<PAGE>
THE PROVIDENCE GAS COMPANY
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended December 31, 1999
-----------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________________ to _____________________
Commission file number 0-1160
---------------------------------------------------------
THE PROVIDENCE GAS COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Rhode Island 05-0203650
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Weybosset Street, Providence, Rhode Island 02903
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
401-272-5040
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code
(Former name, former address and former fiscal year, if changed since last
report)
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
--- ---.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Common Stock, $1.00 par value; 1,243,598 shares outstanding at February 10,
- ---------------------------------------------------------------------------
2000.
- -----
<PAGE>
THE PROVIDENCE GAS COMPANY
FORM 10-Q
DECEMBER 31, 1999
PAGE
PART I: FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Statements of Income for the
three and twelve months ended
December 31, 1999 and 1998 I-1
Consolidated Balance Sheets as of
December 31, 1999, December 31, 1998
and September 30, 1999 I-2
Consolidated Statements of Cash Flows for the
three months ended December 31, 1999 and 1998 I-3
Consolidated Statements of Capitalization as of
December 31, 1999, December 31, 1998
and September 30, 1999 I-4
Notes to Consolidated Financial Statements I-5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations I-10
PART II: OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K II-1
Signature II-2
<PAGE>
PART I. FINANCIAL INFORMATION
- ------- ---------------------
ITEM I. FINANCIAL STATEMENTS
- ------- --------------------
<TABLE>
<CAPTION>
THE PROVIDENCE GAS COMPANY
--------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE PERIODS ENDED DECEMBER 31
---------------------------------
(Unaudited)
-----------
THREE MONTHS TWELVE MONTHS
----------------- -------------------
1999 1998 1999 1998
------- ------- -------- --------
(thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues $53,052 $53,301 $179,090 $178,427
Cost of gas sold 25,315 25,628 82,273 84,943
------- ------- -------- --------
Operating margin 27,737 27,673 96,817 93,484
------- ------- -------- --------
Operating expenses:
Operation and maintenance 11,101 11,612 44,972 46,107
Depreciation and amortization 4,503 4,094 16,974 14,123
Taxes:
State gross earnings 1,589 1,599 5,306 5,206
Local property and other 2,065 1,890 8,420 7,740
Federal income 2,205 2,306 4,627 4,402
------- ------- -------- --------
Total operating expenses 21,463 21,501 80,299 77,578
------- ------- -------- --------
Operating income 6,274 6,172 16,518 15,906
Other income 125 167 893 294
------- ------- -------- --------
Income before interest expense 6,399 6,339 17,411 16,200
------- ------- -------- --------
Interest expense:
Long-term debt 1,764 1,546 7,024 6,418
Other 362 301 1,199 1,140
Interest capitalized (59) (76) (371) (248)
------- ------- -------- --------
2,067 1,771 7,852 7,310
------- ------- -------- --------
Net income 4,332 4,568 9,559 8,890
Dividends on preferred stock 70 104 314 452
------- ------- -------- --------
Net income applicable to
common stock $ 4,262 $ 4,464 $ 9,245 $ 8,438
======= ======= ======== ========
Net income per
common share - basic $ 3.43 $ 3.59 $ 7.43 $ 6.79
======= ======= ======== ========
Net income per
common share - diluted $ 3.43 $ 3.59 $ 7.43 $ 6.79
======= ======= ======== ========
Weighted average number of
shares outstanding:
Basic 1,243.6 1,243.6 1,243.6 1,243.6
======= ======= ======== ========
Diluted 1,243.6 1,243.6 1,243.6 1,243.6
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
I-1
<PAGE>
THE PROVIDENCE GAS COMPANY
--------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(thousands)
<TABLE>
<CAPTION>
(Unaudited)
-----------
December 31, December 31, September 30,
1999 1998 1999
-------------------------------------
<S> <C> <C> <C>
ASSETS
- ------
Gas plant, at original cost $333,438 $321,119 $334,310
Less - Accumulated depreciation and
plant acquisition adjustments 123,364 127,562 125,144
-------- -------- --------
210,074 193,557 209,166
-------- -------- --------
Current assets:
Cash and temporary cash investments 1,534 887 982
Accounts receivable, less allowance of
$3,594 at 12/31/99, $2,404 at 12/31/98
and $1,999 at 9/30/99 19,881 21,507 9,030
Unbilled revenues 15,905 11,073 2,707
Inventories, at average cost -
Materials, supplies, and fuels 982 962 994
Prepaid and refundable taxes 1,882 2,276 3,250
Prepayments 1,661 1,610 1,897
-------- -------- --------
41,845 38,315 18,860
-------- -------- --------
Deferred charges and other assets 23,162 15,517 23,460
-------- -------- --------
Deferred environmental costs 11,088 5,593 9,719
-------- -------- --------
Total assets $286,169 $252,982 $261,205
======== ======== ========
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization (see accompanying
