise, of any position on any matter involving the Company
and pending before any state or other public agency, when such position is
adverse to the position being promoted before such agency at the time by the
Company.
8.3 Trade Secrets. "Trade Secrets" as used herein means all secret discoveries,
invention, formulae, designs, methods, processes, techniques of production and
know-how relating to the Company Group's business. "Confidential Information" as
used herein means the Company Group's internal policies and procedures,
suppliers, customers, financial information and marketing practices, as well as
secret discoveries, inventions, formulae, designs, techniques of production,
know-how and other information relating to the Company Group's business not
rising to the level of a trade secret under applicable law.
8.4 The breach by the Executive of any of the covenants contained in this
Section 8 shall relieve the Company of all further payment obligations under
Section 6 or Section 7.
Section 9. Indemnification
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The Company hereby covenants and agrees to indemnify and hold harmless the
Executive fully, completely, and absolutely against and in respect to any and
all actions, suits, proceedings, claims, demands, judgments, costs, expenses
(including attorney's fees), losses, and damages resulting from the Executive's
good faith performance of his duties and obligations under the terms of this
Agreement.
Section 10. Outplacement Assistance
Following a termination of the Executive's employment as described in Sections
6.5, 6.7, or 7.1 herein, the Executive shall be reimbursed by the Company for
the costs of all outplacement services obtained by the Executive within the two
(2) year period (for terminations pursuant to Sections 6.5 and 6.7) and three
(3) year (for terminations pursuant to Section 7.1) periods after the effective
date of termination; provided, however, that the total reimbursement shall be
limited to an amount equal to fifteen percent (15%) of the Executive's Base
Salary as of the effective date of termination.
Section 11. Assignment
11.1. Assignment by Company. This Agreement may and shall be assigned or
transferred to, and shall be binding upon and shall inure to the benefit of, any
successor of the Company, and any such successor shall be deemed substituted for
all purposes of the "Company" under the terms of this Agreement. As used in this
Agreement, the term "successor" shall mean any person, firm, corporation, or
business entity which at any time, whether by merger, purchase, or otherwise,
acquires all or essentially all of the assets of business of the Company.
Notwithstanding such assignment, the Company shall remain, with such successor,
jointly and severally liable for all its obligations hereunder.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall immediately
entitle the Executive to compensation from the Company in the same amount and on
the same terms as the Executive would be entitled in the event of an involuntary
termination by the Company, as provided in Paragraph 6.5 herein.
Except as herein provided, this Agreement may not otherwise be assigned by the
Company.
11.2 Assignment by Executive. This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives, executors,
and administrators, successors, heirs, distributees, devisees, and legatees. If
the Executive should die while any amounts payable to the Executive hereunder
remain outstanding, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, in the absence of such designee, to the
Executive's estate.
Section 12. Dispute Resolution and Notice
12.1. Arbitration. Any dispute or controversy arising under or in connection
with this
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Agreement shall be settled by arbitration, conducted before a panel of three (3)
arbitrators sitting in a location selected by the Executive within fifty (50)
miles from the location of his employment with the Company, in accordance with
the rules of the American Arbitration Association then in effect.
Judgment may be entered on the award of the arbitrator in any court having
proper jurisdiction. All expenses of such arbitration, including the fees and
expenses of the counsel for the Executive, shall be borne by the Company.
12.2. Notice. Any notices, requests, demands, or other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, at its principal
offices.
Section 13. Miscellaneous
13.1. Gender and Number. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
13.2. Entire Agreement. This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto or between the
Executive and the Company, with respect to the subject matter hereof and
constitutes the entire Agreement of the parties with respect thereto.
13.3. Modification. This Agreement shall not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement of the
parties in a written instrument executed by the parties hereto or their legal
representatives.
13.4. Severability. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall be unaffected thereby and shall remain in
full force and effect.
13.5. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
13.6. Tax Withholding. The Company may withhold from any benefits payable under
this Agreement all federal, state, city, or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
13.7. Beneficiaries. The Executive may designate one or more persons or entities
as the primary and/or contingent beneficiaries of any amounts to be received
under this Agreement. Such designation must be in the form of a signed writing
acceptable to the Board or the Board's
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designee. The Executive may make or change such designation at any time.
Section 14. Governing Law
To the extent not preempted by federal law, the provisions of this Agreement
shall be construed and enforced in accordance with the laws of the state of
Rhode Island.
IN WITNESS WHEREOF, the Executive and the Company (pursuant to a resolution
adopted at a duly constituted meeting of its Board of Directors) have executed
this Agreement, as of the day and year first above written.
Executive:
/s/ James H. Dodge
-----------------------------------------
ATTEST Providence Energy Corporation
By: /s/ Alycia C. Goody By: /s/ John H. Howland
------------------------- --------------------------------------
Corporate Secretary Chairman, Human Resources and Planning
Committee
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Contents Exhibit 10.3
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Term of Employment 1
Section 2. Position and Responsibilities 2
Section 3. Standard of Care 2
Section 4. Compensation 3
Section 5. Expenses 5
Section 6. Employment Terminations 5
Section 7. Change in Control 10
Section 8. Confidentiality and Noncompetition 13
Section 9. Indemnification 14
Section 10. Assignment 14
Section 11. Dispute Resolution and Notice 15
Section 12. Miscellaneous 15
Section 13. Governing Law 16
</TABLE>
<PAGE>
Providence Energy Corporation
Employment Agreement
This EMPLOYMENT AGREEMENT is made, entered into, and is effective as of this
29th day of October, 1997 (hereinafter referred to as the "Effective Date"), by
and between Providence Energy Corporation, together with its subsidiaries and
affiliates (hereinafter referred to as the "Company"), a Rhode Island
corporation having its principal offices at Providence Rhode Island and James
DeMetro (hereinafter referred to as the "Executive").
WHEREAS, the Executive is presently employed by the Company in the capacity of
Senior Vice President of the Company;
WHEREAS, the Executive possesses considerable experience and an intimate
knowledge of the business and affairs of the Company, its policies, methods,
personnel, and operations; and
WHEREAS, the Company recognizes that the Executive's contribution has been
substantial and meritorious and, as such, the Executive has demonstrated unique
qualifications to act in an executive capacity for the Company; and
WHEREAS, the Company is desirous of assuring the continued employment of the
Executive in the above stated capacity, and Executive is desirous of having such
assurance.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and
agreements of the parties set forth in this Agreement, and of other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
Section 1. Term of Employment
The Company hereby agrees to employ the Executive and the Executive hereby
agrees to continue to serve the Company, in accordance with the terms and
conditions set forth herein, for an initial period of three years, commencing as
of the Effective Date of this Agreement, as indicated above; subject, however,
to earlier termination as expressly provided in Section 6 herein.
The initial three (3) year period of employment automatically shall be extended
for one (1) additional year at the end of the initial three (3) year term, and
then again after each successive year thereafter. However, either party may
terminate this Agreement at the end of the initial three (3) year period, or at
the end of any successive term thereafter, by giving the other party written
notice of intent not to renew, delivered at least ninety (90) calendar days
prior to the end of such initial period or successive term.
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In the event such notice of intent not to renew is properly delivered by the
Company, this Agreement, along with all corresponding rights, duties, and
covenants, shall automatically expire at the end of the initial period or
successive term then in progress, with the exception of the provisions contained
in Section 8 herein (which shall survive such expiration). However, upon the
effective date of the expiration, the Company shall provide to the Executive a
continuation of his Base Salary (at the rate then in effect, as provided in
Paragraph 4.1 herein) for a period of twelve (12) months, paid in equal monthly
installments in accordance with the normal payroll practices of the Company. The
Company also shall provide to the Executive all benefits to which the Executive
has a vested right to at that time including, but not limited to, the retirement
benefits described in Paragraph 4.4 herein, and the retiree medical insurance
benefits described in Paragraph 4.6 herein.
However, regardless of the above, if at any time during the initial period of
employment, or successive term, a Change in Control of the Company occurs (as
defined in Section 7 herein), then this Agreement shall become immediately
irrevocable for the longer of: (a) three (3) years beyond the month in which the
effective date of such Change in Control occurs; or (b) until all obligations of
the Company hereunder have been fulfilled, and until all benefits provided
hereunder have been paid.
Section 2. Position and Responsibilities
During the term of this Agreement, the Executive agrees to serve as Senior Vice
President of the Company. In his capacity as Senior Vice President, the
Executive shall maintain the level of duties and responsibilities as in effect
as of the Effective Date, or such higher level of duties and responsibilities as
he may be assigned during the term of this Agreement. The Executive shall have
the same status, privileges, and responsibilities normally inherent in such
capacities in corporations of similar size and character.
Section 3. Standard of Care
During the term of this Agreement, the Executive agrees to devote substantially
his full time, attention, and energies to the Company's business and shall not
be engaged in any other business activity, whether or not such business activity
is pursued for gain, profit, or other pecuniary advantage. However, subject to
Section 8 herein, the Executive may serve as a director of other companies so
long as such service is not injurious to the Company. The Executive covenants,
warrants, and represents that he shall:
(a) Devote his full and best efforts to the fulfillment of his employment
obligations; and
(b) Exercise the highest degree of loyalty and the highest standards of
conduct in the performance of his duties.
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This Section 3 shall not be construed as preventing the Executive from investing
assets in such form or manner as will not require his services in the daily
operations of the affairs of the companies in which such investments are made.
Section 4. Compensation
As remuneration for all services to be rendered by the Executive during the term
of this Agreement, and as consideration for complying with the covenants herein,
the Company shall pay and provide to the Executive the following:
4.1 Base Salary. The Company shall pay the Executive a Base Salary in an amount
which shall be established from time to time by the Board of Directors of the
Company or the Board's designee provided, however, that such Base Salary shall
not be less than $163,000.00 per year. This Base Salary shall be paid to the
Executive in equal monthly installments throughout the year, consistent with the
normal payroll practices of the Company.
The annual Base Salary shall be reviewed at least annually following the
Effective Date of this Agreement, while this Agreement is in force, to ascertain
whether, in the judgment of the Board or the Board's designee, such Base Salary
should be increased, based primarily on the performance of the Executive during
the year and on the then current rate of inflation. If so increased, the Base
Salary as stated above shall, likewise, be increased for all purposes of this
Agreement.
4.2 Annual Cash Incentive Compensation. The Company shall provide the Executive
with the opportunity to earn an annual cash incentive compensation payment, at a
level which is in accordance with the provisions of the Performance and Equity
Incentive Plan or any such successor plan, and which is commensurate with the
opportunity typically offered to executives having the same or similar duties
and responsibilities as the Executive at companies similar in size and character
to the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing and/or amending the Performance and Equity Incentive Plan
so long as such changes are similarly applicable to all executives generally.
4.3 Long-Term Incentives. The Company shall provide the Executive the
opportunity to earn a long-term incentive award, at a level which is in
accordance with the provisions of the Performance and Equity Incentive Plan or
any such successor plan, and which is commensurate with the opportunity
typically offered to executives having the same or similar duties and
responsibilities as the Executive at companies similar in size and in character
to the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing,
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and/or amending the Performance and Equity Incentive Plan, so long as such
changes are similarly applicable to all executives generally.
4.4 Retirement Benefits. The Company shall provide to the Executive
participation in all Company qualified defined benefit and defined contribution
retirement plans, subject to the eligibility and participation requirements of
such plans. In addition, the Company shall provide to the Executive
participation in the Supplemental Retirement Plan and all other nonqualified
retirement programs typically offered to executives having the same or similar
duties and responsibilities at the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing, and/or amending the nonqualified retirement programs, so
long as such changes are similarly applicable to all executives generally.
4.5 Employee Benefits. During the term of this Agreement, and as otherwise
provided within the provisions of each of the respective plans, the Company
shall provide to the Executive all benefits to which other executives and
employees of the Company are entitled to receive, as commensurate with the
Executive's position. Such benefits shall include, but not be limited to, group
term life insurance, whole life insurance, comprehensive health and major
medical insurance, dental insurance, vision insurance, and short-term and long-
term disability.
The Executive shall be entitled to paid vacation in accordance with the standard
written policy of the Company with regard to vacations of employees. The
Executive shall likewise participate in any additional benefit as may be
established during the term of this Agreement, by standard written policy of the
Company.
4.6 Perquisites. The Company shall provide to the Executive, at the Company's
cost, all perquisites to which other executives of the Company are entitled to
receive and such other perquisites which are suitable to the character of
Executive's position with the Company and adequate for the performance of his
duties hereunder.
4.7 Right to Change Plans. By reason of Paragraphs 4.5, and 4.6 herein, the
Company shall not be obligated to institute, maintain, or refrain from changing,
amending, or discontinuing any benefit plan, program, or perquisite, so long as
such changes are similarly applicable to executive employees generally.
4.8 Deferrals. The Company may permit the Executive to defer the Executive's
receipt of the payment of up to one hundred (100%) percent of the cash component
of the Executive's Annual Incentive Compensation. If any such deferral election
is permitted, the Company shall, in its sole discretion, establish rules and
procedures for such payment deferrals.
Section 5. Expenses
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The Company shall pay, or reimburse the Executive, for all ordinary and
necessary expenses, in a reasonable amount, which the Executive incurs in
performing his duties under this Agreement including, but not limited to,
travel, entertainment, professional dues and subscriptions, and all dues, fees,
and expenses associated with membership in various professional, business, and
civic associations and societies of which the Executive's participation is in
the best interest of the Company.
Section 6. Employment Terminations
6.1 Termination Due to Retirement. In the event the Executive's employment is
terminated, while this Agreement is in force, by reason of Retirement (as
defined under the then established rules of the Company's tax-qualified
retirement plan), the Executive's benefits shall be determined in accordance
with the Company's retirement, survivor's benefits, insurance, and other
applicable programs of the Company then in effect.
Upon the effective date of such termination, the Company's obligation to pay and
provide to the Executive Base Salary, Annual Cash Incentive Compensation and
Long-Term Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3 herein,
respectively), shall immediately expire. However, the Executive shall receive a
pro rata portion of the total annual incentive compensation (both cash and
long-term), calculated at target, to which he would be entitled during the year
in which he retires, and shall receive all rights and benefits that he is vested
in, pursuant to other plans and programs of the Company including, but not
limited to, the retirement benefits as described in Paragraph 4.4 herein.
6.2 Termination Due to Death. In the event of the death of the Executive during
the term of this Agreement, or during any period of Disability during which he
is receiving compensation pursuant to Paragraph 6.3 herein, the Company shall
pay to the Executive's surviving spouse, or other beneficiary as so designated
by the Executive during his lifetime, or to the Executive's estate, as
appropriate, all benefits to which the Executive had a vested right to pursuant
to this Agreement.
6.3 Termination Due to Disability. In the event that the Executive becomes
Disabled during the term of this Agreement and is, therefore, unable to perform
his duties herein for a period of more than ninety (90) calendar days in the
aggregate, during any period of twelve (12) consecutive months, or in the event
of the Board's reasonable expectation that the Executive's Disability will exist
for more than a period of ninety (90) calendar days, the Company shall have the
right to terminate the Executive's active employment as provided in this
Agreement. However, the Board shall deliver written notice to the Executive of
the Company's intent to terminate for Disability at least thirty (30) calendar
days prior to the effective date of such termination.
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A termination for Disability shall become effective upon the end of the thirty
(30) day notice period. Upon such effective date, the Company's obligation to
pay and provide to the Executive Base Salary, Annual Bonus, and Long-Term
Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3, respectively), shall
immediately expire. However, the Executive shall receive a pro rata portion of
the total annual incentive compensation (both cash and long-term), calculated at
target, to which he would be entitled during the year in which disability occurs
and shall receive all rights and benefits that he is vested in, pursuant to
other plans and programs of the Company, including, but not limited to, short-
and long-term disability benefits, and retirement benefits as described in
Paragraph 4.4.
The term "Disability" shall mean, for all purposes of this Agreement, the
incapacity of the Executive, due to injury, illness, disease, or bodily or
mental infirmity, to engage in the performance of substantially all of the usual
duties of employment with the Company as contemplated by Section 2 herein, such
Disability to be determined by the Board of Directors of the Company upon
receipt and in reliance on competent medical advice from one or more
individuals, selected by the Board, who are qualified to give such professional
medical advice.
If the Executive and the Company shall not be in agreement as to whether the
Executive has suffered a Disability for the purposes of this Agreement, the
matter shall be referred to a panel of three medical doctors, one of which shall
be selected by the Executive, one of which shall be selected by the Company, and
one of which shall be selected by the two doctors as so selected, and the
decision of a majority of the panel with respect to the question of whether the
Executive has suffered a Disability shall be binding upon the Executive and the
Company. The expenses of any such referral shall be borne by the party against
whom the decision of the panel is rendered. The Executive may be required by the
Company to submit to medical examination at any time during the period of his
employment hereunder, but not more often than quarter-annually, to determine
whether a Disability exists for the purposes of this Agreement.
It is expressly understood that the Disability of the Executive for a period of
ninety (90) calendar days or less in the aggregate during any period of twelve
(12) consecutive months, in the absence of any reasonable expectation that his
Disability will exist for more than such a period of time, shall not constitute
a failure by him to perform his duties hereunder and shall not be deemed a
breach or default and the Executive shall receive full compensation for any such
period of Disability or for any other temporary illness or incapacity during the
term of this Agreement.
6.4 Voluntary Termination by the Executive. The Executive may terminate this
Agreement at any time by giving the Board of Directors of the Company written
notice of intent to terminate, delivered at least thirty (30) calendar days
prior to the effective date of such termination (such period not to include
vacation). The termination automatically shall become effective upon the
expiration of the thirty (30) day notice period.
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Upon the effective date of such termination, the Company shall pay to the
Executive his full Base Salary, at the rate then in effect as provided in
Paragraph 4.1 herein, through the effective date of termination, plus all other
benefits to which the Executive has a vested right to at that time including,
but not limited to, accrued vacation pay. The Company also shall provide to the
Executive the vested retirement benefits described in Paragraph 4.4 herein. With
the exception of the covenants contained in Sections 8.1, 8.3 and 8.4 herein
(which shall survive such termination), the Company and the Executive thereafter
shall have no further obligations under this Agreement.
6.5 Involuntary Termination by the Company Without Cause. At all times prior to
six (6) full calendar months before the effective date of a Change in Control
(as defined in Section 7.2), or at any time more than two (2) years after the
effective date of a Change in Control (as defined in Section 7.2), the Board may
terminate the Executive's employment, as provided under this Agreement, at any
time, for reasons other than death, Disability, Retirement, or for Cause, by
notifying the Executive in writing of the Company's intent to terminate, at
least thirty (30) calendar days prior the effective date of such termination.
Upon the effective date of such termination, following the expiration of the
thirty (30) day notice period, the Company shall pay to the Executive in twelve
(12) equal monthly installments an amount equal to the Executive's annual Base
Salary then in effect. Additionally, the Company shall continue to provide the
Executive with health and welfare benefits for the twelve (12) month time
period.
In the event that, during the twelve (12) month period following the effective
date of termination, the Executive becomes employed at the same or greater
annual Base Salary than that which was in effect during the year in which
termination occurred, the Company's obligation to make payments under this
Section will immediately cease upon the date of the Executive's subsequent
employment. In the event that, during the twelve (12) month period following
the effective date of termination, the Executive becomes employed at a lesser
annual Base Salary than that which was in effect during the year in which
termination occurred, then upon the date of the Executive's re-employment, the
Company's obligation to make payments under this section will be limited to a
monthly amount reflecting the difference between the Executive's Base Salary at
the date of re-employment and the Executive's Base Salary during the year in
which termination occurred. The continuation of health and welfare benefits
shall be discontinued prior to the end of the twelve (12) month period in the
event the Executive has available substantially similar benefits from a
subsequent employer.
Further, the Company shall pay the Executive all other benefits to which the
Executive has a vested right at the time, according to the provisions of the
governing plan or program. With the exceptions of the covenants contained in
Section 8 herein (which shall survive such termination)
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the Company and the Executive thereafter shall have no further obligations under
this Agreement.
If the Executive's employment is terminated for any of the reasons set forth in
Section 7.1 herein, the Executive shall be entitled to receive the benefits
provided in Section 7.1 herein in lieu of the benefits set forth in this Section
6.5.
6.6 Termination For Cause. Nothing in this Agreement shall be construed to
prevent the Board from terminating the Executive's employment under this
Agreement for "Cause." Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the unanimous
vote of the entire membership of the Board at a meeting of such Board duly
called and held for that purpose (after reasonable notice to the Executive and
an opportunity for the Executive, together with the Executive's counsel, to be
heard by the Board) finding that in the good faith opinion of the Board that the
Executive was guilty of conduct set forth in the second paragraph of this
Section 6.6 and specifying the particulars thereof in detail. In the event the
Board determines that Cause exists, the Board shall deliver written notice to
the Executive of the facts and circumstances leading to the Board's
determination. Upon receipt of this written notification, all provisions of this
Agreement shall terminate, except for the confidentiality and noncompete
provisions of Section 8 herein (which shall survive such termination). The
Company shall pay the Executive his full Base Salary and accrued vacation time
through the date notice of a for Cause termination is delivered to the
Executive, plus all other benefits to which the Executive has a vested right to
at that time. The Company and the Executive thereafter shall have no further
obligations under this Agreement other than the Executive's obligations under
Section 8 hereof.
"Cause" shall be determined by the Board in the exercise of good faith and
reasonable judgment; and shall mean the willful misconduct, fraud, conviction of
a felony, consistent gross neglect of duties, or wanton negligence by the
Executive in the performance of his duties hereunder, or the material breach by
the Executive of the terms of this Agreement.
6.7 Termination for Good Reason. At any time during the six (6) full calendar
month period prior to the effective date of a Change in Control (as defined in
Section 7.2) or the twenty four (24) month period following the effective date
of a Change in Control (as defined in Section 7.2), the Executive may terminate
this Agreement for Good Reason (as defined below) by giving the Board of
Directors of the Company thirty (30) calendar days written notice of intent to
terminate, which notice sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for such termination.
Upon the expiration of the thirty (30) day notice period, the Good Reason
termination shall
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become effective, and the Company shall pay and provide to the Executive the
benefits set forth in in Section 7.1 herein.
Good Reason shall mean, without the Executive's express written consent, the
occurrence of any one or more of the following:
(a) The assignment of the Executive to duties materially inconsistent with the
Executive's authorities, duties, responsibilities, and status as an
officer of the Company, or a reduction or alteration in the nature or
status of the Executive's authorities, duties, or responsibilities from
those in effect during the immediately preceding fiscal year;
(b) The Company's requiring the Executive to be based at a location which is
at least fifty (50) miles further from the Executive's current primary
residence than is such residence from the Company's current headquarters,
except for required travel on the Company's business to an extent
substantially consistent with the Executive's business obligations as of
the Effective Date;
(c) A reduction by the Company in the Executive's Base Salary as in effect on
the Effective Date, as provided in Section 4.1 herein, or as the same
shall be increased from time to time;
(d) A material reduction in the Executive's level of participation in any of
the Company's short- and/or long-term incentive compensation plans, or
employee benefit or retirement plans, policies, practices, or arrangements
in which the Executive participates as of the Effective Date; provided,
however, that reductions in the levels of participation in any such plans
shall not be deemed to be "Good Reason" if the Executive's reduced level
of participation in each such program remains substantially consistent
with the average level of participation of other executives who have
positions commensurate with the Executive's position; or
(e) The failure of the Company to obtain a satisfactory agreement from any
successor to the Company to assume and agree to perform this Agreement, as
contemplated in Section 11.1 herein.
Upon a termination for Good Reason within the six (6) full calendar month period
prior to the effective date of a Change in Control, or within the twenty-four
(24) months following the effective date of a Change in Control, the Executive
shall be entitled to receive the payments and benefits set forth in Section 7.1
herein.
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The Executive's right to terminate employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason herein.