statement) $183,997 $165,834 $183,353
-------- -------- --------
Current liabilities:
Notes payable 19,600 14,300 11,800
Current portion of long-term debt 3,246 3,155 3,393
Accounts payable 24,136 22,358 9,586
Accrued compensation 1,298 1,016 1,542
Accrued environmental expense 5,719 3,400 6,145
Accrued interest 1,383 1,210 1,630
Accrued taxes 5,522 3,891 2,874
Accrued vacation 1,772 1,594 1,724
Accrued workers compensation 679 577 595
Customer deposits 2,902 2,977 2,923
Deferred revenue 200 - 315
Other 3,052 2,406 2,838
-------- -------- --------
69,509 56,884 45,365
-------- -------- --------
Deferred credits, reserves, and other
liabilities:
Accumulated deferred Federal income
taxes 23,254 21,876 23,128
Unamortized investment tax credits 2,001 2,158 2,040
Accrued pension 6,929 5,749 6,825
Other 479 481 494
-------- -------- --------
32,663 30,264 32,487
-------- -------- --------
Commitments and contingencies
Total capitalization and liabilities $286,169 $252,982 $261,205
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
I-2
<PAGE>
THE PROVIDENCE GAS COMPANY
--------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE THREE MONTHS ENDED DECEMBER 31
--------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
1999 1998
-------------------
(thousands)
<S> <C> <C>
Cash provided by (used for)-
Operating Activities:
Net income $ 4,332 $ 4,568
Items not requiring cash:
Depreciation and amortization 4,503 4,094
Deferred Federal income taxes 126 525
Amortization of investment tax credits (39) (39)
Changes in assets and liabilities
which provided (used) cash:
Accounts receivable (10,851) (11,569)
Unbilled revenues (13,198) (9,463)
Deferred gas costs - -
Inventories 12 215
Prepaid and refundable taxes 1,368 2,141
Prepayments 236 53
Accounts payable 14,453 14,326
Accrued compensation (244) (208)
Accrued interest (247) (246)
Accrued taxes 2,648 1,354
Accrued vacation, accrued workers
compensation, customer deposits
and other 210 (554)
Accrued pension 104 68
Deferred charges and other (112) 1,772
-------- --------
Net cash provided by operating activities 3,301 7,037
-------- --------
Investing Activities:
Expenditures for property, plant and
equipment, net (6,980) (8,434)
-------- --------
Financing Activities:
Payments on long-term debt (2,305) (1,796)
Increase in notes payable 7,800 4,580
Cash dividends on preferred stock (70) (104)
Cash dividends on common stock (1,194) (1,194)
-------- --------
Net cash provided by financing activities 4,231 1,486
-------- --------
Increase in cash and temporary cash investments 552 89
Cash and temporary cash investments at
beginning of period 982 798
-------- --------
Cash and temporary cash investments at
end of period $ 1,534 $ 887
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period-
Interest (net of amount capitalized) $ 2,231 $ 1,964
Income taxes (net of refunds) $ 1 $ 4
Schedule of non-cash investing activities:
Capital lease obligations for equipment $ - $ 115
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
I-3
<PAGE>
THE PROVIDENCE GAS COMPANY
--------------------------
CONSOLIDATED STATEMENTS OF CAPITALIZATION
-----------------------------------------
(thousands)
<TABLE>
<CAPTION>
(Unaudited)
-----------
December 31, December 31, September 30,
1999 1998 1999
---------------------------------------
<S> <C> <C> <C>
Common stockholder's investment:
Common stock, $1 par
Authorized - 2,500 shares
Outstanding - 1,244 as of 12/31/99,
12/31/98 and 9/30/99 $ 1,244 $ 1,244 $ 1,244
Amount paid in excess of par 42,188 37,478 42,454
Retained earnings 50,547 46,077 47,479
-------- -------- --------
Total common equity 93,979 84,799 91,177
-------- -------- --------
Cumulative preferred stock:
Redeemable 8.70% Series, $100 par
Authorized - 80 shares
Outstanding - 32 shares as of
12/31/99 and 9/30/99, and 3,200 4,800 3,200
-------- -------- --------
48 shares as of 12/31/98
Long-term debt:
First Mortgage Bonds 88,219 75,728 89,819
Other long-term debt 1,521 2,479 1,994
Capital leases 324 1,183 556
-------- -------- --------
Total long-term debt 90,064 79,390 92,369
Less current portion 3,246 3,155 3,393
-------- -------- --------
Long-term debt, net 86,818 76,235 88,976
-------- -------- --------
Total capitalization $183,997 $165,834 $183,353
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
I-4
<PAGE>
THE PROVIDENCE GAS COMPANY
Notes to Consolidated Financial Statements
1. Accounting Policies
-------------------
It is the Registrant's opinion that the financial information contained in
this report reflects all normal, recurring adjustments necessary to a fair
statement of the results for the periods reported; however, such results are not
necessarily indicative of results to be expected for the year, due to the
seasonal nature of the Registrant's operations. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted in this Form 10-Q pursuant to the rules and regulations of the
Securities and Exchange Commission. However, the disclosures herein when read
with the annual report for 1999 filed on Form 10-K are adequate to make the
information presented not misleading.