Section 7. Change in Control
7.1 Employment Terminations in Connection with a Change in Control. In the
event of a Qualifying Termination (as defined below) within six (6) full
calendar months prior to the effective date of a Change in Control, or within
twenty-four (24) months following the effective date of a Change in Control,
then in lieu of all other benefits provided to the Executive under the
provisions of this Agreement, the Company shall pay to the Executive in a lump
sum payment and provide him with the following severance benefits (hereinafter
referred to as the "Severance Benefits"):
(a) An amount equal to two (2) times the highest rate of the Executive's
annualized Base Salary rate in effect at any time up to and including the
effective date of termination;
(b) An amount equal to two (2) times the Executive's target incentive award
(both cash and long-term) established for the fiscal year in which the
Executive's effective date of termination occurs;
(c) An amount equal to the Executive's unpaid Base Salary and accrued vacation
pay through the effective date of termination;
(d) An amount equal to the Executive's unpaid targeted annual bonus,
established for the plan year in which the Executive's effective date of
termination occurs, multiplied by a fraction, the numerator of which is
the number of completed days in the thenexisting fiscal year through the
effective date of termination, and the denominator of which is three
hundred sixty five (365);
(e) A continuation of the welfare benefits of medical insurance, dental
insurance, and group term life insurance for two (2) full years after the
effective date of termination. These benefits shall be provided to the
Executive at the same premium cost, and at the same coverage level, as in
effect as of the Executive's effective date of termination. However, in
the event the premium cost and/or level of coverage shall change for all
employees of the Company, the cost and/or coverage level, likewise, shall
change for the Executive in a corresponding manner.
The continuation of these welfare benefits shall be discontinued prior to
the end of the two (2) year period in the event the Executive has
available substantially similar
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benefits from a subsequent employer, as determined by the Company's Board
of Directors or the Board's designee.
(f) A lump-sum cash payment of the actuarial present value equivalent of the
aggregate benefits accrued by the Executive as of the effective date of
termination under the terms of any and all supplemental retirement plans
in which the Executive participates. For purposes of determining "final
average pay" under such programs, the Executive's actual pay history as of
the effective date of termination shall be used.
For purposes of this Section 7, a Qualifying Termination shall mean any
termination of the Executive's employment other than: (1) by the Company for
Cause (as provided in Section 6.6 herein); (2) by reason of death, Disability
(as provided in Section 6.2 herein), or Retirement (as such term is then defined
in the Company's tax qualified defined benefit retirement plan; [provided that a
termination which qualifies as a Retirement and which would otherwise qualify as
a termination for Good Reason under Section 6.7 herein will be deemed to be a
Qualifying Termination]).
7.2 Definition of "Change in Control." A Change in Control of the Company shall
be deemed to have occurred as of the first day any one or more of the following
conditions shall have been satisfied:
(a) Any individual, corporation (other than the Company), partnership, trust,
association, pool, syndicate, or any other entity or any group of persons
acting in concert becomes the beneficial owner, as that concept is defined
in Rule 13d-3 promulgated by the Securities and Exchange Commission under
the Securities Exchange Act of 1934, of securities of the Company
possessing twenty percent (20%) or more of the voting power for the
election of directors of the Company;
(b) There shall be consummated any consolidation, merger, or other business
combination involving the Company or the securities of the Company in
which holders of voting securities of the Company immediately prior to
such consummation own, as a group, immediately after such consummation,
voting securities of the Company (or, if the Company does not survive such
transaction, voting securities of the corporation surviving such
transaction) having less than sixty percent (60%) of the total voting
power in an election of directors of the Company (or such other surviving
corporation);
(c) During any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the directors of the Company cease for
any reason to constitute at least a majority thereof unless the election,
or the nomination for election by the Company's shareholders, of each new
director of the Company was approved by a vote of at least
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two-thirds (2/3) of the directors of the Company then still in office
who were directors of the Company at the beginning of any such period; or
(d) There shall be consummated any sale, lease, exchange, or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company (on a consolidated basis)
to a party which is not controlled by or under common control with the
Company.
7.3 Excise Tax Equalization Payment. In the event that the Executive becomes
entitled to Severance Benefits or any other payment or benefit under this Plan,
or under any other agreement with or plan of the Company (in the aggregate, the
"Total Payments"), if any of the Total Payments will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may
hereafter be imposed), the Company shall pay to the Executive in cash an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive after deduction of any Excise Tax upon the Total Payments and any
Federal, state and local income tax and Excise Tax upon the Gross-Up Payment
provided for by this Section 7.3 (including FICA and FUTA), shall be equal to
the Total Payments. Such payment shall be made by the Company to the Executive
as soon as practical following the effective date of termination, but in no
event beyond thirty (30) days from such date.
7.4 Tax Computation. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amounts of such Excise Tax:
(a) Any other payments or benefits received or to be received by the Executive
in connection with a Change in Control of the Company or the Executive's
termination of employment (whether pursuant to the terms of this Plan or
any other plan, arrangement, or agreement with the Company, or with any
person (which shall have the meaning set forth in Section 3(a)(9) of the
Securities Exchange Act of 1934, including a "group" as defined in Section
13(d) therein) whose actions result in a Change in Control of the Company
or any person affiliated with the Company or such persons) shall be
treated as "parachute payments" within the meaning of Section 280G(b)(2)
of the Code, and all "excess parachute payments" within the meaning of
Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless
in the opinion of tax counsel as supported by the Company's independent
auditors and acceptable to the Executive, such other payments or benefits
(in whole or in part) do not constitute parachute payments, or unless such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise
Tax;
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(b) The amount of the Total Payments which shall be treated as subject to the
Excise Tax shall be equal to the lesser of: (i) the total amount of the
Total Payments; or (ii) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) (after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred payment or benefit shall
be determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
Federal income taxation in the calendar year in which the Gross-Up Payment is to
be made, and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the effective
date of termination, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes.
7.5 Subsequent Recalculation. In the event the Internal Revenue Service adjusts
the computation of the Company under Section 7.4 herein so that the Executive
did not receive the greatest net benefit, the Company shall reimburse the
Executive for the full amount necessary to make the Executive whole, plus a
market rate of interest, as determined by the Committee.
7.6 Payment of Legal Fees. To the extent permitted by law, the Company shall
pay all legal fees, costs of litigation, prejudgment interest, and other
expenses incurred in good faith by the Executive as a result of the Company's
refusal to provide the severance benefits under this Section 7 to which the
Executive becomes entitled under this Agreement, or as a result of the Company's
contesting the validity, enforceability, or interpretation of this Agreement, or
as a result of any conflict (including conflicts related to the calculation of
parachute payments) between the parties pertaining to this Agreement.
Section 8. Confidentiality and Noncompetition
8.1 Confidentiality. During the term of this Agreement and thereafter in
perpetuity, the Executive will not directly or indirectly divulge or appropriate
to his own use, or to the use of any third party, and "trade secrets" (as
defined in Section 8.3), other secret or confidential information, knowledge or
financial information of the Company or any of the Company's subsidiaries or
affiliates (hereinafter, the Company and its subsidiaries and affiliates shall
be collectively referred to as the "Company Group"), except as may be in the
public domain other than by violation of this Agreement.
8.2 Noncompetition. From the date hereof until two (2) years after the
termination of his employment hereunder, the Executive will not (i) directly or
indirectly own any equity or
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proprietary interest in (except for ownership of shares in a publicly traded
company not exceeding five percent (5%) of any class of outstanding securities),
or be an employee, agent, director, advisor, or consultant to or for any
corporation (other than the Company Group), business enterprise or any person
engaged anywhere in the State of Rhode Island or the Commonwealth of
Massachusetts, whether on his own behalf or on behalf of any person other than
the Company Group, in the manufacture, procuring, sale, marketing, promotion or
distribution of any product or product lines functioning competitively with any
product or product lines of the Company Group during the term of this Agreement,
and the Executive will not assist in, manage or supervise any of the foregone
activities; (ii) undertake any action to induce or cause any customer or client
of the Company Group to discontinue any part of its business with the Company
Group; (iii) cause, induce or in any way facilitate the employment by any other
persons or organization of any employee of or consultant to the Company Group,
provided, that this covenant shall become operative only upon the termination of
the Executive's employment; or (iv) take or assist directly or indirectly in the
taking, by acting as consultant to a third party or otherwise of any position on
any matter involving the Company and pending before any state or other public
agency, when such position is adverse to the position being promoted before such
agency at the time by the Company.
8.3 Trade Secrets. "Trade Secrets" as used herein means all secret discoveries,
invention, formulae, designs, methods, processes, techniques of production and
know-how relating to the Company Group's business. "Confidential Information" as
used herein means the Company Group's internal policies and procedures,
suppliers, customers, financial information and marketing practices, as well as
secret discoveries, inventions, formulae, designs, techniques of production,
know-how and other information relating to the Company Group's business not
rising to the level of a trade secret under applicable law.
8.4 The breach by the Executive of any of the covenants continued in this
Paragraph 8 shall relieve the company of all further payment obligation under
Paragraph 6 or Paragraph 7.
Section 9. Indemnification
The Company hereby covenants and agrees to indemnify and hold harmless the
Executive fully, completely, and absolutely against and in respect to any and
all actions, suits, proceedings, claims, demands, judgments, costs, expenses
(including attorney's fees), losses, and damages resulting from the Executive's
good faith performance of his duties and obligations under the terms of this
Agreement.
Section 10. Outplacement Assistance
Following a termination of the Executive's employment as described in Sections
6.5, 6.7, or 7.1 herein, the Executive shall be reimbursed by the Company for
the costs of all outplacement
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services obtained by the Executive within the one (1) year (for termination
pursuant to Section 6.5) and two (2) year (for terminations pursuant to Section.
6.7 or 7.1) periods after the effective date of termination; provided, however,
that the total reimbursement shall be limited to an amount equal to fifteen
percent (15%) of the Executive's Base Salary as of the effective date of
termination.
Section 11. Assignment
11.1 Assignment by Company. This Agreement may and shall be assigned or
transferred to, and shall be binding upon and shall inure to the benefit of, any
successor of the Company, and any such successor shall be deemed substituted for
all purposes of the "Company" under the terms of this Agreement. As used in this
Agreement, the term "successor" shall mean any person, firm, corporation, or
business entity which at any time, whether by merger, purchase, or otherwise,
acquires all or essentially all of the assets of business of the Company.
Notwithstanding such assignment, the Company shall remain, with such successor,
jointly and severally liable for all its obligations hereunder.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall immediately
entitle the Executive to compensation from the Company in the same amount and on
the same terms as the Executive would be entitled in the event of an involuntary
termination by the Company, as provided in Paragraph 6.6 herein.
Except as herein provided, this Agreement may not otherwise be assigned by the
Company.
11.2 Assignment by Executive. This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives, executors,
and administrators, successors, heirs, distributees, devisees, and legatees. If
the Executive should die while any amounts payable to the Executive hereunder
remain outstanding, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, in the absence of such designee, to the
Executive's estate.
Section 12. Dispute Resolution and Notice
12.1 Arbitration. Any dispute or controversy arising under or in connection with
this Agreement shall be settled by arbitration, conducted before a panel of
three (3) arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of his employment with the Company, in
accordance with the rules of the American Arbitration Association then in
effect.
Judgment may be entered on the award of the arbitrator in any court having
proper jurisdiction.
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All expenses of such arbitration, including the fees and expenses of the counsel
for the Executive, shall be borne by the Company.
12.2 Notice. Any notices, requests, demands, or other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, at its principal
offices.
Section 13. Miscellaneous
13.1 Gender and Number. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
13.2 Entire Agreement. This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto or between the
Executive and the Company, with respect to the subject matter hereof and
constitutes the entire Agreement of the parties with respect thereto.
13.3 Modification. This Agreement shall not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement of the
parties in a written instrument executed by the parties hereto or their legal
representatives.
13.4 Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect.
13.5 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
13.6 Tax Withholding. The Company may withhold from any benefits payable under
this Agreement all federal, state, city, or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
13.7 Beneficiaries. The Executive may designate one or more persons or
entities as the primary and/or contingent beneficiaries of any amounts to be
received under this Agreement. Such designation must be in the form of a signed
writing acceptable to the Board or the Board's designee. The Executive may make
or change such designation at any time.
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Section 14. Governing Law
To the extent not preempted by federal law, the provisions of this Agreement
shall be construed and enforced in accordance with the laws of the state of
Rhode Island.
IN WITNESS WHEREOF, the Executive and the Company (pursuant to a resolution
adopted at a duly constituted meeting of its Board of Directors) have executed
this Agreement, as of the day and year first above written.
Executive:
/s/ James DeMetro
_____________________________________
ATTEST Providence Energy Corporation
By: /s/ Alycia L. Goody By: /s/ James H. Dodge
---------------------- ----------------------------------
Corporate Secretary Chairman, President and CEO
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Contents Exhibit 10.4
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Term of Employment 1
Section 2. Position and Responsibilities 2
Section 3. Standard of Care 2
Section 4. Compensation 3
Section 5. Expenses 5
Section 6. Employment Terminations 5
Section 7. Change in Control 10
Section 8. Confidentiality and Noncompetition 13
Section 9. Indemnification 14
Section 10. Assignment 14
Section 11. Dispute Resolution and Notice 15
Section 12. Miscellaneous 15
Section 13. Governing Law 16
</TABLE>
<PAGE>
Providence Energy Corporation
Employment Agreement
This EMPLOYMENT AGREEMENT is made, entered into, and is effective as of this
29th day of October, 1997 (hereinafter referred to as the "Effective Date"), by
and between Providence Energy Corporation, together with its subsidiaries and
affiliates (hereinafter referred to as the "Company"), a Rhode Island
corporation having its principal offices at Providence Rhode Island and Robert
W. Owens (hereinafter referred to as the "Executive").
WHEREAS, the Executive is presently employed by the Company in the capacity of
Senior Vice President of the Company;
WHEREAS, the Executive possesses considerable experience and an intimate
knowledge of the business and affairs of the Company, its policies, methods,
personnel, and operations; and
WHEREAS, the Company recognizes that the Executive's contribution has been
substantial and meritorious and, as such, the Executive has demonstrated unique
qualifications to act in an executive capacity for the Company; and
WHEREAS, the Company is desirous of assuring the continued employment of the
Executive in the above stated capacity, and Executive is desirous of having such
assurance.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and
agreements of the parties set forth in this Agreement, and of other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
Section 1. Term of Employment
The Company hereby agrees to employ the Executive and the Executive hereby
agrees to continue to serve the Company, in accordance with the terms and
conditions set forth herein, for an initial period of three years, commencing as
of the Effective Date of this Agreement, as indicated above; subject, however,
to earlier termination as expressly provided in Section 6 herein.
The initial three (3) year period of employment automatically shall be extended
for one (1) additional year at the end of the initial three (3) year term, and
then again after each successive year thereafter. However, either party may
terminate this Agreement at the end of the initial three (3) year period, or at
the end of any successive term thereafter, by
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giving the other party written notice of intent not to renew, delivered at least
ninety (90) calendar days prior to the end of such initial period or successive
term.
In the event such notice of intent not to renew is properly delivered by the
Company, this Agreement, along with all corresponding rights, duties, and
covenants, shall automatically expire at the end of the initial period or
successive term then in progress, with the exception of the provisions contained
in Section 8 herein (which shall survive such expiration). However, upon the
effective date of the expiration, the Company shall provide to the Executive a
continuation of his Base Salary (at the rate then in effect, as provided in
Paragraph 4.1 herein) for a period of twelve (12) months, paid in equal monthly
installments in accordance with the normal payroll practices of the Company. The
Company also shall provide to the Executive all benefits to which the Executive
has a vested right to at that time including, but not limited to, the retirement
benefits described in Paragraph 4.4 herein, and the retiree medical insurance
benefits described in Paragraph 4.6 herein.
However, regardless of the above, if at any time during the initial period of
employment, or successive term, a Change in Control of the Company occurs (as
defined in Section 7 herein), then this Agreement shall become immediately
irrevocable for the longer of: (a) three (3) years beyond the month in which the
effective date of such Change in Control occurs; or (b) until all obligations of
the Company hereunder have been fulfilled, and until all benefits provided
hereunder have been paid.
Section 2. Position and Responsibilities
During the term of this Agreement, the Executive agrees to serve as Senior Vice
President of the Company. In his capacity as Senior Vice President, the
Executive shall maintain the level of duties and responsibilities as in effect
as of the Effective Date, or such higher level of duties and responsibilities as
he may be assigned during the term of this Agreement. The Executive shall have
the same status, privileges, and responsibilities normally inherent in such
capacities in corporations of similar size and character.
Section 3. Standard of Care
During the term of this Agreement, the Executive agrees to devote substantially
his full time, attention, and energies to the Company's business and shall not
be engaged in any other business activity, whether or not such business activity
is pursued for gain, profit, or other pecuniary advantage. However, subject to
Section 8 herein, the Executive may serve as a director of other companies so
long as such service is not injurious to the Company. The Executive covenants,
warrants, and represents that he shall:
(a) Devote his full and best efforts to the fulfillment of his employment
obligations; and
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(b) Exercise the highest degree of loyalty and the highest standards of conduct
in the performance of his duties.
This Section 3 shall not be construed as preventing the Executive from investing
assets in such form or manner as will not require his services in the daily
operations of the affairs of the companies in which such investments are made.
Section 4. Compensation
As remuneration for all services to be rendered by the Executive during the term
of this Agreement, and as consideration for complying with the covenants herein,
the Company shall pay and provide to the Executive the following:
4.1 Base Salary. The Company shall pay the Executive a Base Salary in an amount
which shall be established from time to time by the Board of Directors of the
Company or the Board's designee provided, however, that such Base Salary shall
not be less than $158,000.00 per year. This Base Salary shall be paid to the
Executive in equal monthly installments throughout the year, consistent with the
normal payroll practices of the Company.
The annual Base Salary shall be reviewed at least annually following the
Effective Date of this Agreement, while this Agreement is in force, to ascertain
whether, in the judgment of the Board or the Board's designee, such Base Salary
should be increased, based primarily on the performance of the Executive during
the year and on the then current rate of inflation. If so increased, the Base
Salary as stated above shall, likewise, be increased for all purposes of this
Agreement.
4.2 Annual Cash Incentive Compensation. The Company shall provide the Executive
with the opportunity to earn an annual cash incentive compensation payment, at a
level which is in accordance with the provisions of the Performance and Equity
Incentive Plan or any such successor plan, and which is commensurate with the
opportunity typically offered to executives having the same or similar duties
and responsibilities as the Executive at companies similar in size and character
to the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing and/or amending the Performance and Equity Incentive Plan
so long as such changes are similarly applicable to all executives generally.
4.3 Long-Term Incentives. The Company shall provide the Executive the
opportunity to earn a long-term incentive award, at a level which is in
accordance with the provisions of the Performance and Equity Incentive Plan or
any such successor plan, and which is commensurate with the opportunity
typically offered to executives having the same or
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similar duties and responsibilities as the Executive at companies similar in
size and in character to the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing,
and/or amending the Performance and Equity Incentive Plan, so long as such
changes are similarly applicable to all executives generally.
4.4 Retirement Benefits. The Company shall provide to the Executive
participation in all Company qualified defined benefit and defined contribution
retirement plans, subject to the eligibility and participation requirements of
such plans. In addition, the Company shall provide to the Executive
participation in the Supplemental Retirement Plan and all other nonqualified
retirement programs typically offered to executives having the same or similar
duties and responsibilities at the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing, and/or amending the nonqualified retirement programs, so
long as such changes are similarly applicable to all executives generally.
4.5 Employee Benefits. During the term of this Agreement, and as otherwise
provided within the provisions of each of the respective plans, the Company
shall provide to the Executive all benefits to which other executives and
employees of the Company are entitled to receive, as commensurate with the
Executive's position. Such benefits shall include, but not be limited to, group
term life insurance, whole life insurance, comprehensive health and major
medical insurance, dental insurance, vision insurance, and short-term and long-
term disability.
The Executive shall be entitled to paid vacation in accordance with the standard
written policy of the Company with regard to vacations of employees. The
Executive shall likewise participate in any additional benefit as may be
established during the term of this Agreement, by standard written policy of the
Company.
4.6 Perquisites. The Company shall provide to the Executive, at the Company's
cost, all perquisites to which other executives of the Company are entitled to
receive and such other perquisites which are suitable to the character of
Executive's position with the Company and adequate for the performance of his
duties hereunder.
4.7 Right to Change Plans. By reason of Paragraphs 4.5, and 4.6 herein, the
Company shall not be obligated to institute, maintain, or refrain from changing,
amending, or discontinuing any benefit plan, program, or perquisite, so long as
such changes are similarly applicable to executive employees generally.
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4.8 Deferrals. The Company may permit the Executive to defer the Executive's
receipt of the payment of up to one hundred (100%) percent of the cash
component of the Executive's Annual Incentive Compensation. If any such
deferral election is permitted, the Company shall, in its sole discretion,
establish rules and procedures for such payment deferrals.
Section 5. Expenses
The Company shall pay, or reimburse the Executive, for all ordinary and
necessary expenses, in a reasonable amount, which the Executive incurs in
performing his duties under this Agreement including, but not limited to,
travel, entertainment, professional dues and subscriptions, and all dues, fees,
and expenses associated with membership in various professional, business, and
civic associations and societies of which the Executive's participation is in
the best interest of the Company.
Section 6. Employment Terminations
6.1 Termination Due to Retirement. In the event the Executive's employment is
terminated, while this Agreement is in force, by reason of Retirement (as
defined under the then established rules of the Company's tax-qualified
retirement plan), the Executive's benefits shall be determined in accordance
with the Company's retirement, survivor's benefits, insurance, and other
applicable programs of the Company then in effect.
Upon the effective date of such termination, the Company's obligation to pay and
provide to the Executive Base Salary, Annual Cash Incentive Compensation and
Long-Term Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3 herein,
respectively), shall immediately expire. However, the Executive shall receive a
pro rata portion of the total annual incentive compensation (both cash and
long-term), calculated at target, to which he would be entitled during the year
in which he retires, and shall receive all rights and benefits that he is vested
in, pursuant to other plans and programs of the Company including, but not
limited to, the retirement benefits as described in Paragraph 4.4 herein.
6.2 Termination Due to Death. In the event of the death of the Executive during
the term of this Agreement, or during any period of Disability during which he
is receiving compensation pursuant to Paragraph 6.3 herein, the Company shall
pay to the Executive's surviving spouse, or other beneficiary as so designated
by the Executive during his lifetime, or to the Executive's estate, as
appropriate, all benefits to which the Executive had a vested right to pursuant
to this Agreement.
6.3 Termination Due to Disability. In the event that the Executive becomes
Disabled during the term of this Agreement and is, therefore, unable to perform
his duties herein for a period of more than ninety (90) calendar days in the
aggregate, during any period of twelve (12) consecutive months, or in the event
of the Board's reasonable expectation that
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the Executive's Disability will exist for more than a period of ninety (90)
calendar days, the Company shall have the right to terminate the Executive's
active employment as provided in this Agreement. However, the Board shall
deliver written notice to the Executive of the Company's intent to terminate for
Disability at least thirty (30) calendar days prior to the effective date of
such termination.
A termination for Disability shall become effective upon the end of the thirty
(30) day notice period. Upon such effective date, the Company's obligation to
pay and provide to the Executive Base Salary, Annual Bonus, and Long-Term
Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3, respectively), shall
immediately expire. However, the Executive shall receive a pro rata portion of
the total annual incentive compensation (both cash and long-term), calculated at
target, to which he would be entitled during the year in which disability occurs
and shall receive all rights and benefits that he is vested in, pursuant to
other plans and programs of the Company, including, but not limited to, short-
and long-term disability benefits, and retirement benefits as described in
Paragraph 4.4.
The term "Disability" shall mean, for all purposes of this Agreement, the
incapacity of the Executive, due to injury, illness, disease, or bodily or
mental infirmity, to engage in the performance of substantially all of the usual
duties of employment with the Company as contemplated by Section 2 herein, such
Disability to be determined by the Board of Directors of the Company upon
receipt and in reliance on competent medical advice from one or more
individuals, selected by the Board, who are qualified to give such professional
medical advice.
If the Executive and the Company shall not be in agreement as to whether the
Executive has suffered a Disability for the purposes of this Agreement, the
matter shall be referred to a panel of three medical doctors, one of which shall
be selected by the Executive, one of which shall be selected by the Company, and
one of which shall be selected by the two doctors as so selected, and the
decision of a majority of the panel with respect to the question of whether the
Executive has suffered a Disability shall be binding upon the Executive and the
Company. The expenses of any such referral shall be borne by the party against
whom the decision of the panel is rendered. The Executive may be required by the
Company to submit to medical examination at any time during the period of his
employment hereunder, but not more often than quarter-annually, to determine
whether a Disability exists for the purposes of this Agreement.
It is expressly understood that the Disability of the Executive for a period of
ninety (90) calendar days or less in the aggregate during any period of twelve
(12) consecutive months, in the absence of any reasonable expectation that his
Disability will exist for more than such a period of time, shall not constitute
a failure by him to perform his duties hereunder and shall not be deemed a
breach or default and the Executive shall receive full
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compensation for any such period of Disability or for any other temporary
illness or incapacity during the term of this Agreement.
6.4 Voluntary Termination by the Executive. The Executive may terminate this
Agreement at any time by giving the Board of Directors of the Company written
notice of intent to
terminate, delivered at least thirty (30) calendar days prior to the effective
date of such termination (such period not to include vacation). The termination
automatically shall become effective upon the expiration of the thirty (30) day
notice period.
Upon the effective date of such termination, the Company shall pay to the
Executive his full Base Salary, at the rate then in effect as provided in
Paragraph 4.1 herein, through the effective date of termination, plus all other
benefits to which the Executive has a vested right to at that time including,
but not limited to, accrued vacation pay. The Company also shall provide to the
Executive the vested retirement benefits described in Paragraph 4.4 herein. With
the exception of the covenants contained in Sections 8.1, 8.3 and 8.4 herein
(which shall survive such termination), the Company and the Executive thereafter
shall have no further obligations under this Agreement.
6.5 Involuntary Termination by the Company Without Cause. At all times prior to
six (6) full calendar months before the effective date of a Change in Control
(as defined in Section 7.2), or at any time more than two (2) years after the
effective date of a Change in Control (as defined in Section 7.2), the Board may
terminate the Executive's employment, as provided under this Agreement, at any
time, for reasons other than death, Disability, Retirement, or for Cause, by
notifying the Executive in writing of the Company's intent to terminate, at
least thirty (30) calendar days prior the effective date of such termination.
Upon the effective date of such termination, following the expiration of the
thirty (30) day notice period, the Company shall pay to the Executive in twelve
(12) equal monthly installments an amount equal to the Executive's annual Base
Salary then in effect. Additionally, the Company shall continue to provide the
Executive with health and welfare benefits for the twelve (12) month time
period.
In the event that, during the twelve (12) month period following the effective
date of termination, the Executive becomes employed at the same or greater
annual Base Salary than that which was in effect during the year in which
termination occurred, the Company's obligation to make payments under this
Section will immediately cease upon the date of the Executive's subsequent
employment. In the event that, during the twelve (12) month period following the
effective date of termination, the Executive becomes employed at a lesser annual
Base Salary than that which was in effect during the year in
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which termination occurred, then upon the date of the Executive's re-employment,
the Company's obligation to make payments under this section will be limited to
a monthly amount reflecting the difference between the Executive's Base Salary
at the date of re-employment and the Executive's Base Salary during the year in
which termination occurred. The continuation of health and welfare benefits
shall be discontinued prior to the end of the twelve (12) month period in the
event the Executive has available substantially similar benefits from a
subsequent employer.
Further, the Company shall pay the Executive all other benefits to which the
Executive has a vested right at the time, according to the provisions of the
governing plan or program. With the exceptions of the covenants contained in
Section 8 herein (which shall survive such termination) the Company and the
Executive thereafter shall have no further obligations under this Agreement.
If the Executive's employment is terminated for any of the reasons set forth in
Section 7.1 herein, the Executive shall be entitled to receive the benefits
provided in Section 7.1 herein in lieu of the benefits set forth in this Section
6.5.
6.6 Termination For Cause. Nothing in this Agreement shall be construed to
prevent the Board from terminating the Executive's employment under this
Agreement for "Cause." Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the unanimous
vote of the entire membership of the Board at a meeting of such Board duly
called and held for that purpose (after reasonable notice to the Executive and
an opportunity for the Executive, together with the Executive's counsel, to be
heard by the Board) finding that in the good faith opinion of the Board that the
Executive was guilty of conduct set forth in the second paragraph of this
Section 6.6 and specifying the particulars thereof in detail. In the event the
Board determines that Cause exists, the Board shall deliver written notice to
the Executive of the facts and circumstances leading to the Board's
determination. Upon receipt of this written notification, all provisions of this
Agreement shall terminate, except for the confidentiality and noncompete
provisions of Section 8 herein (which shall survive such termination). The
Company shall pay the Executive his full Base Salary and accrued vacation time
through the date notice of a for Cause termination is delivered to the
Executive, plus all other benefits to which the Executive has a vested right to
at that time. The Company and the Executive thereafter shall have no further
obligations under this Agreement other than the Executive's obligations under
Section 8 hereof.
"Cause" shall be determined by the Board in the exercise of good faith and
reasonable judgment; and shall mean the willful misconduct, fraud, conviction of
a felony, consistent gross neglect of duties, or wanton negligence by the
Executive in the performance of his duties hereunder, or the material breach by
the Executive of the terms of this Agreement.
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6.7 Termination for Good Reason. At any time during the six (6) full calendar
month period prior to the effective date of a Change in Control (as defined in
Section 7.2) or the twenty four (24) month period following the effective date
of a Change in Control (as defined in Section 7.2), the Executive may terminate
this Agreement for Good Reason (as defined below) by giving the Board of
Directors of the Company thirty (30) calendar days written notice of intent to
terminate, which notice sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for such termination.
Upon the expiration of the thirty (30) day notice period, the Good Reason
termination shall become effective, and the Company shall pay and provide to the
Executive the benefits set forth in Section 7.1 herein.
Good Reason shall mean, without the Executive's express written consent, the
occurrence of any one or more of the following:
(a) The assignment of the Executive to duties materially inconsistent with
the Executive's authorities, duties, responsibilities, and status as an
officer of the Company, or a reduction or alteration in the nature or
status of the Executive's authorities, duties, or responsibilities from
those in effect during the immediately preceding fiscal year;
(b) The Company's requiring the Executive to be based at a location which is at
least fifty (50) miles further from the Executive's current primary
residence than is such residence from the Company's current headquarters,
except for required travel on the Company's business to an extent
substantially consistent with the Executive's business obligations as of
the Effective Date;
(c) A reduction by the Company in the Executive's Base Salary as in effect on
the Effective Date, as provided in Section 4.1 herein, or as the same
shall be increased from time to time;
(d) A material reduction in the Executive's level of participation in any of
the Company's short- and/or long-term incentive compensation plans, or
employee benefit or retirement plans, policies, practices, or
arrangements in which the Executive participates as of the Effective
Date; provided, however, that reductions in the levels of participation
in any such plans shall not be deemed to be "Good Reason" if the
Executive's reduced level of participation in each such program remains
substantially consistent with the average level of participation of other
executives who have positions commensurate with the Executive's position;
or
(e) The failure of the Company to obtain a satisfactory agreement from any
successor
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to the Company to assume and agree to perform this Agreement, as
contemplated in Section 11.1 herein.
Upon a termination for Good Reason within the six (6) full calendar month period
prior to the effective date of a Change in Control, or within the twenty-four
(24) months following the effective date of a Change in Control, the Executive
shall be entitled to receive the payments and benefits set forth in Section 7.1
herein.
The Executive's right to terminate employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason herein.
Section 7. Change in Control
7.1 Employment Terminations in Connection with a Change in Control. In the
event of a Qualifying Termination (as defined below) within six (6) full
calendar months prior to the effective date of a Change in Control, or within
twenty-four (24) months following the effective date of a Change in Control,
then in lieu of all other benefits provided to the Executive under the
provisions of this Agreement, the Company shall pay to the Executive in a lump
sum payment and provide him with the following severance benefits (hereinafter
referred to as the "Severance Benefits"):
(a) An amount equal to two (2) times the highest rate of the Executive's
annualized Base Salary rate in effect at any time up to and including the
effective date of termination;
(b) An amount equal to two (2) times the Executive's target incentive award
(both cash and long-term) established for the fiscal year in which the
Executive's effective date of termination occurs;
(c) An amount equal to the Executive's unpaid Base Salary and accrued vacation
pay through the effective date of termination;
(d) An amount equal to the Executive's unpaid targeted annual bonus,
established for the plan year in which the Executive's effective date of
termination occurs, multiplied by a fraction, the numerator of which is
the number of completed days in the then-existing fiscal year through the
effective date of termination, and the denominator of which is three
hundred sixty-five (365);
(e) A continuation of the welfare benefits of medical insurance, dental
insurance, and group term life insurance for two (2) full years after the
effective date of
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termination. These benefits shall be provided to the Executive at the
same premium cost, and at the same coverage level, as in effect as of the
Executive's effective date of termination. However, in the event the
premium cost and/or level of coverage shall change for all employees of
the Company, the cost and/or coverage level, likewise, shall change for
the Executive in a corresponding manner.
The continuation of these welfare benefits shall be discontinued prior to
the end of the two (2) year period in the event the Executive has
available substantially similar benefits from a subsequent employer, as
determined by the Company's Board of Directors or the Board's designee.
(f) A lump-sum cash payment of the actuarial present value equivalent of the
aggregate benefits accrued by the Executive as of the effective date of
termination under the terms of any and all supplemental retirement plans
in which the Executive participates. For purposes of determining "final
average pay" under such programs, the Executive's actual pay history as
of the effective date of termination shall be used.
For purposes of this Section 7, a Qualifying Termination shall mean any
termination of the Executive's employment other than: (1) by the Company for
Cause (as provided in Section 6.6 herein); (2) by reason of death, Disability
(as provided in Section 6.2 herein), or Retirement (as such term is then defined
in the Company's tax qualified defined benefit retirement plan; [provided that a
termination which qualifies as a Retirement and which would otherwise qualify as
a termination for Good Reason under Section 6.7 herein will be deemed to be a
Qualifying Termination]).
7.2 Definition of "Change in Control." A Change in Control of the Company shall
be deemed to have occurred as of the first day any one or more of the following
conditions shall have been satisfied:
(a) Any individual, corporation (other than the Company), partnership, trust,
association, pool, syndicate, or any other entity or any group of persons
acting in concert becomes the beneficial owner, as that concept is
defined in Rule 13d-3 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, of securities of
the Company possessing twenty percent (20%) or more of the voting power
for the election of directors of the Company;
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(b) There shall be consummated any consolidation, merger, or other business
combination involving the Company or the securities of the Company in
which holders of voting securities of the Company immediately prior to
such consummation own, as a group, immediately after such consummation,
voting securities of the Company (or, if the Company does not survive
such transaction, voting securities of the corporation surviving such
transaction) having less than sixty percent (60%) of the total voting
power in an election of directors of the Company (or such other surviving
corporation);
(c) During any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the directors of the Company cease
for any reason to constitute at least a majority thereof unless the
election, or the nomination for election by the Company's shareholders,
of each new director of the Company was approved by a vote of at least
two-thirds (2/3) of the directors of the Company then still in office who
were directors of the Company at the beginning of any such period; or
(d) There shall be consummated any sale, lease, exchange, or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company (on a consolidated basis)
to a party which is not controlled by or under common control with the
Company.
7.3 Excise Tax Equalization Payment. In the event that the Executive becomes
entitled to Severance Benefits or any other payment or benefit under this Plan,
or under any other agreement with or plan of the Company (in the aggregate, the
"Total Payments"), if any of the Total Payments will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may
hereafter be imposed), the Company shall pay to the Executive in cash an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive after deduction of any Excise Tax upon the Total Payments and any
Federal, state and local income tax and Excise Tax upon the Gross-Up Payment
provided for by this Section 7.3 (including FICA and FUTA), shall be equal to
the Total Payments. Such payment shall be made by the Company to the Executive
as soon as practical following the effective date of termination, but in no
event beyond thirty (30) days from such date.
7.4 Tax Computation. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amounts of such Excise Tax:
(a) Any other payments or benefits received or to be received by the Executive
in connection with a Change in Control of the Company or the Executive's
termination of employment (whether pursuant to the terms of this Plan or
any other plan, arrangement, or agreement with the Company, or with any
person
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(which shall have the meaning set forth in Section 3(a)(9) of the Securities
Exchange Act of 1934, including a "group" as defined in Section 13(d)
therein) whose actions result in a Change in Control of the Company or
any person affiliated with the Company or such persons) shall be treated
as "parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the
opinion of tax counsel as supported by the Company's independent auditors
and acceptable to the Executive, such other payments or benefits (in
whole or in part) do not constitute parachute payments, or unless such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code, or are otherwise not subject to the
Excise Tax;
(b) The amount of the Total Payments which shall be treated as subject to the
Excise Tax shall be equal to the lesser of: (i) the total amount of the
Total Payments; or (ii) the amount of excess parachute payments within
the meaning of Section 280G(b)(1) (after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred payment or benefit shall
be determined by the Company's independent auditors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
Federal income taxation in the calendar year in which the Gross-Up Payment is to
be made, and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the effective
date of termination, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes.
7.5 Subsequent Recalculation. In the event the Internal Revenue Service adjusts
the computation of the Company under Section 7.4 herein so that the Executive
did not receive the greatest net benefit, the Company shall reimburse the
Executive for the full amount necessary to make the Executive whole, plus a
market rate of interest, as determined by the Committee.
7.6 Payment of Legal Fees. To the extent permitted by law, the Company shall
pay all legal fees, costs of litigation, prejudgment interest, and other
expenses incurred in good faith by the Executive as a result of the Company's
refusal to provide the severance benefits under this Section 7 to which the
Executive becomes entitled under this
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Agreement, or as a result of the Company's contesting the validity,
enforceability, or interpretation of this Agreement, or as a result of any
conflict (including conflicts related to the calculation of parachute payments)
between the parties pertaining to this Agreement.
Section 8. Confidentiality and Noncompetition
8.1 Confidentiality. During the term of this Agreement and thereafter in
perpetuity, the Executive will not directly or indirectly divulge or appropriate
to his own use, or to the use of any third party, and "trade secrets" (as
defined in Section 8.3), other secret or confidential information, knowledge or
financial information of the Company or any of the Company's subsidiaries or
affiliates (hereinafter, the Company and its subsidiaries and affiliates shall
be collectively referred to as the "Company Group"), except as may be in the
public domain other than by violation of this Agreement.
8.2 Noncompetition. From the date hereof until two (2) years after the
termination of his employment hereunder, the Executive will not (i) directly or
indirectly own any equity or proprietary interest in (except for ownership of
shares in a publicly traded company not exceeding five percent (5%) of any class
of outstanding securities), or be an employee, agent, director, advisor, or
consultant to or for any corporation (other than the Company Group), business
enterprise or any person engaged anywhere in the State of Rhode Island or the
Commonwealth of Massachusetts, whether on his own behalf or on behalf of any
person other than the Company Group, in the manufacture, procuring, sale,
marketing, promotion or distribution of any product or product lines functioning
competitively with any product or product lines of the Company Group during the
term of this Agreement, and the Executive will not assist in, manage or
supervise any of the foregone activities; (ii) undertake any action to induce or
cause any customer or client of the Company Group to discontinue any part of its
business with the Company Group; (iii) cause, induce or in any way facilitate
the employment by any other persons or organization of any employee of or
consultant to the Company Group, provided, that this covenant shall become
operative only upon the termination of the Executive's employment; or (iv) take
or assist directly or indirectly in the taking, by acting as consultant to a
third party or otherwise of any position on any matter involving the Company and
pending before any state or other public agency, when such position is adverse
to the position being promoted before such agency at the time by the Company.
8.3 Trade Secrets. "Trade Secrets" as used herein means all secret discoveries,
invention, formulae, designs, methods, processes, techniques of production and
know-how relating to the Company Group's business. "Confidential Information" as
used herein means the Company Group's internal policies and procedures,
suppliers, customers, financial information and marketing practices, as well as
secret discoveries, inventions, formulae, designs, techniques of production,
know-how and other information relating to
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the Company Group's business not rising to the level of a trade secret under
applicable law.
8.4 The breach by the Executive of any of the covenants continued in this
Paragraph 8 shall relieve the company of all further payment obligation under
Paragraph 6 or Paragraph 7.
Section 9. Indemnification
The Company hereby covenants and agrees to indemnify and hold harmless the
Executive fully, completely, and absolutely against and in respect to any and
all actions, suits, proceedings, claims, demands, judgments, costs, expenses
(including attorney's fees), losses, and damages resulting from the Executive's
good faith performance of his duties and obligations under the terms of this
Agreement.
Section 10. Outplacement Assistance
Following a termination of the Executive's employment as described in Sections
6.5, 6.7, or 7.1 herein, the Executive shall be reimbursed by the Company for
the costs of all outplacement services obtained by the Executive within the one
(1) year (for termination pursuant to Section 6.5) and two (2) year (for
terminations pursuant to Section. 6.7 or 7.1) periods after the effective date
of termination; provided, however, that the total reimbursement shall be limited
to an amount equal to fifteen percent (15%) of the Executive's Base Salary as of
the effective date of termination.
Section 11. Assignment
11.1 Assignment by Company. This Agreement may and shall be assigned or
transferred to, and shall be binding upon and shall inure to the benefit of, any
successor of the Company, and any such successor shall be deemed substituted for
all purposes of the "Company" under the terms of this Agreement. As used in this
Agreement, the term "successor" shall mean any person, firm, corporation, or
business entity which at any time, whether by merger, purchase, or otherwise,
acquires all or essentially all of the assets of business of the Company.
Notwithstanding such assignment, the Company shall remain, with such successor,
jointly and severally liable for all its obligations hereunder.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall immediately
entitle the Executive to compensation from the Company in the same amount and on
the same terms as the Executive would be entitled in the event of an involuntary
termination by the Company, as provided in Paragraph 6.6 herein.
Except as herein provided, this Agreement may not otherwise be assigned by the
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Company.
11.2 Assignment by Executive. This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives, executors,
and administrators, successors, heirs, distributees, devisees, and legatees. If
the Executive should die while any amounts payable to the Executive hereunder
remain outstanding, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, in the absence of such designee, to the
Executive's estate.
Section 12. Dispute Resolution and Notice
12.1 Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled by arbitration, conducted before a panel of
three (3) arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of his employment with the Company, in
accordance with the rules of the American Arbitration Association then in
effect.
Judgment may be entered on the award of the arbitrator in any court having
proper jurisdiction. All expenses of such arbitration, including the fees and
expenses of the counsel for the Executive, shall be borne by the Company.
12.2 Notice. Any notices, requests, demands, or other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, at its principal
offices.
Section 13. Miscellaneous
13.1 Gender and Number. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
13.2 Entire Agreement. This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto or between the
Executive and the Company, with respect to the subject matter hereof and
constitutes the entire Agreement of the parties with respect thereto.
13.3 Modification. This Agreement shall not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement of the
parties in a written instrument executed by the parties hereto or their legal
representatives.
13.4 Severability. In the event that any provision or portion of this Agreement
shall be
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determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall be unaffected thereby and shall remain in
full force and effect.
13.5 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
13.6 Tax Withholding. The Company may withhold from any benefits payable under
this Agreement all federal, state, city, or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
13.7 Beneficiaries. The Executive may designate one or more persons or
entities as the primary and/or contingent beneficiaries of any amounts to be
received under this Agreement. Such designation must be in the form of a signed
writing acceptable to the Board or the Board's designee. The Executive may make
or change such designation at any time.
Section 14. Governing Law
To the extent not preempted by federal law, the provisions of this Agreement
shall be construed and enforced in accordance with the laws of the state of
Rhode Island.
IN WITNESS WHEREOF, the Executive and the Company (pursuant to a resolution
adopted at a duly constituted meeting of its Board of Directors) have executed
this Agreement, as of the day and year first above written.
Executive:
/s/ Robert W. Owens
---------------------------------
ATTEST Providence Energy Corporation
By: /s/ Alycia L. Goody By: /s/ James H. Dodge
------------------------------- ------------------------------
Corporate Secretary Chairman, President and CEO
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Contents Exhibit 10.5
- --------------------------------------------------------------------------------
Page
Section 1. Term of Employment 1
Section 2. Position and Responsibilities 2
Section 3. Standard of Care 2
Section 4. Compensation 3
Section 5. Expenses 5
Section 6. Employment Terminations 5
Section 7. Change in Control 10
Section 8. Confidentiality and Noncompetition 13
Section 9. Indemnification 14
Section 10. Assignment 14
Section 11. Dispute Resolution and Notice 15
Section 12. Miscellaneous 15
Section 13. Governing Law 16
<PAGE>
Providence Energy Corporation
Employment Agreement
This EMPLOYMENT AGREEMENT is made, entered into, and is effective as of this
29th day of October, 1997 (hereinafter referred to as the "Effective Date"), by
and between Providence Energy Corporation, together with its subsidiaries and
affiliates (hereinafter referred to as the "Company"), a Rhode Island
corporation having its principal offices at Providence Rhode Island and Gary S.
Gillheeney (hereinafter referred to as the "Executive").
WHEREAS, the Executive is presently employed by the Company in the capacity of
Senior Vice President, Treasurer and Chief Financial Officer of the Company;
WHEREAS, the Executive possesses considerable experience and an intimate
knowledge of the business and affairs of the Company, its policies, methods,
personnel, and operations; and
WHEREAS, the Company recognizes that the Executive's contribution has been
substantial and meritorious and, as such, the Executive has demonstrated unique
qualifications to act in an executive capacity for the Company; and
WHEREAS, the Company is desirous of assuring the continued employment of the
Executive in the above stated capacity, and Executive is desirous of having such
assurance.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and
agreements of the parties set forth in this Agreement, and of other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
Section 1. Term of Employment
The Company hereby agrees to employ the Executive and the Executive hereby
agrees to continue to serve the Company, in accordance with the terms and
conditions set forth herein, for an initial period of three years, commencing as
of the Effective Date of this Agreement, as indicated above; subject, however,
to earlier termination as expressly provided in Section 6 herein.
The initial three (3) year period of employment automatically shall be extended
for one (1) additional year at the end of the initial three (3) year term, and
then again after each successive year thereafter. However, either party may
terminate this Agreement at the end of the initial three (3) year period, or at
the end of any successive term thereafter, by giving the other party written
notice of intent not to renew, delivered at least ninety (90) calendar days
prior to the end of such initial period or successive term.
In the event such notice of intent not to renew is properly delivered by the
Company, this Agreement, along with all corresponding rights, duties, and
covenants, shall automatically expire
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at the end of the initial period or successive term then in progress, with the
exception of the provisions contained in Section 8 herein (which shall survive
such expiration). However, upon the effective date of the expiration, the
Company shall provide to the Executive a continuation of his Base Salary (at the
rate then in effect, as provided in Paragraph 4.1 herein) for a period of twelve
(12) months, paid in equal monthly installments in accordance with the normal
payroll practices of the Company. The Company also shall provide to the
Executive all benefits to which the Executive has a vested right to at that time
including, but not limited to, the retirement benefits described in Paragraph
4.4 herein, and the retiree medical insurance benefits described in Paragraph
4.6 herein.
However, regardless of the above, if at any time during the initial period of
employment, or successive term, a Change in Control of the Company occurs (as
defined in Section 7 herein), then this Agreement shall become immediately
irrevocable for the longer of: (a) three (3) years beyond the month in which the
effective date of such Change in Control occurs; or (b) until all obligations of
the Company hereunder have been fulfilled, and until all benefits provided
hereunder have been paid.
Section 2. Position and Responsibilities
During the term of this Agreement, the Executive agrees to serve as Senior Vice
President of the Company. In his capacity as Senior Vice President, the
Executive shall maintain the level of duties and responsibilities as in effect
as of the Effective Date, or such higher level of duties and responsibilities as
he may be assigned during the term of this Agreement. The Executive shall have
the same status, privileges, and responsibilities normally inherent in such
capacities in corporations of similar size and character.
Section 3. Standard of Care
During the term of this Agreement, the Executive agrees to devote substantially
his full time, attention, and energies to the Company's business and shall not
be engaged in any other business activity, whether or not such business activity
is pursued for gain, profit, or other pecuniary advantage. However, subject to
Section 8 herein, the Executive may serve as a director of other companies so
long as such service is not injurious to the Company. The Executive covenants,
warrants, and represents that he shall:
(a) Devote his full and best efforts to the fulfillment of his employment
obligations; and
(b) Exercise the highest degree of loyalty and the highest standards of conduct
in the performance of his duties.
This Section 3 shall not be construed as preventing the Executive from investing
assets in such form or manner as will not require his services in the daily
operations of the affairs of the companies in which such investments are made.
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Section 4. Compensation
As remuneration for all services to be rendered by the Executive during the term
of this Agreement, and as consideration for complying with the covenants herein,
the Company shall pay and provide to the Executive the following:
4.1 Base Salary. The Company shall pay the Executive a Base Salary in an amount
which shall be established from time to time by the Board of Directors of the
Company or the Board's designee provided, however, that such Base Salary shall
not be less than $155,000.00 per year. This Base Salary shall be paid to the
Executive in equal monthly installments throughout the year, consistent with the
normal payroll practices of the Company.
The annual Base Salary shall be reviewed at least annually following the
Effective Date of this Agreement, while this Agreement is in force, to ascertain
whether, in the judgment of the Board or the Board's designee, such Base Salary
should be increased, based primarily on the performance of the Executive during
the year and on the then current rate of inflation. If so increased, the Base
Salary as stated above shall, likewise, be increased for all purposes of this
Agreement.
4.2 Annual Cash Incentive Compensation. The Company shall provide the Executive
with the opportunity to earn an annual cash incentive compensation payment, at a
level which is in accordance with the provisions of the Performance and Equity
Incentive Plan or any such successor plan, and which is commensurate with the
opportunity typically offered to executives having the same or similar duties
and responsibilities as the Executive at companies similar in size and character
to the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing and/or amending the Performance and Equity Incentive Plan
so long as such changes are similarly applicable to all executives generally.
4.3 Long-Term Incentives. The Company shall provide the Executive the
opportunity to earn a long-term incentive award, at a level which is in
accordance with the provisions of the Performance and Equity Incentive Plan or
any such successor plan, and which is commensurate with the opportunity
typically offered to executives having the same or similar duties and
responsibilities as the Executive at companies similar in size and in character
to the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing, and/or amending the Performance and Equity Incentive
Plan, so long as such changes are similarly applicable to all executives
generally.
4.4 Retirement Benefits. The Company shall provide to the Executive
participation in all Company qualified defined benefit and defined contribution
retirement plans, subject to the eligibility and participation requirements of
such plans. In addition, the Company shall provide to the Executive
participation in the Supplemental Retirement Plan and all other nonqualified
retirement programs typically offered to executives having the same or similar
duties and responsibilities at the Company.
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Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing, and/or amending the nonqualified retirement programs, so
long as such changes are similarly applicable to all executives generally.
4.5 Employee Benefits. During the term of this Agreement, and as otherwise
provided within the provisions of each of the respective plans, the Company
shall provide to the Executive all benefits to which other executives and
employees of the Company are entitled to receive, as commensurate with the
Executive's position. Such benefits shall include, but not be limited to, group
term life insurance, whole life insurance, comprehensive health and major
medical insurance, dental insurance, vision insurance, and short-term and long-
term disability.
The Executive shall be entitled to paid vacation in accordance with the standard
written policy of the Company with regard to vacations of employees. The
Executive shall likewise participate in any additional benefit as may be
established during the term of this Agreement, by standard written policy of the
Company.
4.6 Perquisites. The Company shall provide to the Executive, at the Company's
cost, all perquisites to which other executives of the Company are entitled to
receive and such other perquisites which are suitable to the character of
Executive's position with the Company and adequate for the performance of his
duties hereunder.
4.7 Right to Change Plans. By reason of Paragraphs 4.5, and 4.6 herein, the
Company shall not be obligated to institute, maintain, or refrain from changing,
amending, or discontinuing any benefit plan, program, or perquisite, so long as
such changes are similarly applicable to executive employees generally.
4.8 Deferrals. The Company may permit the Executive to defer the Executive's
receipt of the payment of up to one hundred (100%) percent of the cash component
of the Executive's Annual Incentive Compensation. If any such deferral election
is permitted, the Company shall, in its sole discretion, establish rules and
procedures for such payment deferrals.
Section 5. Expenses
The Company shall pay, or reimburse the Executive, for all ordinary and
necessary expenses, in a reasonable amount, which the Executive incurs in
performing his duties under this Agreement including, but not limited to,
travel, entertainment, professional dues and subscriptions, and all dues, fees,
and expenses associated with membership in various professional, business, and
civic associations and societies of which the Executive's participation is in
the best interest of the Company.
Section 6. Employment Terminations
6.1 Termination Due to Retirement. In the event the Executive's employment is
terminated, while this Agreement is in force, by reason of Retirement (as
defined under the then established rules of the Company's tax-qualified
retirement plan), the Executive's benefits shall be determined in accordance
with the Company's retirement, survivor's benefits, insurance, and other
applicable programs of the Company then in effect.
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Upon the effective date of such termination, the Company's obligation to pay and
provide to the Executive Base Salary, Annual Cash Incentive Compensation and
Long-Term Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3 herein,
respectively), shall immediately expire. However, the Executive shall receive a
pro rata portion of the total annual incentive compensation (both cash and
long-term), calculated at target, to which he would be entitled during the year
in which he retires, and shall receive all rights and benefits that he is vested
in, pursuant to other plans and programs of the Company including, but not
limited to, the retirement benefits as described in Paragraph 4.4 herein.
6.2 Termination Due to Death. In the event of the death of the Executive during
the term of this Agreement, or during any period of Disability during which he
is receiving compensation pursuant to Paragraph 6.3 herein, the Company shall
pay to the Executive's surviving spouse, or other beneficiary as so designated
by the Executive during his lifetime, or to the Executive's estate, as
appropriate, all benefits to which the Executive had a vested right to pursuant
to this Agreement.
6.3 Termination Due to Disability. In the event that the Executive becomes
Disabled during the term of this Agreement and is, therefore, unable to perform
his duties herein for a period of more than ninety (90) calendar days in the
aggregate, during any period of twelve (12) consecutive months, or in the event
of the Board's reasonable expectation that the Executive's Disability will exist
for more than a period of ninety (90) calendar days, the Company shall have the
right to terminate the Executive's active employment as provided in this
Agreement. However, the Board shall deliver written notice to the Executive of
the Company's intent to terminate for Disability at least thirty (30) calendar
days prior to the effective date of such termination.
A termination for Disability shall become effective upon the end of the thirty
(30) day notice period. Upon such effective date, the Company's obligation to
pay and provide to the Executive Base Salary, Annual Bonus, and Long-Term
Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3, respectively), shall
immediately expire. However, the Executive shall receive a pro rata portion of
the total annual incentive compensation (both cash and long-term), calculated at
target, to which he would be entitled during the year in which disability occurs
and shall receive all rights and benefits that he is vested in, pursuant to
other plans and programs of the Company, including, but not limited to, short-
and long-term disability benefits, and retirement benefits as described in
Paragraph 4.4.
The term "Disability" shall mean, for all purposes of this Agreement, the
incapacity of the Executive, due to injury, illness, disease, or bodily or
mental infirmity, to engage in the performance of substantially all of the usual
duties of employment with the Company as contemplated by Section 2 herein, such
Disability to be determined by the Board of Directors of the Company upon
receipt and in reliance on competent medical advice from one or more
individuals, selected by the Board, who are qualified to give such professional
medical advice.
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If the Executive and the Company shall not be in agreement as to whether the
Executive has suffered a Disability for the purposes of this Agreement, the
matter shall be referred to a panel of three medical doctors, one of which shall
be selected by the Executive, one of which shall be selected by the Company, and
one of which shall be selected by the two doctors as so selected, and the
decision of a majority of the panel with respect to the question of whether the
Executive has suffered a Disability shall be binding upon the Executive and the
Company. The expenses of any such referral shall be borne by the party against
whom the decision of the panel is rendered. The Executive may be required by the
Company to submit to medical examination at any time during the period of his
employment hereunder, but not more often than quarter-annually, to determine
whether a Disability exists for the purposes of this Agreement.
It is expressly understood that the Disability of the Executive for a period of
ninety (90) calendar days or less in the aggregate during any period of twelve
(12) consecutive months, in the absence of any reasonable expectation that his
Disability will exist for more than such a period of time, shall not constitute
a failure by him to perform his duties hereunder and shall not be deemed a
breach or default and the Executive shall receive full compensation for any such
period of Disability or for any other temporary illness or incapacity during the
term of this Agreement.
6.4 Voluntary Termination by the Executive. The Executive may terminate this
Agreement at any time by giving the Board of Directors of the Company written
notice of intent to terminate, delivered at least thirty (30) calendar days
prior to the effective date of such termination (such period not to include
vacation). The termination automatically shall become effective upon the
expiration of the thirty (30) day notice period.
Upon the effective date of such termination, the Company shall pay to the
Executive his full Base Salary, at the rate then in effect as provided in
Paragraph 4.1 herein, through the effective date of termination, plus all other
benefits to which the Executive has a vested right to at that time including,
but not limited to, accrued vacation pay. The Company also shall provide to the
Executive the vested retirement benefits described in Paragraph 4.4 herein. With
the exception of the covenants contained in Sections 8.1, 8.3 and 8.4 herein
(which shall survive such termination), the Company and the Executive thereafter
shall have no further obligations under this Agreement.
6.5 Involuntary Termination by the Company Without Cause. At all times prior to
six (6) full calendar months before the effective date of a Change in Control
(as defined in Section 7.2), or at any time more than two (2) years after the
effective date of a Change in Control (as defined in Section 7.2), the Board may
terminate the Executive's employment, as provided under this Agreement, at any
time, for reasons other than death, Disability, Retirement, or for Cause, by
notifying the Executive in writing of the Company's intent to terminate, at
least thirty (30) calendar days prior the effective date of such termination.
Upon the effective date of such termination, following the expiration of the
thirty (30) day notice period, the Company shall pay to the Executive in twelve
(12) equal monthly installments an amount equal to the Executive's annual Base
Salary then in effect. Additionally, the Company
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shall continue to provide the Executive with health and welfare benefits for the
twelve (12) month time period.
In the event that, during the twelve (12) month period following the effective
date of termination, the Executive becomes employed at the same or greater
annual Base Salary than that which was in effect during the year in which
termination occurred, the Company's obligation to make payments under this
Section will immediately cease upon the date of the Executive's subsequent
employment. In the event that, during the twelve (12) month period following the
effective date of termination, the Executive becomes employed at a lesser annual
Base Salary than that which was in effect during the year in which termination
occurred, then upon the date of the Executive's re-employment, the Company's
obligation to make payments under this section will be limited to a monthly
amount reflecting the difference between the Executive's Base Salary at the date
of re-employment and the Executive's Base Salary during the year in which
termination occurred. The continuation of health and welfare benefits shall be
discontinued prior to the end of the twelve (12) month period in the event the
Executive has available substantially similar benefits from a subsequent
employer.
Further, the Company shall pay the Executive all other benefits to which the
Executive has a vested right at the time, according to the provisions of the
governing plan or program. With the exceptions of the covenants contained in
Section 8 herein (which shall survive such termination) the Company and the
Executive thereafter shall have no further obligations under this Agreement.
If the Executive's employment is terminated for any of the reasons set forth in
Section 7.1 herein, the Executive shall be entitled to receive the benefits
provided in Section 7.1 herein in lieu of the benefits set forth in this Section
6.5.
6.6 Termination For Cause. Nothing in this Agreement shall be construed to
prevent the Board from terminating the Executive's employment under this
Agreement for "Cause." Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the unanimous
vote of the entire membership of the Board at a meeting of such Board duly
called and held for that purpose (after reasonable notice to the Executive and
an opportunity for the Executive, together with the Executive's counsel, to be
heard by the Board) finding that in the good faith opinion of the Board that the
Executive was guilty of conduct set forth in the second paragraph of this
Section 6.6 and specifying the particulars thereof in detail. In the event the
Board determines that Cause exists, the Board shall deliver written notice to
the Executive of the facts and circumstances leading to the Board's
determination. Upon receipt of this written notification, all provisions of this
Agreement shall terminate, except for the confidentiality and noncompete
provisions of Section 8 herein (which shall survive such termination). The
Company shall pay the Executive his full Base Salary and accrued vacation time
through the date notice of a for Cause termination is delivered to the
Executive, plus all other benefits to which the Executive has a vested right to
at that time. The Company and the
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Executive thereafter shall have no further obligations under this Agreement
other than the Executive's obligations under Section 8 hereof.
"Cause" shall be determined by the Board in the exercise of good faith and
reasonable judgment; and shall mean the willful misconduct, fraud, conviction of
a felony, consistent gross neglect of duties, or wanton negligence by the
Executive in the performance of his duties hereunder, or the material breach by
the Executive of the terms of this Agreement.
6.7 Termination for Good Reason. At any time during the six (6) full calendar
month period prior to the effective date of a Change in Control (as defined in
Section 7.2) or the twenty four (24) month period following the effective date
of a Change in Control (as defined in Section 7.2), the Executive may terminate
this Agreement for Good Reason (as defined below) by giving the Board of
Directors of the Company thirty (30) calendar days written notice of intent to
terminate, which notice sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for such termination.
Upon the expiration of the thirty (30) day notice period, the Good Reason
termination shall become effective, and the Company shall pay and provide to the
Executive the benefits set forth in Section 7.1 herein.
Good Reason shall mean, without the Executive's express written consent, the
occurrence of any one or more of the following:
(a) The assignment of the Executive to duties materially inconsistent with the
Executive's authorities, duties, responsibilities, and status as an officer
of the Company, or a reduction or alteration in the nature or status of the
Executive's authorities, duties, or responsibilities from those in effect
during the immediately preceding fiscal year;
(b) The Company's requiring the Executive to be based at a location which is
at least fifty (50) miles further from the Executive's current primary
residence than is such residence from the Company's current headquarters,
except for required travel on the Company's business to an extent
substantially consistent with the Executive's business obligations as of
the Effective Date;
(c) A reduction by the Company in the Executive's Base Salary as in effect on
the Effective Date, as provided in Section 4.1 herein, or as the same
shall be increased from time to time;
(d) A material reduction in the Executive's level of participation in any
of the Company's short- and/or long-term incentive compensation plans, or
employee benefit or retirement plans, policies, practices, or arrangements
in which the Executive participates as of the Effective Date; provided,
however, that reductions in the levels of participation in any such plans
shall not be deemed to be "Good Reason" if the
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Executive's reduced level of participation in each such program remains
substantially consistent with the average level of participation of other
executives who have positions commensurate with the Executive's position;
or
(e) The failure of the Company to obtain a satisfactory agreement from any
successor to the Company to assume and agree to perform this Agreement, as
contemplated in Section 11.1 herein.
Upon a termination for Good Reason within the six (6) full calendar month period
prior to the effective date of a Change in Control, or within the twenty-four
(24) months following the effective date of a Change in Control, the Executive
shall be entitled to receive the payments and benefits set forth in Section 7.1
herein.
The Executive's right to terminate employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason herein.
Section 7. Change in Control
7.1 Employment Terminations in Connection with a Change in Control. In the
event of a Qualifying Termination (as defined below) within six (6) full
calendar months prior to the effective date of a Change in Control, or within
twenty-four (24) months following the effective date of a Change in Control,
then in lieu of all other benefits provided to the Executive under the
provisions of this Agreement, the Company shall pay to the Executive in a lump
sum payment and provide him with the following severance benefits (hereinafter
referred to as the "Severance Benefits"):
(a) An amount equal to two (2) times the highest rate of the Executive's
annualized Base Salary rate in effect at any time up to and including the
effective date of termination;
(b) An amount equal to two (2) times the Executive's target incentive award
(both cash and long-term) established for the fiscal year in which the
Executive's effective date of termination occurs;
(c) An amount equal to the Executive's unpaid Base Salary and accrued vacation
pay through the effective date of termination;
(d) An amount equal to the Executive's unpaid targeted annual bonus,
established for the plan year in which the Executive's effective date of
termination occurs, multiplied by a fraction, the numerator of which is
the number of completed days in the thenexisting fiscal year through the
effective date of termination, and the denominator of which is three
hundred sixty-five (365);
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(e) A continuation of the welfare benefits of medical insurance, dental
insurance, and group term life insurance for two (2) full years after the
effective date of termination. These benefits shall be provided to the
Executive at the same premium cost, and at the same coverage level, as in
effect as of the Executive's effective date of termination. However, in
the event the premium cost and/or level of coverage shall change for all
employees of the Company, the cost and/or coverage level, likewise, shall
change for the Executive in a corresponding manner.
The continuation of these welfare benefits shall be discontinued prior to
the end of the two (2) year period in the event the Executive has
available substantially similar benefits from a subsequent employer, as
determined by the Company's Board of Directors or the Board's designee.
(f) A lump-sum cash payment of the actuarial present value equivalent of the
aggregate benefits accrued by the Executive as of the effective date of
termination under the terms of any and all supplemental retirement plans
in which the Executive participates. For purposes of determining "final
average pay" under such programs, the Executive's actual pay history as of
the effective date of termination shall be used.
For purposes of this Section 7, a Qualifying Termination shall mean any
termination of the Executive's employment other than: (1) by the Company for
Cause (as provided in Section 6.6 herein); (2) by reason of death, Disability
(as provided in Section 6.2 herein), or Retirement (as such term is then defined
in the Company's tax qualified defined benefit retirement plan; [provided that a
termination which qualifies as a Retirement and which would otherwise qualify as
a termination for Good Reason under Section 6.7 herein will be deemed to be a
Qualifying Termination]).
7.2 Definition of "Change in Control." A Change in Control of the Company shall
be deemed to have occurred as of the first day any one or more of the following
conditions shall have been satisfied:
(a) Any individual, corporation (other than the Company), partnership, trust,
association, pool, syndicate, or any other entity or any group of persons
acting in concert becomes the beneficial owner, as that concept is defined
in Rule 13d-3 promulgated by the Securities and Exchange Commission under
the Securities Exchange Act of 1934, of securities of the Company
possessing twenty percent (20%) or more of the voting power for the
election of directors of the Company;
(b) There shall be consummated any consolidation, merger, or other business
combination involving the Company or the securities of the Company in
which holders of voting securities of the Company immediately prior to
such consummation own, as a group, immediately after such consummation,
voting securities of the Company (or, if the Company does not survive such
transaction, voting securities of the corporation
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surviving such transaction) having less than sixty percent (60%) of the total
voting power in an election of directors of the Company (or such other
surviving corporation);
(c) During any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the directors of the Company cease for
any reason to constitute at least a majority thereof unless the election,
or the nomination for election by the Company's shareholders, of each new
director of the Company was approved by a vote of at least two-thirds
(2/3) of the directors of the Company then still in office who were
directors of the Company at the beginning of any such period; or
(d) There shall be consummated any sale, lease, exchange, or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company (on a consolidated basis)
to a party which is not controlled by or under common control with the
Company.
7.3 Excise Tax Equalization Payment. In the event that the Executive becomes
entitled to Severance Benefits or any other payment or benefit under this Plan,
or under any other agreement with or plan of the Company (in the aggregate, the
"Total Payments"), if any of the Total Payments will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may
hereafter be imposed), the Company shall pay to the Executive in cash an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive after deduction of any Excise Tax upon the Total Payments and any
Federal, state and local income tax and Excise Tax upon the Gross-Up Payment
provided for by this Section 7.3 (including FICA and FUTA), shall be equal to
the Total Payments. Such payment shall be made by the Company to the Executive
as soon as practical following the effective date of termination, but in no
event beyond thirty (30) days from such date.
7.4 Tax Computation. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amounts of such Excise Tax:
(a) Any other payments or benefits received or to be received by the Executive
in connection with a Change in Control of the Company or the Executive's
termination of employment (whether pursuant to the terms of this Plan or
any other plan, arrangement, or agreement with the Company, or with any
person (which shall have the meaning set forth in Section 3(a)(9) of the
Securities Exchange Act of 1934, including a "group" as defined in Section
13(d) therein) whose actions result in a Change in Control of the Company
or any person affiliated with the Company or such persons) shall be
treated as "parachute payments" within the meaning of Section 280G(b)(2)
of the Code, and all "excess parachute payments" within the meaning of
Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless
in the opinion of tax counsel as supported by the Company's independent
auditors and acceptable to the Executive, such other payments or benefits
(in whole or in part) do not constitute parachute payments, or unless such
excess parachute payments (in whole or in part) represent reasonable
compensation for
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services actually rendered within the meaning of Section 280G(b)(4) of the
Code in excess of the base amount within the meaning of Section 280G(b)(3)
of the Code, or are otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as subject to the
Excise Tax shall be equal to the lesser of: (i) the total amount of the
Total Payments; or (ii) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) (after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred payment or benefit shall
be determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
Federal income taxation in the calendar year in which the Gross-Up Payment is to
be made, and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the effective
date of termination, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes.
7.5 Subsequent Recalculation. In the event the Internal Revenue Service adjusts
the computation of the Company under Section 7.4 herein so that the Executive
did not receive the greatest net benefit, the Company shall reimburse the
Executive for the full amount necessary to make the Executive whole, plus a
market rate of interest, as determined by the Committee.
7.6 Payment of Legal Fees. To the extent permitted by law, the Company shall
pay all legal fees, costs of litigation, prejudgment interest, and other
expenses incurred in good faith by the Executive as a result of the Company's
refusal to provide the severance benefits under this Section 7 to which the
Executive becomes entitled under this Agreement, or as a result of the Company's
contesting the validity, enforceability, or interpretation of this Agreement, or
as a result of any conflict (including conflicts related to the calculation of
parachute payments) between the parties pertaining to this Agreement.
Section 8. Confidentiality and Noncompetition
8.1 Confidentiality. During the term of this Agreement and thereafter in
perpetuity, the Executive will not directly or indirectly divulge or appropriate
to his own use, or to the use of any third party, and "trade secrets" (as
defined in Section 8.3), other secret or confidential information, knowledge or
financial information of the Company or any of the Company's subsidiaries or
affiliates (hereinafter, the Company and its subsidiaries and affiliates shall
be collectively referred to as the "Company Group"), except as may be in the
public domain other than by violation of this Agreement.
8.2 Noncompetition. From the date hereof until two (2) years after the
termination of his
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employment hereunder, the Executive will not (i) directly or indirectly own any
equity or proprietary interest in (except for ownership of shares in a publicly
traded company not exceeding five percent (5%) of any class of outstanding
securities), or be an employee, agent, director, advisor, or consultant to or
for any corporation (other than the Company Group), business enterprise or any
person engaged anywhere in the State of Rhode Island or the Commonwealth of
Massachusetts, whether on his own behalf or on behalf of any person other than
the Company Group, in the manufacture, procuring, sale, marketing, promotion or
distribution of any product or product lines functioning competitively with any
product or product lines of the Company Group during the term of this Agreement,
and the Executive will not assist in, manage or supervise any of the foregone
activities; (ii) undertake any action to induce or cause any customer or client
of the Company Group to discontinue any part of its business with the Company
Group; (iii) cause, induce or in any way facilitate the employment by any other
persons or organization of any employee of or consultant to the Company Group,
provided, that this covenant shall become operative only upon the termination of
the Executive's employment; or (iv) take or assist directly or indirectly in the
taking, by acting as consultant to a third party or otherwise of any position on
any matter involving the Company and pending before any state or other public
agency, when such position is adverse to the position being promoted before such
agency at the time by the Company.
8.3 Trade Secrets. "Trade secrets" as used herein means all secret discoveries,
invention, formulae, designs, methods, processes, techniques of production and
know-how relating to the Company Group's business. "Confidential Information" as
used herein means the Company Group's internal policies and procedures,
suppliers, customers, financial information and marketing practices, as well as
secret discoveries, inventions, formulae, designs, techniques of production,
know-how and other information relating to the Company Group's business not
rising to the level of a trade secret under applicable law.
8.4 The breach by the Executive of any of the covenants continued in this
Paragraph 8 shall relieve the company of all further payment obligation under
Paragraph 6 or Paragraph 7.
Section 9. Indemnification
The Company hereby covenants and agrees to indemnify and hold harmless the
Executive fully, completely, and absolutely against and in respect to any and
all actions, suits, proceedings, claims, demands, judgments, costs, expenses
(including attorney's fees), losses, and damages resulting from the Executive's
good faith performance of his duties and obligations under the terms of this
Agreement.
Section 10. Outplacement Assistance
Following a termination of the Executive's employment as described in Sections
6.5, 6.7, or 7.1 herein, the Executive shall be reimbursed by the Company for
the costs of all outplacement services obtained by the Executive within the one
(1) year (for termination pursuant to Section 6.5) and two (2) year (for
terminations pursuant to Section. 6.7 or 7.1) periods after the effective date
of termination; provided, however, that the total reimbursement shall be limited
to an
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amount equal to fifteen percent (15%) of the Executive's Base Salary as of the
effective date of termination.
Section 11. Assignment
11.1 Assignment by Company. This Agreement may and shall be assigned or
transferred to, and shall be binding upon and shall inure to the benefit of, any
successor of the Company, and any such successor shall be deemed substituted for
all purposes of the "Company" under the terms of this Agreement. As used in this
Agreement, the term "successor" shall mean any person, firm, corporation, or
business entity which at any time, whether by merger, purchase, or otherwise,
acquires all or essentially all of the assets of business of the Company.
Notwithstanding such assignment, the Company shall remain, with such successor,
jointly and severally liable for all its obligations hereunder.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall immediately
entitle the Executive to compensation from the Company in the same amount and on
the same terms as the Executive would be entitled in the event of an involuntary
termination by the Company, as provided in Paragraph 6.6 herein. Except as
herein provided, this Agreement may not otherwise be assigned by the Company.
11.2 Assignment by Executive. This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives, executors,
and administrators, successors, heirs, distributees, devisees, and legatees. If
the Executive should die while any amounts payable to the Executive hereunder
remain outstanding, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, in the absence of such designee, to the
Executive's estate.
Section 12. Dispute Resolution and Notice
12.1 Arbitration. Any dispute or controversy arising under or in connection with
this Agreement shall be settled by arbitration, conducted before a panel of
three (3) arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of his employment with the Company, in
accordance with the rules of the American Arbitration Association then in
effect.
Judgment may be entered on the award of the arbitrator in any court having
proper jurisdiction. All expenses of such arbitration, including the fees and
expenses of the counsel for the Executive, shall be borne by the Company.
12.2 Notice. Any notices, requests, demands, or other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, at its principal
offices.
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Section 13. Miscellaneous
13.1 Gender and Number. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
13.2 Entire Agreement. This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto or between the
Executive and the Company, with respect to the subject matter hereof and
constitutes the entire Agreement of the parties with respect thereto.
13.3 Modification. This Agreement shall not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement of the
parties in a written instrument executed by the parties hereto or their legal
representatives.
13.4 Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect.
13.5 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
13.6 Tax Withholding. The Company may withhold from any benefits payable under
this Agreement all federal, state, city, or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
13.7 Beneficiaries. The Executive may designate one or more persons or
entities as the primary and/or contingent beneficiaries of any amounts to be
received under this Agreement. Such designation must be in the form of a signed
writing acceptable to the Board or the Board's designee. The Executive may make
or change such designation at any time.
Section 14. Governing Law
To the extent not preempted by federal law, the provisions of this Agreement
shall be construed and enforced in accordance with the laws of the state of
Rhode Island.
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IN WITNESS WHEREOF, the Executive and the Company (pursuant to a resolution
adopted at a duly constituted meeting of its Board of Directors) have executed
this Agreement, as of the day and year first above written.
Executive:
/s/ Gary S. Gillheeney
-------------------------------------
ATTEST Providence Energy Corporation
By: /s/ Alycia L. Goody By: /s/ James H. Dodge
---------------------- ----------------------------------
Corporate Secretary Chairman, President and CEO
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Contents Exhibit 10.6
- -----------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Term of Employment 1
Section 2. Position and Responsibilities 2
Section 3. Standard of Care 2
Section 4. Compensation 3
Section 5. Expenses 5
Section 6. Employment Terminations 5
Section 7. Change in Control 10
Section 8. Confidentiality and Noncompetition 13
Section 9. Indemnification 14
Section 10. Assignment 14
Section 11. Dispute Resolution and Notice 15
Section 12. Miscellaneous 15
Section 13. Governing Law 16
</TABLE>
<PAGE>
Providence Energy Corporation
Employment Agreement
This EMPLOYMENT AGREEMENT is made, entered into, and is effective as of this
29th day of October, 1997 (hereinafter referred to as the "Effective Date"), by
and between Providence Energy Corporation, together with its subsidiaries and
affiliates (hereinafter referred to as the "Company"), a Rhode Island
corporation having its principal offices at Providence Rhode Island and Alycia
Lyons Goody (hereinafter referred to as the "Executive").
WHEREAS, the Executive is presently employed by the Company in the capacity of
Vice President of the Company;
WHEREAS, the Executive possesses considerable experience and an intimate
knowledge of the business and affairs of the Company, its policies, methods,
personnel, and operations; and
WHEREAS, the Company recognizes that the Executive's contribution has been
substantial and meritorious and, as such, the Executive has demonstrated unique
qualifications to act in an executive capacity for the Company; and
WHEREAS, the Company is desirous of assuring the continued employment of the
Executive in the above stated capacity, and Executive is desirous of having such
assurance.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and
agreements of the parties set forth in this Agreement, and of other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
Section 1. Term of Employment
The Company hereby agrees to employ the Executive and the Executive hereby
agrees to continue to serve the Company, in accordance with the terms and
conditions set forth herein, for an initial period of one (1) year, commencing
as of the Effective Date of this Agreement, as indicated above; subject,
however, to earlier termination as expressly provided in Section 6 herein.
The initial one (1) year period of employment automatically shall be extended
for one (1) additional year at the end of the initial one (1) year term, and
then again after each successive year thereafter. However, either party may
terminate this Agreement at the end of the initial one (1) year period, or at
the end of any successive year thereafter, by giving the other party written
notice of intent not to renew, delivered at least ninety (90) calendar days
prior to the end of such initial period or successive term.
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In the event such notice of intent not to renew is properly delivered by the
Company, this Agreement, along with all corresponding rights, duties, and
covenants, shall automatically expire at the end of the initial period or
successive term then in progress, with the exception of the provisions contained
in Section 8 herein (which shall survive such expiration). However, upon the
effective date of the expiration, the Company shall provide to the Executive a
continuation of his Base Salary (at the rate then in effect, as provided in
Paragraph 4.1 herein) for a period of twelve (12) months, paid in equal monthly
installments in accordance with the normal payroll practices of the Company. The
Company also shall provide to the Executive all benefits to which the Executive
has a vested right to at that time including, but not limited to, the retirement
benefits described in Paragraph 4.4 herein, and the retiree medical insurance
benefits described in Paragraph 4.6 herein.
However, regardless of the above, if at any time during the initial period of
employment, or successive term, a Change in Control of the Company occurs (as
defined in Section 7 herein), then this Agreement shall become immediately
irrevocable for the longer of: (a) one (1) year beyond the month in which the
effective date of such Change in Control occurs; or (b) until all obligations of
the Company hereunder have been fulfilled, and until all benefits provided
hereunder have been paid.
Section 2. Position and Responsibilities
During the term of this Agreement, the Executive agrees to serve as Vice
President of the Company. In his capacity as Vice President, the Executive
shall maintain the level of duties and responsibilities as in effect as of the
Effective Date, or such higher level of duties and responsibilities as he may be
assigned during the term of this Agreement. The Executive shall have the same
status, privileges, and responsibilities normally inherent in such capacities in
corporations of similar size and character.
Section 3. Standard of Care
During the term of this Agreement, the Executive agrees to devote substantially
his full time, attention, and energies to the Company's business and shall not
be engaged in any other business activity, whether or not such business activity
is pursued for gain, profit, or other pecuniary advantage. However, subject to
Section 8 herein, the Executive may serve as a director of other companies so
long as such service is not injurious to the Company. The Executive covenants,
warrants, and represents that he shall:
(a) Devote his full and best efforts to the fulfillment of his employment
obligations; and
(b) Exercise the highest degree of loyalty and the highest standards of conduct
in the performance of his duties.
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This Section 3 shall not be construed as preventing the Executive from investing
assets in such form or manner as will not require his services in the daily
operations of the affairs of the companies in which such investments are made.
Section 4. Compensation
As remuneration for all services to be rendered by the Executive during the term
of this Agreement, and as consideration for complying with the covenants herein,
the Company shall pay and provide to the Executive the following:
4.1 Base Salary. The Company shall pay the Executive a Base Salary in an amount
which shall be established from time to time by the Board of Directors of the
Company or the Board's designee provided, however, that such Base Salary shall
not be less than $100,500.00 per year. This Base Salary shall be paid to the
Executive in equal monthly installments throughout the year, consistent with the
normal payroll practices of the Company.
The annual Base Salary shall be reviewed at least annually following the
Effective Date of this Agreement, while this Agreement is in force, to ascertain
whether, in the judgment of the Board or the Board's designee, such Base Salary
should be increased, based primarily on the performance of the Executive during
the year and on the then current rate of inflation. If so increased, the Base
Salary as stated above shall, likewise, be increased for all purposes of this
Agreement.
4.2 Annual Cash Incentive Compensation. The Company shall provide the Executive
with the opportunity to earn an annual cash incentive compensation payment, at a
level which is in accordance with the provisions of the Performance and Equity
Incentive Plan or any such successor plan, and which is commensurate with the
opportunity typically offered to executives having the same or similar duties
and responsibilities as the Executive at companies similar in size and character
to the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing and/or amending the Performance and Equity Incentive Plan
so long as such changes are similarly applicable to all executives generally.
4.3 Long-Term Incentives. The Company shall provide the Executive the
opportunity to earn a long-term incentive award, at a level which is in
accordance with the provisions of the Performance and Equity Incentive Plan or
any such successor plan, and which is commensurate with the opportunity
typically offered to executives having the same or similar duties and
responsibilities as the Executive at companies similar in size and in character
to the Company.
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Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing, and/or amending the Performance and Equity Incentive
Plan, so long as such changes are similarly applicable to all executives
generally.
4.4 Retirement Benefits. The Company shall provide to the Executive
participation in all Company qualified defined benefit and defined contribution
retirement plans, subject to the eligibility and participation requirements of
such plans. In addition, the Company shall provide to the Executive
participation in the Supplemental Retirement Plan and all other nonqualified
retirement programs typically offered to executives having the same or similar
duties and responsibilities at the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing, and/or amending the nonqualified retirement programs, so
long as such changes are similarly applicable to all executives generally.
4.5 Employee Benefits. During the term of this Agreement, and as otherwise
provided within the provisions of each of the respective plans, the Company
shall provide to the Executive all benefits to which other executives and
employees of the Company are entitled to receive, as commensurate with the
Executive's position. Such benefits shall include, but not be limited to, group
term life insurance, whole life insurance, comprehensive health and major
medical insurance, dental insurance, vision insurance, and short-term and long-
term disability.
The Executive shall be entitled to paid vacation in accordance with the standard
written policy of the Company with regard to vacations of employees. The
Executive shall likewise participate in any additional benefit as may be
established during the term of this Agreement, by standard written policy of the
Company.
4.6 Perquisites. The Company shall provide to the Executive, at the Company's
cost, all perquisites to which other executives of the Company are entitled to
receive and such other perquisites which are suitable to the character of
Executive's position with the Company and adequate for the performance of his
duties hereunder.
4.7 Right to Change Plans. By reason of Paragraphs 4.5, and 4.6 herein, the
Company shall not be obligated to institute, maintain, or refrain from changing,
amending, or discontinuing any benefit plan, program, or perquisite, so long as
such changes are similarly applicable to executive employees generally.
4.8 Deferrals. The Company may permit the Executive to defer the Executive's
receipt of the payment of up to one hundred (100%) percent of the cash
component of the Executive's Annual Incentive Compensation. If any such
deferral election is permitted, the Company shall, in its sole discretion,
establish rules and procedures for such payment deferrals.
4
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Section 5. Expenses
The Company shall pay, or reimburse the Executive, for all ordinary and
necessary expenses, in a reasonable amount, which the Executive incurs in
performing his duties under this Agreement including, but not limited to,
travel, entertainment, professional dues and subscriptions, and all dues, fees,
and expenses associated with membership in various professional, business, and
civic associations and societies of which the Executive's participation is in
the best interest of the Company.
Section 6. Employment Terminations
6.1 Termination Due to Retirement. In the event the Executive's employment is
terminated, while this Agreement is in force, by reason of Retirement (as
defined under the then established rules of the Company's tax-qualified
retirement plan), the Executive's benefits shall be determined in accordance
with the Company's retirement, survivor's benefits, insurance, and other
applicable programs of the Company then in effect.
Upon the effective date of such termination, the Company's obligation to pay and
provide to the Executive Base Salary, Annual Cash Incentive Compensation and
Long-Term Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3 herein,
respectively), shall immediately expire. However, the Executive shall receive a
pro rata portion of the total annual incentive compensation (both cash and
long-term), calculated at target, to which he would be entitled during the year
in which he retires, and shall receive all rights and benefits that he is vested
in, pursuant to other plans and programs of the Company including, but not
limited to, the retirement benefits as described in Paragraph 4.4 herein.
6.2 Termination Due to Death. In the event of the death of the Executive during
the term of this Agreement, or during any period of Disability during which he
is receiving compensation pursuant to Paragraph 6.3 herein, the Company shall
pay to the Executive's surviving spouse, or other beneficiary as so designated
by the Executive during his lifetime, or to the Executive's estate, as
appropriate, all benefits to which the Executive had a vested right to pursuant
to this Agreement.
6.3 Termination Due to Disability. In the event that the Executive becomes
Disabled during the term of this Agreement and is, therefore, unable to perform
his duties herein for a period of more than ninety (90) calendar days in the
aggregate, during any period of twelve (12) consecutive months, or in the event
of the Board's reasonable expectation that the Executive's Disability will exist
for more than a period of ninety (90) calendar days, the Company shall have the
right to terminate the Executive's active employment as provided in this
Agreement. However, the Board shall deliver written notice to the Executive of
the Company's intent to terminate for Disability at least thirty (30) calendar
days prior to the effective date of such termination.
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A termination for Disability shall become effective upon the end of the thirty
(30) day notice period. Upon such effective date, the Company's obligation to
pay and provide to the Executive Base Salary, Annual Bonus, and Long-Term
Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3, respectively), shall
immediately expire. However, the Executive shall receive a pro rata portion of
the total annual incentive compensation (both cash and long-term), calculated at
target, to which he would be entitled during the year in which disability occurs
and shall receive all rights and benefits that he is vested in, pursuant to
other plans and programs of the Company, including, but not limited to, short-
and long-term disability benefits, and retirement benefits as described in
Paragraph 4.4.
The term "Disability" shall mean, for all purposes of this Agreement, the
incapacity of the Executive, due to injury, illness, disease, or bodily or
mental infirmity, to engage in the performance of substantially all of the usual
duties of employment with the Company as contemplated by Section 2 herein, such
Disability to be determined by the Board of Directors of the Company upon
receipt and in reliance on competent medical advice from one or more
individuals, selected by the Board, who are qualified to give such professional
medical advice.
If the Executive and the Company shall not be in agreement as to whether the
Executive has suffered a Disability for the purposes of this Agreement, the
matter shall be referred to a panel of three medical doctors, one of which shall
be selected by the Executive, one of which shall be selected by the Company, and
one of which shall be selected by the two doctors as so selected, and the
decision of a majority of the panel with respect to the question of whether the
Executive has suffered a Disability shall be binding upon the Executive and the
Company. The expenses of any such referral shall be borne by the party against
whom the decision of the panel is rendered. The Executive may be required by the
Company to submit to medical examination at any time during the period of his
employment hereunder, but not more often than quarter-annually, to determine
whether a Disability exists for the purposes of this Agreement.
It is expressly understood that the Disability of the Executive for a period of
ninety (90) calendar days or less in the aggregate during any period of twelve
(12) consecutive months, in the absence of any reasonable expectation that his
Disability will exist for more than such a period of time, shall not constitute
a failure by him to perform his duties hereunder and shall not be deemed a
breach or default and the Executive shall receive full compensation for any such
period of Disability or for any other temporary illness or incapacity during the
term of this Agreement.
6.4 Voluntary Termination by the Executive. The Executive may terminate this
Agreement at any time by giving the Board of Directors of the Company written
notice of intent to terminate, delivered at least thirty (30) calendar days
prior to the effective date of such termination (such period not to include
vacation). The termination automatically shall become effective upon the
expiration of the thirty (30) day notice period.
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Upon the effective date of such termination, the Company shall pay to the
Executive his full Base Salary, at the rate then in effect as provided in
Paragraph 4.1 herein, through the effective date of termination, plus all other
benefits to which the Executive has a vested right to at that time including,
but not limited to, accrued vacation pay. The Company also shall provide to the
Executive the vested retirement benefits described in Paragraph 4.4 herein. With
the exception of the covenants contained in Sections 8.1, 8.3 and 8.4 herein
(which shall survive such termination), the Company and the Executive thereafter
shall have no further obligations under this Agreement.
6.5 Involuntary Termination by the Company Without Cause. At all times prior to
six (6) full calendar months before the effective date of a Change in Control
(as defined in Section 7.2), or at any time more than two (2) years after the
effective date of a Change in Control (as defined in Section 7.2), the Board may
terminate the Executive's employment, as provided under this Agreement, at any
time, for reasons other than death, Disability, Retirement, or for Cause, by
notifying the Executive in writing of the Company's intent to terminate, at
least thirty (30) calendar days prior the effective date of such termination.
Upon the effective date of such termination, following the expiration of the
thirty (30) day notice period, the Company shall pay to the Executive in twelve
(12) equal monthly installments an amount equal to the Executive's annual Base
Salary then in effect. Additionally, the Company shall continue to provide the
Executive with health and welfare benefits for the twelve (12) month time
period.
In the event that, during the twelve (12) month period following the effective
date of termination, the Executive becomes employed at the same or greater
annual Base Salary than that which was in effect during the year in which
termination occurred, the Company's obligation to make payments under this
Section will immediately cease upon the date of the Executive's subsequent
employment. In the event that, during the twelve (12) month period following
the effective date of termination, the Executive becomes employed at a lesser
annual Base Salary than that which was in effect during the year in which
termination occurred, then upon the date of the Executive's re-employment, the
Company's obligation to make payments under this section will be limited to a
monthly amount reflecting the difference between the Executive's Base Salary at
the date of re-employment and the Executive's Base Salary during the year in
which termination occurred. The continuation of health and welfare benefits
shall be discontinued prior to the end of the twelve (12) month period in the
event the Executive has available substantially similar benefits from a
subsequent employer.
Further, the Company shall pay the Executive all other benefits to which the
Executive has a vested right at the time, according to the provisions of the
governing plan or program. With the exceptions of the covenants contained in
Section 8 herein (which shall survive such termination) the Company and the
Executive thereafter shall have no further obligations under this Agreement.
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If the Executive's employment is terminated for any of the reasons set forth in
Section 7.1 herein, the Executive shall be entitled to receive the benefits
provided in Section 7.1 herein in lieu of the benefits set forth in this Section
6.5.
6.6 Termination For Cause. Nothing in this Agreement shall be construed to
prevent the Board from terminating the Executive's employment under this
Agreement for "Cause." Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the unanimous
vote of the entire membership of the Board at a meeting of such Board duly
called and held for that purpose (after reasonable notice to the Executive and
an opportunity for the Executive, together with the Executive's counsel, to be
heard by the Board) finding that in the good faith opinion of the Board that the
Executive was guilty of conduct set forth in the second paragraph of this
Section 6.6 and specifying the particulars thereof in detail. In the event the
Board determines that Cause exists, the Board shall deliver written notice to
the Executive of the facts and circumstances leading to the Board's
determination. Upon receipt of this written notification, all provisions of this
Agreement shall terminate, except for the confidentiality and noncompete
provisions of Section 8 herein (which shall survive such termination). The
Company shall pay the Executive his full Base Salary and accrued vacation time
through the date notice of a for Cause termination is delivered to the
Executive, plus all other benefits to which the Executive has a vested right to
at that time. The Company and the Executive thereafter shall have no further
obligations under this Agreement other than the Executive's obligations under
Section 8 hereof.
"Cause" shall be determined by the Board in the exercise of good faith and
reasonable judgment; and shall mean the willful misconduct, fraud, conviction of
a felony, consistent gross neglect of duties, or wanton negligence by the
Executive in the performance of his duties hereunder, or the material breach by
the Executive of the terms of this Agreement.
6.7 Termination for Good Reason. At any time during the six (6) full calendar
month period prior to the effective date of a Change in Control (as defined in
Section 7.2) or the twenty four (24) month period following the effective date
of a Change in Control (as defined in Section 7.2), the Executive may terminate
this Agreement for Good Reason (as defined below) by giving the Board of
Directors of the Company thirty (30) calendar days written notice of intent to
terminate, which notice sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for such termination.
Upon the expiration of the thirty (30) day notice period, the Good Reason
termination shall become effective, and the Company shall pay and provide to the
Executive the benefits set forth in Section 7.1 herein.
Good Reason shall mean, without the Executive's express written consent, the
occurrence of any one or more of the following:
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(a) The assignment of the Executive to duties materially inconsistent with the
Executive's authorities, duties, responsibilities, and status as an
officer of the Company, or a reduction or alteration in the nature or
status of the Executive's authorities, duties, or responsibilities from
those in effect during the immediately preceding fiscal year;
(b) The Company's requiring the Executive to be based at a location which is at
least fifty (50) miles further from the Executive's current primary
residence than is such residence from the Company's current headquarters,
except for required travel on the Company's business to an extent
substantially consistent with the Executive's business obligations as of
the Effective Date;
(c) A reduction by the Company in the Executive's Base Salary as in effect on
the Effective Date, as provided in Section 4.1 herein, or as the same
shall be increased from time to time;
(d) A material reduction in the Executive's level of participation in any of
the Company's short- and/or long-term incentive compensation plans, or
employee benefit or retirement plans, policies, practices, or
arrangements in which the Executive participates as of the Effective
Date; provided, however, that reductions in the levels of participation
in any such plans shall not be deemed to be "Good Reason" if the
Executive's reduced level of participation in each such program remains
substantially consistent with the average level of participation of other
executives who have positions commensurate with the Executive's position;
or
(e) The failure of the Company to obtain a satisfactory agreement from any
successor to the Company to assume and agree to perform this Agreement,
as contemplated in Section 11.1 herein.
Upon a termination for Good Reason within the six (6) full calendar month period
prior to the effective date of a Change in Control, or within the twenty-four
(24) months following the effective date of a Change in Control, the Executive
shall be entitled to receive the payments and benefits set forth in Section 7.1
herein.
The Executive's right to terminate employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason herein.
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Section 7. Change in Control
7.1 Employment Terminations in Connection with a Change in Control. In the
event of a Qualifying Termination (as defined below) within six (6) full
calendar months prior to the effective date of a Change in Control, or within
twenty-four (24) months following the effective date of a Change in Control,
then in lieu of all other benefits provided to the Executive under the
provisions of this Agreement, the Company shall pay to the Executive in a lump
sum payment and provide him with the following severance benefits (hereinafter
referred to as the "Severance Benefits"):
(a) An amount equal to two (2) times the highest rate of the Executive's
annualized Base Salary rate in effect at any time up to and including
the effective date of termination;
(b) An amount equal to two (2) times the Executive's target incentive award
(both cash and long-term) established for the fiscal year in which the
Executive's effective date of termination occurs;
(c) An amount equal to the Executive's unpaid Base Salary and accrued vacation
pay through the effective date of termination;
(d) An amount equal to the Executive's unpaid targeted annual bonus,
established for the plan year in which the Executive's effective date of
termination occurs, multiplied by a fraction, the numerator of which is
the number of completed days in the then--existing fiscal year through
the effective date of termination, and the denominator of which is three
hundred sixty-five (365);
(e) A continuation of the welfare benefits of medical insurance, dental
insurance, and group term life insurance for two (2) full years after
the effective date of termination. These benefits shall be provided to
the Executive at the same premium cost, and at the same coverage level,
as in effect as of the Executive's effective date of termination.
However, in the event the premium cost and/or level of coverage shall
change for all employees of the Company, the cost and/or coverage level,
likewise, shall change for the Executive in a corresponding manner.
The continuation of these welfare benefits shall be discontinued prior
to the end of the two (2) year period in the event the Executive has
available substantially similar benefits from a subsequent employer, as
determined by the Company's Board of Directors or the Board's designee.
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(f) A lump-sum cash payment of the actuarial present value equivalent of the
aggregate benefits accrued by the Executive as of the effective date of
termination under the terms of any and all supplemental retirement plans
in which the Executive participates. For purposes of determining "final
average pay" under such programs, the Executive's actual pay history as
of the effective date of termination shall be used.
For purposes of this Section 7, a Qualifying Termination shall mean any
termination of the Executive's employment other than: (1) by the Company for
Cause (as provided in Section 6.6 herein); (2) by reason of death, Disability
(as provided in Section 6.2 herein), or Retirement (as such term is then defined
in the Company's tax qualified defined benefit retirement plan; [provided that a
termination which qualifies as a Retirement and which would otherwise qualify as
a termination for Good Reason under Section 6.7 herein will be deemed to be a
Qualifying Termination]).
7.2 Definition of "Change in Control." A Change in Control of the Company
shall be deemed to have occurred as of the first day any one or more of the
following conditions shall have been satisfied:
(a) Any individual, corporation (other than the Company), partnership, trust,
association, pool, syndicate, or any other entity or any group of
persons acting in concert becomes the beneficial owner, as that concept
is defined in Rule 13d-3 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, of securities of
the Company possessing twenty percent (20%) or more of the voting power
for the election of directors of the Company;
(b) There shall be consummated any consolidation, merger, or other business
combination involving the Company or the securities of the Company in
which holders of voting securities of the Company immediately prior to
such consummation own, as a group, immediately after such consummation,
voting securities of the Company (or, if the Company does not survive
such transaction, voting securities of the corporation surviving such
transaction) having less than sixty percent (60%) of the total voting
power in an election of directors of the Company (or such other
surviving corporation);
(c) During any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the directors of the Company cease
for any reason to constitute at least a majority thereof unless the
election, or the nomination for election by the Company's shareholders,
of each new director of the Company was approved by a vote of at least
two-thirds (2/3) of the directors of the Company then still in office
who were directors of the Company at the beginning of any such period;
or
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(d) There shall be consummated any sale, lease, exchange, or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company (on a consolidated
basis) to a party which is not controlled by or under common control
with the Company.
7.3 Excise Tax Equalization Payment. In the event that the Executive becomes
entitled to Severance Benefits or any other payment or benefit under this Plan,
or under any other agreement with or plan of the Company (in the aggregate, the
"Total Payments"), if any of the Total Payments will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may
hereafter be imposed), the Company shall pay to the Executive in cash an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive after deduction of any Excise Tax upon the Total Payments and any
Federal, state and local income tax and Excise Tax upon the Gross-Up Payment
provided for by this Section 7.3 (including FICA and FUTA), shall be equal to
the Total Payments. Such payment shall be made by the Company to the Executive
as soon as practical following the effective date of termination, but in no
event beyond thirty (30) days from such date.
7.4 Tax Computation. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amounts of such Excise Tax:
(a) Any other payments or benefits received or to be received by the Executive
in connection with a Change in Control of the Company or the Executive's
termination of employment (whether pursuant to the terms of this Plan or
any other plan, arrangement, or agreement with the Company, or with any
person (which shall have the meaning set forth in Section 3(a)(9) of the
Securities Exchange Act of 1934, including a "group" as defined in
Section 13(d) therein) whose actions result in a Change in Control of
the Company or any person affiliated with the Company or such persons)
shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) shall be treated as subject to the Excise
Tax, unless in the opinion of tax counsel as supported by the Company's
independent auditors and acceptable to the Executive, such other
payments or benefits (in whole or in part) do not constitute parachute
payments, or unless such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the base
amount within the meaning of Section 280G(b)(3) of the Code, or are
otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as subject to the
Excise Tax shall be equal to the lesser of: (i) the total amount of the
Total Payments; or (ii) the amount of excess parachute payments within
the meaning of Section 280G(b)(1) (after applying clause (a) above); and
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(c) The value of any noncash benefits or any deferred payment or benefit shall
be determined by the Company's independent auditors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
Federal income taxation in the calendar year in which the Gross-Up Payment is to
be made, and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the effective
date of termination, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes.
7.5 Subsequent Recalculation. In the event the Internal Revenue Service adjusts
the computation of the Company under Section 7.4 herein so that the Executive
did not receive the greatest net benefit, the Company shall reimburse the
Executive for the full amount necessary to make the Executive whole, plus a
market rate of interest, as determined by the Committee.
7.6 Payment of Legal Fees. To the extent permitted by law, the Company shall
pay all legal fees, costs of litigation, prejudgment interest, and other
expenses incurred in good faith by the Executive as a result of the Company's
refusal to provide the severance benefits under this Section 7 to which the
Executive becomes entitled under this Agreement, or as a result of the Company's
contesting the validity, enforceability, or interpretation of this Agreement, or
as a result of any conflict (including conflicts related to the calculation of
parachute payments) between the parties pertaining to this Agreement.
Section 8. Confidentiality and Noncompetition
8.1 Confidentiality. During the term of this Agreement and thereafter in
perpetuity, the Executive will not directly or indirectly divulge or appropriate
to his own use, or to the use of any third party, and "trade secrets" (as
defined in Section 8.3), other secret or confidential information, knowledge or
financial information of the Company or any of the Company's subsidiaries or
affiliates (hereinafter, the Company and its subsidiaries and affiliates shall
be collectively referred to as the "Company Group"), except as may be in the
public domain other than by violation of this Agreement.
8.2 Noncompetition. From the date hereof until two (2) years after the
termination of his employment hereunder, the Executive will not (i) directly or
indirectly own any equity or proprietary interest in (except for ownership of
shares in a publicly traded company not exceeding five percent (5%) of any class
of outstanding securities), or be an employee, agent, director, advisor, or
consultant to or for any corporation (other than the Company Group), business
enterprise or any person engaged anywhere in the State of Rhode Island or the
Commonwealth of Massachusetts, whether on his own behalf or on behalf of any
person other than the Company
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Group, in the manufacture, procuring, sale, marketing, promotion or distribution
of any product or product lines functioning competitively with any product or
product lines of the Company Group during the term of this Agreement, and the
Executive will not assist in, manage or supervise any of the foregone
activities; (ii) undertake any action to induce or cause any customer or client
of the Company Group to discontinue any part of its business with the Company
Group; (iii) cause, induce or in any way facilitate the employment by any other
persons or organization of any employee of or consultant to the Company Group,
provided, that this covenant shall become operative only upon the termination of
the Executive's employment; or (iv) take or assist directly or indirectly in the
taking, by acting as consultant to a third party or otherwise of any position on
any matter involving the Company and pending before any state or other public
agency, when such position is adverse to the position being promoted before such
agency at the time by the Company.
8.3 Trade Secrets. "Trade secrets" as used herein means all secret discoveries,
invention, formulae, designs, methods, processes, techniques of production and
know-how relating to the Company Group's business. "Confidential Information" as
used herein means the Company Group's internal policies and procedures,
suppliers, customers, financial information and marketing practices, as well as
secret discoveries, inventions, formulae, designs, techniques of production,
know-how and other information relating to the Company Group's business not
rising to the level of a trade secret under applicable law.
8.4 The breach by the Executive of any of the covenants continued in this
Paragraph 8 shall relieve the company of all further payment obligation under
Paragraph 6 or Paragraph 7.
Section 9. Indemnification
The Company hereby covenants and agrees to indemnify and hold harmless the
Executive fully, completely, and absolutely against and in respect to any and
all actions, suits, proceedings, claims, demands, judgments, costs, expenses
(including attorney's fees), losses, and damages resulting from the Executive's
good faith performance of his duties and obligations under the terms of this
Agreement.
Section 10. Outplacement Assistance
Following a termination of the Executive's employment as described in Sections
6.5, 6.7, or 7.1 herein, the Executive shall be reimbursed by the Company for
the costs of all outplacement services obtained by the Executive within the one
(1) year (for termination pursuant to Section 6.5) and two (2) year (for
terminations pursuant to Section. 6.7 or 7.1) periods after the effective date
of termination; provided, however, that the total reimbursement shall be limited
to an amount equal to fifteen percent (15%) of the Executive's Base Salary as of
the effective date of termination.
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Section 11. Assignment
11.1 Assignment by Company. This Agreement may and shall be assigned or
transferred to, and shall be binding upon and shall inure to the benefit of, any
successor of the Company, and any such successor shall be deemed substituted for
all purposes of the "Company" under the terms of this Agreement. As used in this
Agreement, the term "successor" shall mean any person, firm, corporation, or
business entity which at any time, whether by merger, purchase, or otherwise,
acquires all or essentially all of the assets of business of the Company.
Notwithstanding such assignment, the Company shall remain, with such successor,
jointly and severally liable for all its obligations hereunder.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall immediately
entitle the Executive to compensation from the Company in the same amount and on
the same terms as the Executive would be entitled in the event of an involuntary
termination by the Company, as provided in Paragraph 6.6 herein.
Except as herein provided, this Agreement may not otherwise be assigned by the
Company.
11.2 Assignment by Executive. This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives, executors,
and administrators, successors, heirs, distributees, devisees, and legatees. If
the Executive should die while any amounts payable to the Executive hereunder
remain outstanding, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, in the absence of such designee, to the
Executive's estate.
Section 12. Dispute Resolution and Notice
12.1 Arbitration. Any dispute or controversy arising under or in connection with
this Agreement shall be settled by arbitration, conducted before a panel of
three (3) arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of his employment with the Company, in
accordance with the rules of the American Arbitration Association then in
effect.
Judgment may be entered on the award of the arbitrator in any court having
proper jurisdiction. All expenses of such arbitration, including the fees and
expenses of the counsel for the Executive, shall be borne by the Company.
12.2 Notice. Any notices, requests, demands, or other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, at its principal
offices.
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Section 13. Miscellaneous
13.1 Gender and Number. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
13.2 Entire Agreement. This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto or between the
Executive and the Company, with respect to the subject matter hereof and
constitutes the entire Agreement of the parties with respect thereto.
13.3 Modification. This Agreement shall not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement of the
parties in a written instrument executed by the parties hereto or their legal
representatives.
13.4 Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect.
13.5 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
13.6 Tax Withholding. The Company may withhold from any benefits payable under
this Agreement all federal, state, city, or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
13.7 Beneficiaries. The Executive may designate one or more persons or
entities as the primary and/or contingent beneficiaries of any amounts to be
received under this Agreement. Such designation must be in the form of a signed
writing acceptable to the Board or the Board's designee. The Executive may make
or change such designation at any time.
Section 14. Governing Law
To the extent not preempted by federal law, the provisions of this Agreement
shall be construed and enforced in accordance with the laws of the state of
Rhode Island.
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IN WITNESS WHEREOF, the Executive and the Company (pursuant to a resolution
adopted at a duly constituted meeting of its Board of Directors) have executed
this Agreement, as of the day and year first above written.
Executive:
/s/ Alycia Lyons Goody
-------------------------------------
ATTEST Providence Energy Corporation
By: /s/ Alycia L. Goody By: /s/ James H. Dodge
---------------------- ---------------------------------
Corporate Secretary Chairman, President and CEO
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Contents Exhibit 10.7
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Term of Employment 1
Section 2. Position and Responsibilities 2
Section 3. Standard of Care 2
Section 4. Compensation 3
Section 5. Expenses 5
Section 6. Employment Terminations 5
Section 7. Change in Control 10
Section 8. Confidentiality and Noncompetition 13
Section 9. Indemnification 14
Section 10. Assignment 14
Section 11. Dispute Resolution and Notice 15
Section 12. Miscellaneous 15
Section 13. Governing Law 16
</TABLE>
<PAGE>
Providence Energy Corporation
Employment Agreement
This EMPLOYMENT AGREEMENT is made, entered into, and is effective as of this
29th day of October, 1997 (hereinafter referred to as the "Effective Date"), by
and between Providence Energy Corporation, together with its subsidiaries and
affiliates (hereinafter referred to as the "Company"), a Rhode Island
corporation having its principal offices at Providence Rhode Island and William
D. Mullin (hereinafter referred to as the "Executive").
WHEREAS, the Executive is presently employed by the Company in the capacity of
Vice President of the Company;
WHEREAS, the Executive possesses considerable experience and an intimate
knowledge of the business and affairs of the Company, its policies, methods,
personnel, and operations; and
WHEREAS, the Company recognizes that the Executive's contribution has been
substantial and meritorious and, as such, the Executive has demonstrated unique
qualifications to act in an executive capacity for the Company; and
WHEREAS, the Company is desirous of assuring the continued employment of the
Executive in the above stated capacity, and Executive is desirous of having such
assurance.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and
agreements of the parties set forth in this Agreement, and of other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
Section 1. Term of Employment
The Company hereby agrees to employ the Executive and the Executive hereby
agrees to continue to serve the Company, in accordance with the terms and
conditions set forth herein, for an initial period of one (1) year, commencing
as of the Effective Date of this Agreement, as indicated above; subject,
however, to earlier termination as expressly provided in Section 6 herein.
The initial one (1) year period of employment automatically shall be extended
for one (1) additional year at the end of the initial one (1) year term, and
then again after each successive year thereafter. However, either party may
terminate this Agreement at the end of the initial one (1) year period, or at
the end of any successive year thereafter, by giving the other party written
notice of intent not to renew, delivered at least ninety (90) calendar days
prior to the end of such initial period or successive term.
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In the event such notice of intent not to renew is properly delivered by the
Company, this Agreement, along with all corresponding rights, duties, and
covenants, shall automatically expire at the end of the initial period or
successive term then in progress, with the exception of the provisions contained
in Section 8 herein (which shall survive such expiration). However, upon the
effective date of the expiration, the Company shall provide to the Executive a
continuation of his Base Salary (at the rate then in effect, as provided in
Paragraph 4.1 herein) for a period of twelve (12) months, paid in equal monthly
installments in accordance with the normal payroll practices of the Company. The
Company also shall provide to the Executive all benefits to which the Executive
has a vested right to at that time including, but not limited to, the retirement
benefits described in Paragraph 4.4 herein, and the retiree medical insurance
benefits described in Paragraph 4.6 herein.
However, regardless of the above, if at any time during the initial period of
employment, or successive term, a Change in Control of the Company occurs (as
defined in Section 7 herein), then this Agreement shall become immediately
irrevocable for the longer of: (a) one (1) year beyond the month in which the
effective date of such Change in Control occurs; or (b) until all obligations of
the Company hereunder have been fulfilled, and until all benefits provided
hereunder have been paid.
Section 2. Position and Responsibilities
During the term of this Agreement, the Executive agrees to serve as Vice
President of the Company. In his capacity as Vice President, the Executive shall
maintain the level of duties and responsibilities as in effect as of the
Effective Date, or such higher level of duties and responsibilities as he may be
assigned during the term of this Agreement. The Executive shall have the same
status, privileges, and responsibilities normally inherent in such capacities in
corporations of similar size and character.
Section 3. Standard of Care
During the term of this Agreement, the Executive agrees to devote substantially
his full time, attention, and energies to the Company's business and shall not
be engaged in any other business activity, whether or not such business activity
is pursued for gain, profit, or other pecuniary advantage. However, subject to
Section 8 herein, the Executive may serve as a director of other companies so
long as such service is not injurious to the Company. The Executive covenants,
warrants, and represents that he shall:
(a) Devote his full and best efforts to the fulfillment of his employment
obligations; and
(b) Exercise the highest degree of loyalty and the highest standards of conduct
in the performance of his duties.
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This Section 3 shall not be construed as preventing the Executive from investing
assets in such form or manner as will not require his services in the daily
operations of the affairs of the companies in which such investments are made.
Section 4. Compensation
As remuneration for all services to be rendered by the Executive during the term
of this Agreement, and as consideration for complying with the covenants herein,
the Company shall pay and provide to the Executive the following:
4.1 Base Salary. The Company shall pay the Executive a Base Salary in an amount
which shall be established from time to time by the Board of Directors of the
Company or the Board's designee provided, however, that such Base Salary shall
not be less than $132,600.00 per year. This Base Salary shall be paid to the
Executive in equal monthly installments throughout the year, consistent with the
normal payroll practices of the Company.
The annual Base Salary shall be reviewed at least annually following the
Effective Date of this Agreement, while this Agreement is in force, to ascertain
whether, in the judgment of the Board or the Board's designee, such Base Salary
should be increased, based primarily on the performance of the Executive during
the year and on the then current rate of inflation. If so increased, the Base
Salary as stated above shall, likewise, be increased for all purposes of this
Agreement.
4.2 Annual Cash Incentive Compensation. The Company shall provide the Executive
with the opportunity to earn an annual cash incentive compensation payment, at a
level which is in accordance with the provisions of the Performance and Equity
Incentive Plan or any such successor plan, and which is commensurate with the
opportunity typically offered to executives having the same or similar duties
and responsibilities as the Executive at companies similar in size and character
to the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing and/or amending the Performance and Equity Incentive Plan
so long as such changes are similarly applicable to all executives generally.
4.3 Long-Term Incentives. The Company shall provide the Executive the
opportunity to earn a long-term incentive award, at a level which is in
accordance with the provisions of the Performance and Equity Incentive Plan or
any such successor plan, and which is commensurate with the opportunity
typically offered to executives having the same or similar duties and
responsibilities as the Executive at companies similar in size and in character
to the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing,
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and/or amending the Performance and Equity Incentive Plan, so long as such
changes are similarly applicable to all executives generally.
4.4 Retirement Benefits. The Company shall provide to the Executive
participation in all Company qualified defined benefit and defined contribution
retirement plans, subject to the eligibility and participation requirements of
such plans. In addition, the Company shall provide to the Executive
participation in the Supplemental Retirement Plan and all other nonqualified
retirement programs typically offered to executives having the same or similar
duties and responsibilities at the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing, and/or amending the nonqualified retirement programs, so
long as such changes are similarly applicable to all executives generally.
4.5 Employee Benefits. During the term of this Agreement, and as otherwise
provided within the provisions of each of the respective plans, the Company
shall provide to the Executive all benefits to which other executives and
employees of the Company are entitled to receive, as commensurate with the
Executive's position. Such benefits shall include, but not be limited to, group
term life insurance, whole life insurance, comprehensive health and major
medical insurance, dental insurance, vision insurance, and short-term and long-
term disability.
The Executive shall be entitled to paid vacation in accordance with the standard
written policy of the Company with regard to vacations of employees. The
Executive shall likewise participate in any additional benefit as may be
established during the term of this Agreement, by standard written policy of the
Company.
4.6 Perquisites. The Company shall provide to the Executive, at the Company's
cost, all perquisites to which other executives of the Company are entitled to
receive and such other perquisites which are suitable to the character of
Executive's position with the Company and adequate for the performance of his
duties hereunder.
4.7 Right to Change Plans. By reason of Paragraphs 4.5, and 4.6 herein, the
Company shall not be obligated to institute, maintain, or refrain from changing,
amending, or discontinuing any benefit plan, program, or perquisite, so long as
such changes are similarly applicable to executive employees generally.
4.8 Deferrals. The Company may permit the Executive to defer the Executive's
receipt of the payment of up to one hundred (100%) percent of the cash component
of the Executive's Annual Incentive Compensation. If any such deferral election
is permitted, the Company shall, in its sole discretion, establish rules and
procedures for such payment deferrals.
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Section 5. Expenses
The Company shall pay, or reimburse the Executive, for all ordinary and
necessary expenses, in a reasonable amount, which the Executive incurs in
performing his duties under this Agreement including, but not limited to,
travel, entertainment, professional dues and subscriptions, and all dues, fees,
and expenses associated with membership in various professional, business, and
civic associations and societies of which the Executive's participation is in
the best interest of the Company.
Section 6. Employment Terminations
6.1 Termination Due to Retirement. In the event the Executive's employment is
terminated, while this Agreement is in force, by reason of Retirement (as
defined under the then established rules of the Company's tax-qualified
retirement plan), the Executive's benefits shall be determined in accordance
with the Company's retirement, survivor's benefits, insurance, and other
applicable programs of the Company then in effect.
Upon the effective date of such termination, the Company's obligation to pay and
provide to the Executive Base Salary, Annual Cash Incentive Compensation and
Long-Term Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3 herein,
respectively), shall immediately expire. However, the Executive shall receive a
pro rata portion of the total annual incentive compensation (both cash and long-
term), calculated at target, to which he would be entitled during the year in
which he retires, and shall receive all rights and benefits that he is vested
in, pursuant to other plans and programs of the Company including, but not
limited to, the retirement benefits as described in Paragraph 4.4 herein.
6.2 Termination Due to Death. In the event of the death of the Executive during
the term of this Agreement, or during any period of Disability during which he
is receiving compensation pursuant to Paragraph 6.3 herein, the Company shall
pay to the Executive's surviving spouse, or other beneficiary as so designated
by the Executive during his lifetime, or to the Executive's estate, as
appropriate, all benefits to which the Executive had a vested right to pursuant
to this Agreement.
6.3 Termination Due to Disability. In the event that the Executive becomes
Disabled during the term of this Agreement and is, therefore, unable to perform
his duties herein for a period of more than ninety (90) calendar days in the
aggregate, during any period of twelve (12) consecutive months, or in the event
of the Board's reasonable expectation that the Executive's Disability will exist
for more than a period of ninety (90) calendar days, the Company shall have the
right to terminate the Executive's active employment as provided in this
Agreement. However, the Board shall deliver written notice to the Executive of
the Company's intent to
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terminate for Disability at least thirty (30) calendar days prior to the
effective date of such termination.
A termination for Disability shall become effective upon the end of the thirty
(30) day notice period. Upon such effective date, the Company's obligation to
pay and provide to the Executive Base Salary, Annual Bonus, and Long-Term
Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3, respectively), shall
immediately expire. However, the Executive shall receive a pro rata portion of
the total annual incentive compensation (both cash and long-term), calculated at
target, to which he would be entitled during the year in which disability occurs
and shall receive all rights and benefits that he is vested in, pursuant to
other plans and programs of the Company, including, but not limited to, short-
and long-term disability benefits, and retirement benefits as described in
Paragraph 4.4.
The term "Disability" shall mean, for all purposes of this Agreement, the
incapacity of the Executive, due to injury, illness, disease, or bodily or
mental infirmity, to engage in the performance of substantially all of the usual
duties of employment with the Company as contemplated by Section 2 herein, such
Disability to be determined by the Board of Directors of the Company upon
receipt and in reliance on competent medical advice from one or more
individuals, selected by the Board, who are qualified to give such professional
medical advice.
If the Executive and the Company shall not be in agreement as to whether the
Executive has suffered a Disability for the purposes of this Agreement, the
matter shall be referred to a panel of three medical doctors, one of which shall
be selected by the Executive, one of which shall be selected by the Company, and
one of which shall be selected by the two doctors as so selected, and the
decision of a majority of the panel with respect to the question of whether the
Executive has suffered a Disability shall be binding upon the Executive and the
Company. The expenses of any such referral shall be borne by the party against
whom the decision of the panel is rendered. The Executive may be required by the
Company to submit to medical examination at any time during the period of his
employment hereunder, but not more often than quarter-annually, to determine
whether a Disability exists for the purposes of this Agreement.
It is expressly understood that the Disability of the Executive for a period of
ninety (90) calendar days or less in the aggregate during any period of twelve
(12) consecutive months, in the absence of any reasonable expectation that his
Disability will exist for more than such a period of time, shall not constitute
a failure by him to perform his duties hereunder and shall not be deemed a
breach or default and the Executive shall receive full compensation for any such
period of Disability or for any other temporary illness or incapacity during the
term of this Agreement.
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6.4 Voluntary Termination by the Executive. The Executive may terminate this
Agreement at any time by giving the Board of Directors of the Company written
notice of intent to terminate, delivered at least thirty (30) calendar days
prior to the effective date of such termination (such period not to include
vacation). The termination automatically shall become effective upon the
expiration of the thirty (30) day notice period.
Upon the effective date of such termination, the Company shall pay to the
Executive his full Base Salary, at the rate then in effect as provided in
Paragraph 4.1 herein, through the effective date of termination, plus all other
benefits to which the Executive has a vested right to at that time including,
but not limited to, accrued vacation pay. The Company also shall provide to the
Executive the vested retirement benefits described in Paragraph 4.4 herein. With
the exception of the covenants contained in Sections 8.1, 8.3 and 8.4 herein
(which shall survive such termination), the Company and the Executive thereafter
shall have no further obligations under this Agreement.
6.5 Involuntary Termination by the Company Without Cause. At all times prior to
six (6) full calendar months before the effective date of a Change in Control
(as defined in Section 7.2), or at any time more than two (2) years after the
effective date of a Change in Control (as defined in Section 7.2), the Board may
terminate the Executive's employment, as provided under this Agreement, at any
time, for reasons other than death, Disability, Retirement, or for Cause, by
notifying the Executive in writing of the Company's intent to terminate, at
least thirty (30) calendar days prior the effective date of such termination.
Upon the effective date of such termination, following the expiration of the
thirty (30) day notice period, the Company shall pay to the Executive in twelve
(12) equal monthly installments an amount equal to the Executive's annual Base
Salary then in effect. Additionally, the Company shall continue to provide the
Executive with health and welfare benefits for the twelve (12) month time
period.
In the event that, during the twelve (12) month period following the effective
date of termination, the Executive becomes employed at the same or greater
annual Base Salary than that which was in effect during the year in which
termination occurred, the Company's obligation to make payments under this
Section will immediately cease upon the date of the Executive's subsequent
employment. In the event that, during the twelve (12) month period following
the effective date of termination, the Executive becomes employed at a lesser
annual Base Salary than that which was in effect during the year in which
termination occurred, then upon the date of the Executive's re-employment, the
Company's obligation to make payments under this section will be limited to a
monthly amount reflecting the difference between the Executive's Base Salary at
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the date of re-employment and the Executive's Base Salary during the year in
which termination occurred. The continuation of health and welfare benefits
shall be discontinued prior to the end of the twelve (12) month period in the
event the Executive has available substantially similar benefits from a
subsequent employer.
Further, the Company shall pay the Executive all other benefits to which the
Executive has a vested right at the time, according to the provisions of the
governing plan or program. With the exceptions of the covenants contained in
Section 8 herein (which shall survive such termination) the Company and the
Executive thereafter shall have no further obligations under this Agreement.
If the Executive's employment is terminated for any of the reasons set forth in
Section 7.1 herein, the Executive shall be entitled to receive the benefits
provided in Section 7.1 herein in lieu of the benefits set forth in this Section
6.5.
6.6 Termination For Cause. Nothing in this Agreement shall be construed to
prevent the Board from terminating the Executive's employment under this
Agreement for "Cause." Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the unanimous
vote of the entire membership of the Board at a meeting of such Board duly
called and held for that purpose (after reasonable notice to the Executive and
an opportunity for the Executive, together with the Executive's counsel, to be
heard by the Board) finding that in the good faith opinion of the Board that the
Executive was guilty of conduct set forth in the second paragraph of this
Section 6.6 and specifying the particulars thereof in detail. In the event the
Board determines that Cause exists, the Board shall deliver written notice to
the Executive of the facts and circumstances leading to the Board's
determination. Upon receipt of this written notification, all provisions of this
Agreement shall terminate, except for the confidentiality and noncompete
provisions of Section 8 herein (which shall survive such termination). The
Company shall pay the Executive his full Base Salary and accrued vacation time
through the date notice of a for Cause termination is delivered to the
Executive, plus all other benefits to which the Executive has a vested right to
at that time. The Company and the Executive thereafter shall have no further
obligations under this Agreement other than the Executive's obligations under
Section 8 hereof.
"Cause" shall be determined by the Board in the exercise of good faith and
reasonable judgment; and shall mean the willful misconduct, fraud, conviction of
a felony, consistent gross neglect of duties, or wanton negligence by the
Executive in the performance of his duties hereunder, or the material breach by
the Executive of the terms of this Agreement.
6.7 Termination for Good Reason. At any time during the six (6) full calendar
month period
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prior to the effective date of a Change in Control (as defined in Section 7.2)
or the twenty four (24) month period following the effective date of a Change in
Control (as defined in Section 7.2), the Executive may terminate this Agreement
for Good Reason (as defined below) by giving the Board of Directors of the
Company thirty (30) calendar days written notice of intent to terminate, which
notice sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for such termination.
Upon the expiration of the thirty (30) day notice period, the Good Reason
termination shall become effective, and the Company shall pay and provide to the
Executive the benefits set forth in Section 7.1 herein.
Good Reason shall mean, without the Executive's express written consent, the
occurrence of any one or more of the following:
(a) The assignment of the Executive to duties materially inconsistent with the
Executive's authorities, duties, responsibilities, and status as an
officer of the Company, or a reduction or alteration in the nature or
status of the Executive's authorities, duties, or responsibilities from
those in effect during the immediately preceding fiscal year;
(b) The Company's requiring the Executive to be based at a location which is at
least fifty (50) miles further from the Executive's current primary
residence than is such residence from the Company's current headquarters,
except for required travel on the Company's business to an extent
substantially consistent with the Executive's business obligations as of
the Effective Date;
(c) A reduction by the Company in the Executive's Base Salary as in effect on
the Effective Date, as provided in Section 4.1 herein, or as the same
shall be increased from time to time;
(d) A material reduction in the Executive's level of participation in any of
the Company's short- and/or long-term incentive compensation plans, or
employee benefit or retirement plans, policies, practices, or
arrangements in which the Executive participates as of the Effective
Date; provided, however, that reductions in the levels of participation
in any such plans shall not be deemed to be "Good Reason" if the
Executive's reduced level of participation in each such program remains
substantially consistent with the average level of participation of other
executives who have positions commensurate with the Executive's position;
or
(e) The failure of the Company to obtain a satisfactory agreement from any
successor to the Company to assume and agree to perform this Agreement,
as contemplated in Section 11.1 herein.
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Upon a termination for Good Reason within the six (6) full calendar month period
prior to the effective date of a Change in Control, or within the twenty-four
(24) months following the effective date of a Change in Control, the Executive
shall be entitled to receive the payments and benefits set forth in Section 7.1
herein.
The Executive's right to terminate employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason herein.
Section 7. Change in Control
7.1 Employment Terminations in Connection with a Change in Control. In the
event of a Qualifying Termination (as defined below) within six (6) full
calendar months prior to the effective date of a Change in Control, or within
twenty-four (24) months following the effective date of a Change in Control,
then in lieu of all other benefits provided to the Executive under the
provisions of this Agreement, the Company shall pay to the Executive in a lump
sum payment and provide him with the following severance benefits (hereinafter
referred to as the "Severance Benefits"):
(a) An amount equal to two (2) times the highest rate of the Executive's
annualized Base Salary rate in effect at any time up to and including the
effective date of termination;
(b) An amount equal to two (2) times the Executive's target incentive award
(both cash and long-term) established for the fiscal year in which the
Executive's effective date of termination occurs;
(c) An amount equal to the Executive's unpaid Base Salary and accrued vacation
pay through the effective date of termination;
(d) An amount equal to the Executive's unpaid targeted annual bonus,
established for the plan year in which the Executive's effective date of
termination occurs, multiplied by a fraction, the numerator of which is
the number of completed days in the then-existing fiscal year through the
effective date of termination, and the denominator of which is three
hundred sixty-five (365);
(e) A continuation of the welfare benefits of medical insurance, dental
insurance, and group term life insurance for two (2) full years after the
effective date of termination. These benefits shall be provided to the
Executive at the same premium cost, and at the same
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coverage level, as in effect as of the Executive's effective date of
termination. However, in the event the premium cost and/or level of
coverage shall change for all employees of the Company, the cost and/or
coverage level, likewise, shall change for the Executive in a
corresponding manner.
The continuation of these welfare benefits shall be discontinued prior to
the end of the two (2) year period in the event the Executive has
available substantially similar benefits from a subsequent employer, as
determined by the Company's Board of Directors or the Board's designee.
(f) A lump-sum cash payment of the actuarial present value equivalent of the
aggregate benefits accrued by the Executive as of the effective date of
termination under the terms of any and all supplemental retirement plans
in which the Executive participates. For purposes of determining "final
average pay" under such programs, the Executive's actual pay history as
of the effective date of termination shall be used.
For purposes of this Section 7, a Qualifying Termination shall mean any
termination of the Executive's employment other than: (1) by the Company for
Cause (as provided in Section 6.6 herein); (2) by reason of death, Disability
(as provided in Section 6.2 herein), or Retirement (as such term is then defined
in the Company's tax qualified defined benefit retirement plan; [provided that a
termination which qualifies as a Retirement and which would otherwise qualify as
a termination for Good Reason under Section 6.7 herein will be deemed to be a
Qualifying Termination)].
7.2 Definition of "Change in Control." A Change in Control of the Company shall
be deemed to have occurred as of the first day any one or more of the following
conditions shall have been satisfied:
(a) Any individual, corporation (other than the Company), partnership, trust,
association, pool, syndicate, or any other entity or any group of persons
acting in concert becomes the beneficial owner, as that concept is
defined in Rule 13d-3 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, of securities of
the Company possessing twenty percent (20%) or more of the voting power
for the election of directors of the Company;
(b) There shall be consummated any consolidation, merger, or other business
combination involving the Company or the securities of the Company in
which holders of voting securities of the Company immediately prior to
such consummation own, as a group, immediately after such consummation,
voting securities of the Company (or, if the Company does not survive
such transaction, voting securities of the corporation
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surviving such transaction) having less than sixty percent (60%) of the
total voting power in an election of directors of the Company (or such
other surviving corporation);
(c) During any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the directors of the Company cease
for any reason to constitute at least a majority thereof unless the
election, or the nomination for election by the Company's shareholders,
of each new director of the Company was approved by a vote of at least
two-thirds (2/3) of the directors of the Company then still in office who
were directors of the Company at the beginning of any such period; or
(d) There shall be consummated any sale, lease, exchange, or other transfer (in
one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company (on a consolidated basis)
to a party which is not controlled by or under common control with the
Company.
7.3 Excise Tax Equalization Payment. In the event that the Executive becomes
entitled to Severance Benefits or any other payment or benefit under this Plan,
or under any other agreement with or plan of the Company (in the aggregate, the
"Total Payments"), if any of the Total Payments will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may
hereafter be imposed), the Company shall pay to the Executive in cash an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive after deduction of any Excise Tax upon the Total Payments and any
Federal, state and local income tax and Excise Tax upon the Gross-Up Payment
provided for by this Section 7.3 (including FICA and FUTA), shall be equal to
the Total Payments. Such payment shall be made by the Company to the Executive
as soon as practical following the effective date of termination, but in no
event beyond thirty (30) days from such date.
7.4 Tax Computation. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amounts of such Excise Tax:
(a) Any other payments or benefits received or to be received by the Executive
in connection with a Change in Control of the Company or the Executive's
termination of employment (whether pursuant to the terms of this Plan or
any other plan, arrangement, or agreement with the Company, or with any
person (which shall have the meaning set forth in Section 3(a)(9) of the
Securities Exchange Act of 1934, including a "group" as defined in
Section 13(d) therein) whose actions result in a Change in Control of the
Company or any person affiliated with the Company or such persons) shall
be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) shall be treated as subject to the Excise
Tax, unless in the opinion of tax counsel as supported by the
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Company's independent auditors and acceptable to the Executive, such
other payments or benefits (in whole or in part) do not constitute
parachute payments, or unless such excess parachute payments (in whole or
in part) represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the Code, or are
otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as subject to the
Excise Tax shall be equal to the lesser of: (i) the total amount of the
Total Payments; or (ii) the amount of excess parachute payments within
the meaning of Section 280G(b)(1) (after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred payment or benefit shall
be determined by the Company's independent auditors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
Federal income taxation in the calendar year in which the Gross-Up Payment is to
be made, and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the effective
date of termination, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes.
7.5 Subsequent Recalculation. In the event the Internal Revenue Service adjusts
the computation of the Company under Section 7.4 herein so that the Executive
did not receive the greatest net benefit, the Company shall reimburse the
Executive for the full amount necessary to make the Executive whole, plus a
market rate of interest, as determined by the Committee.
7.6 Payment of Legal Fees. To the extent permitted by law, the Company shall
pay all legal fees, costs of litigation, prejudgment interest, and other
expenses incurred in good faith by the Executive as a result of the Company's
refusal to provide the severance benefits under this Section 7 to which the
Executive becomes entitled under this Agreement, or as a result of the Company's
contesting the validity, enforceability, or interpretation of this Agreement, or
as a result of any conflict (including conflicts related to the calculation of
parachute payments) between the parties pertaining to this Agreement.
Section 8. Confidentiality and Noncompetition
8.1 Confidentiality. During the term of this Agreement and thereafter in
perpetuity, the Executive will not directly or indirectly divulge or appropriate
to his own use, or to the use of any third party, and "trade secrets" (as
defined in Section 8.3), other secret or confidential information, knowledge or
financial information of the Company or any of the Company's subsidiaries or
affiliates (hereinafter, the Company and its subsidiaries and affiliates shall
be
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collectively referred to as the "Company Group"), except as may be in the public
domain other than by violation of this Agreement.
8.2 Noncompetition. From the date hereof until two (2) years after the
termination of his employment hereunder, the Executive will not (i) directly or
indirectly own any equity or proprietary interest in (except for ownership of
shares in a publicly traded company not exceeding five percent (5%) of any class
of outstanding securities), or be an employee, agent, director, advisor, or
consultant to or for any corporation (other than the Company Group), business
enterprise or any person engaged anywhere in the State of Rhode Island or the
Commonwealth of Massachusetts, whether on his own behalf or on behalf of any
person other than the Company Group, in the manufacture, procuring, sale,
marketing, promotion or distribution of any product or product lines functioning
competitively with any product or product lines of the Company Group during the
term of this Agreement, and the Executive will not assist in, manage or
supervise any of the foregone activities; (ii) undertake any action to induce or
cause any customer or client of the Company Group to discontinue any part of its
business with the Company Group; (iii) cause, induce or in any way facilitate
the employment by any other persons or organization of any employee of or
consultant to the Company Group, provided, that this covenant shall become
operative only upon the termination of the Executive's employment; or (iv) take
or assist directly or indirectly in the taking, by acting as consultant to a
third party or otherwise of any position on any matter involving the Company and
pending before any state or other public agency, when such position is adverse
to the position being promoted before such agency at the time by the Company.
8.3 Trade Secrets. "Trade secrets" as used herein means all secret discoveries,
invention, formulae, designs, methods, processes, techniques of production and
know-how relating to the Company Group's business. "Confidential Information" as
used herein means the Company Group's internal policies and procedures,
suppliers, customers, financial information and marketing practices, as well as
secret discoveries, inventions, formulae, designs, techniques of production,
know-how and other information relating to the Company Group's business not
rising to the level of a trade secret under applicable law.
8.4 The breach by the Executive of any of the covenants continued in this
Paragraph 8 shall relieve the company of all further payment obligation under
Paragraph 6 or Paragraph 7.
Section 9. Indemnification
The Company hereby covenants and agrees to indemnify and hold harmless the
Executive fully, completely, and absolutely against and in respect to any and
all actions, suits, proceedings, claims, demands, judgments, costs, expenses
(including attorney's fees), losses, and damages resulting from the Executive's
good faith performance of his duties and obligations under the
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terms of this Agreement.
Section 10. Outplacement Assistance
Following a termination of the Executive's employment as described in Sections
6.5, 6.7, or 7.1 herein, the Executive shall be reimbursed by the Company for
the costs of all outplacement services obtained by the Executive within the one
(1) year (for termination pursuant to Section 6.5) and two (2) year (for
terminations pursuant to Section. 6.7 or 7.1) periods after the effective date
of termination; provided, however, that the total reimbursement shall be limited
to an amount equal to fifteen percent (15%) of the Executive's Base Salary as of
the effective date of termination.
Section 11. Assignment
11.1 Assignment by Company. This Agreement may and shall be assigned or
transferred to, and shall be binding upon and shall inure to the benefit of, any
successor of the Company, and any such successor shall be deemed substituted for
all purposes of the "Company" under the terms of this Agreement. As used in this
Agreement, the term "successor" shall mean any person, firm, corporation, or
business entity which at any time, whether by merger, purchase, or otherwise,
acquires all or essentially all of the assets of business of the Company.
Notwithstanding such assignment, the Company shall remain, with such successor,
jointly and severally liable for all its obligations hereunder.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall immediately
entitle the Executive to compensation from the Company in the same amount and on
the same terms as the Executive would be entitled in the event of an involuntary
termination by the Company, as provided in Paragraph 6.6 herein.
Except as herein provided, this Agreement may not otherwise be assigned by the
Company.
11.2 Assignment by Executive. This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives, executors,
and administrators, successors, heirs, distributees, devisees, and legatees. If
the Executive should die while any amounts payable to the Executive hereunder
remain outstanding, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, in the absence of such designee, to the
Executive's estate.
Section 12. Dispute Resolution and Notice
12.1 Arbitration. Any dispute or controversy arising under or in connection with
this Agreement
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shall be settled by arbitration, conducted before a panel of three (3)
arbitrators sitting in a location selected by the Executive within fifty (50)
miles from the location of his employment with the Company, in accordance with
the rules of the American Arbitration Association then in effect.
Judgment may be entered on the award of the arbitrator in any court having
proper jurisdiction. All expenses of such arbitration, including the fees and
expenses of the counsel for the Executive, shall be borne by the Company.
12.2 Notice. Any notices, requests, demands, or other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, at its principal
offices.
Section 13. Miscellaneous
13.1 Gender and Number. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
13.2 Entire Agreement. This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto or between the
Executive and the Company, with respect to the subject matter hereof and
constitutes the entire Agreement of the parties with respect thereto.
13.3 Modification. This Agreement shall not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement of the
parties in a written instrument executed by the parties hereto or their legal
representatives.
13.4 Severability. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall be unaffected thereby and shall remain in
full force and effect.
13.5 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
13.6 Tax Withholding. The Company may withhold from any benefits payable under
this Agreement all federal, state, city, or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
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13.7 Beneficiaries. The Executive may designate one or more persons or entities
as the primary and/or contingent beneficiaries of any amounts to be received
under this Agreement. Such designation must be in the form of a signed writing
acceptable to the Board or the Board's designee. The Executive may make or
change such designation at any time.
Section 14. Governing Law
To the extent not preempted by federal law, the provisions of this Agreement
shall be construed and enforced in accordance with the laws of the state of
Rhode Island.
IN WITNESS WHEREOF, the Executive and the Company (pursuant to a resolution
adopted at a duly constituted meeting of its Board of Directors) have executed
this Agreement, as of the day and year first above written.
Executive:
/s/ William D. Mullin
-------------------------------------
ATTEST Providence Energy Corporation
By: /s/ Alycia L. Goody By: /s/ James H. Dodge
------------------------- ----------------------------------
Corporate Secretary Chairman, President and CEO
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Contents Exhibit 10.8
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Term of Employment 1
Section 2. Position and Responsibilities 2
Section 3. Standard of Care 2
Section 4. Compensation 3
Section 5. Expenses 5
Section 6. Employment Terminations 5
Section 7. Change in Control 10
Section 8. Confidentiality and Noncompetition 13
Section 9. Indemnification 14
Section 10. Assignment 14
Section 11. Dispute Resolution and Notice 15
Section 12. Miscellaneous 15
Section 13. Governing Law 16
</TABLE>
<PAGE>
Providence Energy Corporation
Employment Agreement
This EMPLOYMENT AGREEMENT is made, entered into, and is effective as of this
29th day of October, 1997 (hereinafter referred to as the "Effective Date"), by
and between Providence Energy Corporation, together with its subsidiaries and
affiliates (hereinafter referred to as the "Company"), a Rhode Island
corporation having its principal offices at Providence Rhode Island and Bruce G.
Wilde (hereinafter referred to as the "Executive").
WHEREAS, the Executive is presently employed by the Company in the capacity of
Vice President of the Company;
WHEREAS, the Executive possesses considerable experience and an intimate
knowledge of the business and affairs of the Company, its policies, methods,
personnel, and operations; and
WHEREAS, the Company recognizes that the Executive's contribution has been
substantial and meritorious and, as such, the Executive has demonstrated unique
qualifications to act in an executive capacity for the Company; and
WHEREAS, the Company is desirous of assuring the continued employment of the
Executive in the above stated capacity, and Executive is desirous of having such
assurance.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and
agreements of the parties set forth in this Agreement, and of other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
Section 1. Term of Employment
The Company hereby agrees to employ the Executive and the Executive hereby
agrees to continue to serve the Company, in accordance with the terms and
conditions set forth herein, for an initial period of one (1) year, commencing
as of the Effective Date of this Agreement, as indicated above; subject,
however, to earlier termination as expressly provided in Section 6 herein.
The initial one (1) year period of employment automatically shall be extended
for one (1) additional year at the end of the initial one (1) year term, and
then again after each successive year thereafter. However, either party may
terminate this Agreement at the end of the initial one (1) year period, or at
the end of any successive year thereafter, by giving the other party written
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notice of intent not to renew, delivered at least ninety (90) calendar days
prior to the end of such initial period or successive term.
In the event such notice of intent not to renew is properly delivered by the
Company, this Agreement, along with all corresponding rights, duties, and
covenants, shall automatically expire at the end of the initial period or
successive term then in progress, with the exception of the provisions contained
in Section 8 herein (which shall survive such expiration). However, upon the
effective date of the expiration, the Company shall provide to the Executive a
continuation of his Base Salary (at the rate then in effect, as provided in
Paragraph 4.1 herein) for a period of twelve (12) months, paid in equal monthly
installments in accordance with the normal payroll practices of the Company. The
Company also shall provide to the Executive all benefits to which the Executive
has a vested right to at that time including, but not limited to, the retirement
benefits described in Paragraph 4.4 herein, and the retiree medical insurance
benefits described in Paragraph 4.6 herein.
However, regardless of the above, if at any time during the initial period of
employment, or successive term, a Change in Control of the Company occurs (as
defined in Section 7 herein), then this Agreement shall become immediately
irrevocable for the longer of: (a) one (1) year beyond the month in which the
effective date of such Change in Control occurs; or (b) until all obligations of
the Company hereunder have been fulfilled, and until all benefits provided
hereunder have been paid.
Section 2. Position and Responsibilities
During the term of this Agreement, the Executive agrees to serve as Vice
President of the Company. In his capacity as Vice President, the Executive shall
maintain the level of duties and responsibilities as in effect as of the
Effective Date, or such higher level of duties and responsibilities as he may be
assigned during the term of this Agreement. The Executive shall have the same
status, privileges, and responsibilities normally inherent in such capacities in
corporations of similar size and character.
Section 3. Standard of Care
During the term of this Agreement, the Executive agrees to devote substantially
his full time, attention, and energies to the Company's business and shall not
be engaged in any other business activity, whether or not such business activity
is pursued for gain, profit, or other pecuniary advantage. However, subject to
Section 8 herein, the Executive may serve as a director of other companies so
long as such service is not injurious to the Company. The Executive covenants,
warrants, and represents that he shall:
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(a) Devote his full and best efforts to the fulfillment of his employment
obligations; and
(b) Exercise the highest degree of loyalty and the highest standards of conduct
in the performance of his duties.
This Section 3 shall not be construed as preventing the Executive from investing
assets in such form or manner as will not require his services in the daily
operations of the affairs of the companies in which such investments are made.
Section 4. Compensation
As remuneration for all services to be rendered by the Executive during the term
of this Agreement, and as consideration for complying with the covenants herein,
the Company shall pay and provide to the Executive the following:
4.1 Base Salary. The Company shall pay the Executive a Base Salary in an amount
which shall be established from time to time by the Board of Directors of the
Company or the Board's designee provided, however, that such Base Salary shall
not be less than $114,000.00 per year. This Base Salary shall be paid to the
Executive in equal monthly installments throughout the year, consistent with the
normal payroll practices of the Company.
The annual Base Salary shall be reviewed at least annually following the
Effective Date of this Agreement, while this Agreement is in force, to ascertain
whether, in the judgment of the Board or the Board's designee, such Base Salary
should be increased, based primarily on the performance of the Executive during
the year and on the then current rate of inflation. If so increased, the Base
Salary as stated above shall, likewise, be increased for all purposes of this
Agreement.
4.2 Annual Cash Incentive Compensation. The Company shall provide the Executive
with the opportunity to earn an annual cash incentive compensation payment, at a
level which is in accordance with the provisions of the Performance and Equity
Incentive Plan or any such successor plan, and which is commensurate with the
opportunity typically offered to executives having the same or similar duties
and responsibilities as the Executive at companies similar in size and character
to the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing and/or amending the Performance and Equity Incentive Plan
so long as such changes are similarly applicable to all executives generally.
4.3 Long-Term Incentives. The Company shall provide the Executive the
opportunity to earn
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a long-term incentive award, at a level which is in accordance with the
provisions of the Performance and Equity Incentive Plan or any such successor
plan, and which is commensurate with the opportunity typically offered to
executives having the same or similar duties and responsibilities as the
Executive at companies similar in size and in character to the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing, and/or amending the Performance and Equity Incentive
Plan, so long as such changes are similarly applicable to all executives
generally.
4.4 Retirement Benefits. The Company shall provide to the Executive
participation in all Company qualified defined benefit and defined contribution
retirement plans, subject to the eligibility and participation requirements of
such plans. In addition, the Company shall provide to the Executive
participation in the Supplemental Retirement Plan and all other nonqualified
retirement programs typically offered to executives having the same or similar
duties and responsibilities at the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing, and/or amending the nonqualified retirement programs, so
long as such changes are similarly applicable to all executives generally.
4.5 Employee Benefits. During the term of this Agreement, and as otherwise
provided within the provisions of each of the respective plans, the Company
shall provide to the Executive all benefits to which other executives and
employees of the Company are entitled to receive, as commensurate with the
Executive's position. Such benefits shall include, but not be limited to, group
term life insurance, whole life insurance, comprehensive health and major
medical insurance, dental insurance, vision insurance, and short-term and long-
term disability.
The Executive shall be entitled to paid vacation in accordance with the standard
written policy of the Company with regard to vacations of employees. The
Executive shall likewise participate in any additional benefit as may be
established during the term of this Agreement, by standard written policy of the
Company.
4.6 Perquisites. The Company shall provide to the Executive, at the Company's
cost, all perquisites to which other executives of the Company are entitled to
receive and such other perquisites which are suitable to the character of
Executive's position with the Company and adequate for the performance of his
duties hereunder.
4.7 Right to Change Plans. By reason of Paragraphs 4.5, and 4.6 herein, the
Company shall not be obligated to institute, maintain, or refrain from changing,
amending, or discontinuing any
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benefit plan, program, or perquisite, so long as such changes are similarly
applicable to executive employees generally.
4.8 Deferrals. The Company may permit the Executive to defer the Executive's
receipt of the payment of up to one hundred (100%) percent of the cash component
of the Executive's Annual Incentive Compensation. If any such deferral election
is permitted, the Company shall, in its sole discretion, establish rules and
procedures for such payment deferrals.
Section 5. Expenses
The Company shall pay, or reimburse the Executive, for all ordinary and
necessary expenses, in a reasonable amount, which the Executive incurs in
performing his duties under this Agreement including, but not limited to,
travel, entertainment, professional dues and subscriptions, and all dues, fees,
and expenses associated with membership in various professional, business, and
civic associations and societies of which the Executive's participation is in
the best interest of the Company.
Section 6. Employment Terminations
6.1 Termination Due to Retirement. In the event the Executive's employment is
terminated, while this Agreement is in force, by reason of Retirement (as
defined under the then established rules of the Company's tax-qualified
retirement plan), the Executive's benefits shall be determined in accordance
with the Company's retirement, survivor's benefits, insurance, and other
applicable programs of the Company then in effect.
Upon the effective date of such termination, the Company's obligation to pay and
provide to the Executive Base Salary, Annual Cash Incentive Compensation and
Long-Term Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3 herein,
respectively), shall immediately expire. However, the Executive shall receive a
pro rata portion of the total annual incentive compensation (both cash and long-
term), calculated at target, to which he would be entitled during the year in
which he retires, and shall receive all rights and benefits that he is vested
in, pursuant to other plans and programs of the Company including, but not
limited to, the retirement benefits as described in Paragraph 4.4 herein.
6.2 Termination Due to Death. In the event of the death of the Executive during
the term of this Agreement, or during any period of Disability during which he
is receiving compensation pursuant to Paragraph 6.3 herein, the Company shall
pay to the Executive's surviving spouse, or other beneficiary as so designated
by the Executive during his lifetime, or to the Executive's estate, as
appropriate, all benefits to which the Executive had a vested right to pursuant
to this Agreement.
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6.3 Termination Due to Disability. In the event that the Executive becomes
Disabled during the term of this Agreement and is, therefore, unable to perform
his duties herein for a period of more than ninety (90) calendar days in the
aggregate, during any period of twelve (12) consecutive months, or in the event
of the Board's reasonable expectation that the Executive's Disability will exist
for more than a period of ninety (90) calendar days, the Company shall have the
right to terminate the Executive's active employment as provided in this
Agreement. However, the Board shall deliver written notice to the Executive of
the Company's intent to terminate for Disability at least thirty (30) calendar
days prior to the effective date of such termination.
A termination for Disability shall become effective upon the end of the thirty
(30) day notice period. Upon such effective date, the Company's obligation to
pay and provide to the Executive Base Salary, Annual Bonus, and Long-Term
Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3, respectively), shall
immediately expire. However, the Executive shall receive a pro rata portion of
the total annual incentive compensation (both cash and long-term), calculated at
target, to which he would be entitled during the year in which disability occurs
and shall receive all rights and benefits that he is vested in, pursuant to
other plans and programs of the Company, including, but not limited to, short-
and long-term disability benefits, and retirement benefits as described in
Paragraph 4.4.
The term "Disability" shall mean, for all purposes of this Agreement, the
incapacity of the Executive, due to injury, illness, disease, or bodily or
mental infirmity, to engage in the performance of substantially all of the usual
duties of employment with the Company as contemplated by Section 2 herein, such
Disability to be determined by the Board of Directors of the Company upon
receipt and in reliance on competent medical advice from one or more
individuals, selected by the Board, who are qualified to give such professional
medical advice.
If the Executive and the Company shall not be in agreement as to whether the
Executive has suffered a Disability for the purposes of this Agreement, the
matter shall be referred to a panel of three medical doctors, one of which shall
be selected by the Executive, one of which shall be selected by the Company, and
one of which shall be selected by the two doctors as so selected, and the
decision of a majority of the panel with respect to the question of whether the
Executive has suffered a Disability shall be binding upon the Executive and the
Company. The expenses of any such referral shall be borne by the party against
whom the decision of the panel is rendered. The Executive may be required by the
Company to submit to medical examination at any time during the period of his
employment hereunder, but not more often than quarter-annually, to determine
whether a Disability exists for the purposes of this Agreement.
It is expressly understood that the Disability of the Executive for a period of
ninety (90) calendar
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days or less in the aggregate during any period of twelve (12) consecutive
months, in the absence of any reasonable expectation that his Disability will
exist for more than such a period of time, shall not constitute a failure by him
to perform his duties hereunder and shall not be deemed a breach or default and
the Executive shall receive full compensation for any such period of Disability
or for any other temporary illness or incapacity during the term of this
Agreement.
6.4 Voluntary Termination by the Executive. The Executive may terminate this
Agreement at any time by giving the Board of Directors of the Company written
notice of intent to terminate, delivered at least thirty (30) calendar days
prior to the effective date of such termination (such period not to include
vacation). The termination automatically shall become effective upon the
expiration of the thirty (30) day notice period.
Upon the effective date of such termination, the Company shall pay to the
Executive his full Base Salary, at the rate then in effect as provided in
Paragraph 4.1 herein, through the effective date of termination, plus all other
benefits to which the Executive has a vested right to at that time including,
but not limited to, accrued vacation pay. The Company also shall provide to the
Executive the vested retirement benefits described in Paragraph 4.4 herein. With
the exception of the covenants contained in Sections 8.1, 8.3 and 8.4 herein
(which shall survive such termination), the Company and the Executive thereafter
shall have no further obligations under this Agreement.
6.5 Involuntary Termination by the Company Without Cause. At all times prior to
six (6) full calendar months before the effective date of a Change in Control
(as defined in Section 7.2), or at any time more than two (2) years after the
effective date of a Change in Control (as defined in Section 7.2), the Board may
terminate the Executive's employment, as provided under this Agreement, at any
time, for reasons other than death, Disability, Retirement, or for Cause, by
notifying the Executive in writing of the Company's intent to terminate, at
least thirty (30) calendar days prior the effective date of such termination.
Upon the effective date of such termination, following the expiration of the
thirty (30) day notice period, the Company shall pay to the Executive in twelve
(12) equal monthly installments an amount equal to the Executive's annual Base
Salary then in effect. Additionally, the Company shall continue to provide the
Executive with health and welfare benefits for the twelve (12) month time
period.
In the event that, during the twelve (12) month period following the effective
date of termination, the Executive becomes employed at the same or greater
annual Base Salary than that which was in effect during the year in which
termination occurred, the Company's obligation to make payments under this
Section will immediately cease upon the date of the Executive's subsequent
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employment. In the event that, during the twelve (12) month period following the
effective date of termination, the Executive becomes employed at a lesser annual
Base Salary than that which was in effect during the year in which termination
occurred, then upon the date of the Executive's re-employment, the Company's
obligation to make payments under this section will be limited to a monthly
amount reflecting the difference between the Executive's Base Salary at the date
of re-employment and the Executive's Base Salary during the year in which
termination occurred. The continuation of health and welfare benefits shall be
discontinued prior to the end of the twelve (12) month period in the event the
Executive has available substantially similar benefits from a subsequent
employer.
Further, the Company shall pay the Executive all other benefits to which the
Executive has a vested right at the time, according to the provisions of the
governing plan or program. With the exceptions of the covenants contained in
Section 8 herein (which shall survive such termination) the Company and the
Executive thereafter shall have no further obligations under this Agreement.
If the Executive's employment is terminated for any of the reasons set forth in
Section 7.1 herein, the Executive shall be entitled to receive the benefits
provided in Section 7.1 herein in lieu of the benefits set forth in this Section
6.5.
6.6 Termination For Cause. Nothing in this Agreement shall be construed to
prevent the Board from terminating the Executive's employment under this
Agreement for "Cause." Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the unanimous
vote of the entire membership of the Board at a meeting of such Board duly
called and held for that purpose (after reasonable notice to the Executive and
an opportunity for the Executive, together with the Executive's counsel, to be
heard by the Board) finding that in the good faith opinion of the Board that the
Executive was guilty of conduct set forth in the second paragraph of this
Section 6.6 and specifying the particulars thereof in detail. In the event the
Board determines that Cause exists, the Board shall deliver written notice to
the Executive of the facts and circumstances leading to the Board's
determination. Upon receipt of this written notification, all provisions of this
Agreement shall terminate, except for the confidentiality and noncompete
provisions of Section 8 herein (which shall survive such termination). The
Company shall pay the Executive his full Base Salary and accrued vacation time
through the date notice of a for Cause termination is delivered to the
Executive, plus all other benefits to which the Executive has a vested right to
at that time. The Company and the Executive thereafter shall have no further
obligations under this Agreement other than the Executive's obligations under
Section 8 hereof.
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"Cause" shall be determined by the Board in the exercise of good faith and
reasonable judgment; and shall mean the willful misconduct, fraud, conviction of
a felony, consistent gross neglect of duties, or wanton negligence by the
Executive in the performance of his duties hereunder, or the material breach by
the Executive of the terms of this Agreement.
6.7 Termination for Good Reason. At any time during the six (6) full calendar
month period prior to the effective date of a Change in Control (as defined in
Section 7.2) or the twenty four (24) month period following the effective date
of a Change in Control (as defined in Section 7.2), the Executive may terminate
this Agreement for Good Reason (as defined below) by giving the Board of
Directors of the Company thirty (30) calendar days written notice of intent to
terminate, which notice sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for such termination.
Upon the expiration of the thirty (30) day notice period, the Good Reason
termination shall become effective, and the Company shall pay and provide to the
Executive the benefits set forth in Section 7.1 herein.
Good Reason shall mean, without the Executive's express written consent, the
occurrence of any one or more of the following:
(a) The assignment of the Executive to duties materially inconsistent with the
Executive's authorities, duties, responsibilities, and status as an
officer of the Company, or a reduction or alteration in the nature or
status of the Executive's authorities, duties, or responsibilities from
those in effect during the immediately preceding fiscal year;
(b) The Company's requiring the Executive to be based at a location which is at
least fifty (50) miles further from the Executive's current primary
residence than is such residence from the Company's current headquarters,
except for required travel on the Company's business to an extent
substantially consistent with the Executive's business obligations as of
the Effective Date;
(c) A reduction by the Company in the Executive's Base Salary as in effect on
the Effective Date, as provided in Section 4.1 herein, or as the same
shall be increased from time to time;
(d) A material reduction in the Executive's level of participation in any of
the Company's short- and/or long-term incentive compensation plans, or
employee benefit or retirement plans, policies, practices, or
arrangements in which the Executive participates as of the Effective
Date; provided, however, that reductions in the levels of participation
in any
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such plans shall not be deemed to be "Good Reason" if the Executive's
reduced level of participation in each such program remains substantially
consistent with the average level of participation of other executives
who have positions commensurate with the Executive's position; or
(e) The failure of the Company to obtain a satisfactory agreement from any
successor to the Company to assume and agree to perform this Agreement,
as contemplated in Section 11.1 herein.
Upon a termination for Good Reason within the six (6) full calendar month period
prior to the effective date of a Change in Control, or within the twenty-four
(24) months following the effective date of a Change in Control, the Executive
shall be entitled to receive the payments and benefits set forth in Section 7.1
herein.
The Executive's right to terminate employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason herein.
Section 7. Change in Control
7.1 Employment Terminations in Connection with a Change in Control. In the
event of a Qualifying Termination (as defined below) within six (6) full
calendar months prior to the effective date of a Change in Control, or within
twenty-four (24) months following the effective date of a Change in Control,
then in lieu of all other benefits provided to the Executive under the
provisions of this Agreement, the Company shall pay to the Executive in a lump
sum payment and provide him with the following severance benefits (hereinafter
referred to as the "Severance Benefits"):
(a) An amount equal to two (2) times the highest rate of the Executive's
annualized Base Salary rate in effect at any time up to and including the
effective date of termination;
(b) An amount equal to two (2) times the Executive's target incentive award
(both cash and long-term) established for the fiscal year in which the
Executive's effective date of termination occurs;
(c) An amount equal to the Executive's unpaid Base Salary and accrued vacation
pay through the effective date of termination;
(d) An amount equal to the Executive's unpaid targeted annual bonus,
established for the plan
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year in which the Executive's effective date of termination occurs,
multiplied by a fraction, the numerator of which is the number of
completed days in the then-existing fiscal year through the effective
date of termination, and the denominator of which is three hundred sixty-
five (365);
(e) A continuation of the welfare benefits of medical insurance, dental
insurance, and group term life insurance for two (2) full years after the
effective date of termination. These benefits shall be provided to the
Executive at the same premium cost, and at the same coverage level, as in
effect as of the Executive's effective date of termination. However, in
the event the premium cost and/or level of coverage shall change for all
employees of the Company, the cost and/or coverage level, likewise, shall
change for the Executive in a corresponding manner.
The continuation of these welfare benefits shall be discontinued prior to
the end of the two (2) year period in the event the Executive has
available substantially similar benefits from a subsequent employer, as
determined by the Company's Board of Directors or the Board's designee.
(f) A lump-sum cash payment of the actuarial present value equivalent of the
aggregate benefits accrued by the Executive as of the effective date of
termination under the terms of any and all supplemental retirement plans
in which the Executive participates. For purposes of determining "final
average pay" under such programs, the Executive's actual pay history as
of the effective date of termination shall be used.
For purposes of this Section 7, a Qualifying Termination shall mean any
termination of the Executive's employment other than: (1) by the Company for
Cause (as provided in Section 6.6 herein); (2) by reason of death, Disability
(as provided in Section 6.2 herein), or Retirement (as such term is then defined
in the Company's tax qualified defined benefit retirement plan; [provided that a
termination which qualifies as a Retirement and which would otherwise qualify as
a termination for Good Reason under Section 6.7 herein will be deemed to be a
Qualifying Termination)].
7.2 Definition of "Change in Control." A Change in Control of the Company shall
be deemed to have occurred as of the first day any one or more of the following
conditions shall have been satisfied:
(a) Any individual, corporation (other than the Company), partnership, trust,
association, pool, syndicate, or any other entity or any group of persons
acting in concert becomes the
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beneficial owner, as that concept is defined in Rule 13d-3 promulgated by
the Securities and Exchange Commission under the Securities Exchange Act
of 1934, of securities of the Company possessing twenty percent (20%) or
more of the voting power for the election of directors of the Company;
(b) There shall be consummated any consolidation, merger, or other business
combination involving the Company or the securities of the Company in
which holders of voting securities of the Company immediately prior to
such consummation own, as a group, immediately after such consummation,
voting securities of the Company (or, if the Company does not survive
such transaction, voting securities of the corporation surviving such
transaction) having less than sixty percent (60%) of the total voting
power in an election of directors of the Company (or such other surviving
corporation);
(c) During any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the directors of the Company cease
for any reason to constitute at least a majority thereof unless the
election, or the nomination for election by the Company's shareholders,
of each new director of the Company was approved by a vote of at least
two-thirds (2/3) of the directors of the Company then still in office who
were directors of the Company at the beginning of any such period; or
(d) There shall be consummated any sale, lease, exchange, or other transfer (in
one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company (on a consolidated basis)
to a party which is not controlled by or under common control with the
Company.
7.3 Excise Tax Equalization Payment. In the event that the Executive becomes
entitled to Severance Benefits or any other payment or benefit under this Plan,
or under any other agreement with or plan of the Company (in the aggregate, the
"Total Payments"), if any of the Total Payments will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may
hereafter be imposed), the Company shall pay to the Executive in cash an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive after deduction of any Excise Tax upon the Total Payments and any
Federal, state and local income tax and Excise Tax upon the Gross-Up Payment
provided for by this Section 7.3 (including FICA and FUTA), shall be equal to
the Total Payments. Such payment shall be made by the Company to the Executive
as soon as practical following the effective date of termination, but in no
event beyond thirty (30) days from such date.
7.4 Tax Computation. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amounts of such Excise Tax:
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(a) Any other payments or benefits received or to be received by the Executive
in connection with a Change in Control of the Company or the Executive's
termination of employment (whether pursuant to the terms of this Plan or
any other plan, arrangement, or agreement with the Company, or with any
person (which shall have the meaning set forth in Section 3(a)(9) of the
Securities Exchange Act of 1934, including a "group" as defined in
Section 13(d) therein) whose actions result in a Change in Control of the
Company or any person affiliated with the Company or such persons) shall
be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) shall be treated as subject to the Excise
Tax, unless in the opinion of tax counsel as supported by the Company's
independent auditors and acceptable to the Executive, such other payments
or benefits (in whole or in part) do not constitute parachute payments,
or unless such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within the meaning
of Section 280G(b)(4) of the Code in excess of the base amount within the
meaning of Section 280G(b)(3) of the Code, or are otherwise not subject
to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as subject to the
Excise Tax shall be equal to the lesser of: (i) the total amount of the
Total Payments; or (ii) the amount of excess parachute payments within
the meaning of Section 280G(b)(1) (after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred payment or benefit shall
be determined by the Company's independent auditors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
Federal income taxation in the calendar year in which the Gross-Up Payment is to
be made, and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the effective
date of termination, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes.
7.5 Subsequent Recalculation. In the event the Internal Revenue Service adjusts
the computation of the Company under Section 7.4 herein so that the Executive
did not receive the greatest net benefit, the Company shall reimburse the
Executive for the full amount necessary to make the Executive whole, plus a
market rate of interest, as determined by the Committee.
7.6 Payment of Legal Fees. To the extent permitted by law, the Company shall
pay all legal
13
<PAGE>
fees, costs of litigation, prejudgment interest, and other expenses incurred in
good faith by the Executive as a result of the Company's refusal to provide the
severance benefits under this Section 7 to which the Executive becomes entitled
under this Agreement, or as a result of the Company's contesting the validity,
enforceability, or interpretation of this Agreement, or as a result of any
conflict (including conflicts related to the calculation of parachute payments)
between the parties pertaining to this Agreement.
Section 8. Confidentiality and Noncompetition
8.1 Confidentiality. During the term of this Agreement and thereafter in
perpetuity, the Executive will not directly or indirectly divulge or appropriate
to his own use, or to the use of any third party, and "trade secrets" (as
defined in Section 8.3), other secret or confidential information, knowledge or
financial information of the Company or any of the Company's subsidiaries or
affiliates (hereinafter, the Company and its subsidiaries and affiliates shall
be collectively referred to as the "Company Group"), except as may be in the
public domain other than by violation of this Agreement.
8.2 Noncompetition. From the date hereof until two (2) years after the
termination of his employment hereunder, the Executive will not (i) directly or
indirectly own any equity or proprietary interest in (except for ownership of
shares in a publicly traded company not exceeding five percent (5%) of any class
of outstanding securities), or be an employee, agent, director, advisor, or
consultant to or for any corporation (other than the Company Group), business
enterprise or any person engaged anywhere in the State of Rhode Island or the
Commonwealth of Massachusetts, whether on his own behalf or on behalf of any
person other than the Company Group, in the manufacture, procuring, sale,
marketing, promotion or distribution of any product or product lines functioning
competitively with any product or product lines of the Company Group during the
term of this Agreement, and the Executive will not assist in, manage or
supervise any of the foregone activities; (ii) undertake any action to induce or
cause any customer or client of the Company Group to discontinue any part of its
business with the Company Group; (iii) cause, induce or in any way facilitate
the employment by any other persons or organization of any employee of or
consultant to the Company Group, provided, that this covenant shall become
operative only upon the termination of the Executive's employment; or (iv) take
or assist directly or indirectly in the taking, by acting as consultant to a
third party or otherwise of any position on any matter involving the Company and
pending before any state or other public agency, when such position is adverse
to the position being promoted before such agency at the time by the Company.
8.3 Trade Secrets. "Trade secrets" as used herein means all secret discoveries,
invention, formulae, designs, methods, processes, techniques of production and
know-how relating to the Company Group's business. "Confidential Information" as
used herein means the Company
14
<PAGE>
Group's internal policies and procedures, suppliers, customers, financial
information and marketing practices, as well as secret discoveries, inventions,
formulae, designs, techniques of production, know-how and other information
relating to the Company Group's business not rising to the level of a trade
secret under applicable law.
8.4 The breach by the Executive of any of the covenants continued in this
Paragraph 8 shall relieve the company of all further payment obligation under
Paragraph 6 or Paragraph 7.
Section 9. Indemnification
The Company hereby covenants and agrees to indemnify and hold harmless the
Executive fully, completely, and absolutely against and in respect to any and
all actions, suits, proceedings, claims, demands, judgments, costs, expenses
(including attorney's fees), losses, and damages resulting from the Executive's
good faith performance of his duties and obligations under the terms of this
Agreement.
Section 10. Outplacement Assistance
Following a termination of the Executive's employment as described in Sections
6.5, 6.7, or 7.1 herein, the Executive shall be reimbursed by the Company for
the costs of all outplacement services obtained by the Executive within the one
(1) year (for termination pursuant to Section 6.5) and two (2) year (for
terminations pursuant to Section. 6.7 or 7.1) periods after the effective date
of termination; provided, however, that the total reimbursement shall be limited
to an amount equal to fifteen percent (15%) of the Executive's Base Salary as of
the effective date of termination.
Section 11. Assignment
11.1 Assignment by Company. This Agreement may and shall be assigned or
transferred to, and shall be binding upon and shall inure to the benefit of, any
successor of the Company, and any such successor shall be deemed substituted for
all purposes of the "Company" under the terms of this Agreement. As used in this
Agreement, the term "successor" shall mean any person, firm, corporation, or
business entity which at any time, whether by merger, purchase, or otherwise,
acquires all or essentially all of the assets of business of the Company.
Notwithstanding such assignment, the Company shall remain, with such successor,
jointly and severally liable for all its obligations hereunder.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall immediately
entitle the Executive to compensation from the Company in the same amount and on
the same terms as the Executive would be entitled in the event of an involuntary
termination by the Company, as provided in
15
<PAGE>
Paragraph 6.6 herein.
Except as herein provided, this Agreement may not otherwise be assigned by the
Company.
11.2 Assignment by Executive. This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives, executors,
and administrators, successors, heirs, distributees, devisees, and legatees. If
the Executive should die while any amounts payable to the Executive hereunder
remain outstanding, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, in the absence of such designee, to the
Executive's estate.
Section 12. Dispute Resolution and Notice
12.1 Arbitration. Any dispute or controversy arising under or in connection with
this Agreement shall be settled by arbitration, conducted before a panel of
three (3) arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of his employment with the Company, in
accordance with the rules of the American Arbitration Association then in
effect.
Judgment may be entered on the award of the arbitrator in any court having
proper jurisdiction. All expenses of such arbitration, including the fees and
expenses of the counsel for the Executive, shall be borne by the Company.
12.2 Notice. Any notices, requests, demands, or other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, at its principal
offices.
Section 13. Miscellaneous
13.1 Gender and Number. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
13.2 Entire Agreement. This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto or between the
Executive and the Company, with respect to the subject matter hereof and
constitutes the entire Agreement of the parties with respect thereto.
13.3 Modification. This Agreement shall not be varied, altered, modified,
canceled, changed, or
16
<PAGE>
in any way amended except by mutual agreement of the parties in a written
instrument executed by the parties hereto or their legal representatives.
13.4 Severability. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall be unaffected thereby and shall remain in
full force and effect.
13.5 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
13.6 Tax Withholding. The Company may withhold from any benefits payable under
this Agreement all federal, state, city, or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
13.7 Beneficiaries. The Executive may designate one or more persons or entities
as the primary and/or contingent beneficiaries of any amounts to be received
under this Agreement. Such designation must be in the form of a signed writing
acceptable to the Board or the Board's designee. The Executive may make or
change such designation at any time.
Section 14. Governing Law
To the extent not preempted by federal law, the provisions of this Agreement
shall be construed and enforced in accordance with the laws of the state of
Rhode Island.
17
<PAGE>
IN WITNESS WHEREOF, the Executive and the Company (pursuant to a resolution
adopted at a duly constituted meeting of its Board of Directors) have executed
this Agreement, as of the day and year first above written.
Executive:
/s/ Bruce G. Wilde
---------------------------------------
ATTEST Providence Energy Corporation
By: /s/ Alycia L. Goody By: /s/ James H. Dodge
----------------------- ------------------------------------
Corporate Secretary Chairman, President and CEO
18
<PAGE>
Exhibit 22 - SUBSIDIARY OF REGISTRANT
-------------------------------------
ProvEnergy Investments, Ltd. - Incorporated under the laws of Rhode Island.
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