2. Rates and Regulation
--------------------
The Registrant is subject to the regulatory jurisdiction of the Rhode
Island Public Utilities Commission (RIPUC) with respect to rates and charges,
standards of service, accounting and other matters. In August 1997, the RIPUC
approved the Price Stabilization Plan Settlement Agreement (Energize RI or the
Plan) among the Registrant, the Rhode Island Division of Public Utilities and
Carriers (Division), the Energy Council of Rhode Island, and The George Wiley
Center. Effective October 1, 1997 through September 30, 2000, Energize RI
provides firm customers with a price decrease of approximately 4.0 percent in
addition to a three-year price freeze. Under Energize RI, the Gas Charge Clause
(GCC) mechanism has been suspended for the entire term. Also, in connection with
the Plan, the Registrant wrote off approximately $1.5 million of previously
deferred gas costs in October 1997. Energize RI also provides for the Registrant
to make significant capital investments to improve its distribution system and
support economic development. Specific capital improvement projects funded under
Energize RI are estimated to total approximately $26 million over its three-year
term. In addition, under Energize RI, the Registrant provides funding for the
Low-Income Assistance Program at an annual level of $1.0 million, the Demand
Side Management Rebate Program at an annual level of $.5 million, and the Low-
Income Weatherization Program at an annual level of $.2 million. Energize RI
also continues the process of unbundling by allowing the Registrant to provide
unbundled service offerings for up to 10 percent per year of firm deliveries.
As part of Energize RI, the Registrant has reclassified and is amortizing
approximately $4.0 million of prior environmental costs. These costs and all
environmental costs incurred during the term of the Plan will be amortized over
a 10-year period, in accordance with the levels authorized in Energize RI.
Under Energize RI, the Registrant may earn up to 10.9 percent, but not less
than 7.0 percent, annually on its average common equity, which is capped at
$81.0 million, $86.2 million, and $92.0 million in fiscal 1998, 1999, and 2000,
respectively. In the event that the Registrant earns in excess of 10.9 percent
or less than 7.0 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 to the Plan and approved
by the RIPUC.
I-5
<PAGE>
As part of Energize RI, the Registrant is permitted to file annually with
the Division for the recovery of exogenous changes which may occur during the
three-year term of the Plan. Exogenous changes are defined as "...significant
increases or decreases in the Registrant's costs or revenues which are beyond
the Registrant's reasonable control." Any disputes between the Registrant and
the Division regarding either the nature or quantification of the exogenous
changes are to be resolved by the RIPUC. The impact of any such exogenous
changes will be debited or credited to a regulatory asset or liability account
throughout the term of Energize RI and will be recovered or refunded at the
expiration of the Plan through a method to be determined.
In fiscal 1998, the Registrant did not earn its allowed rate of return
primarily as a result of the extremely warm winter weather and the loss of non-
firm margin. The Registrant believed the causes of these two events were beyond
its reasonable control and thus deemed them to be exogenous changes. In March
1999, the Registrant reached an agreement with the Division, which allowed it to
recover $2.45 million in revenue losses attributable to exogenous changes
experienced by the Registrant in fiscal 1998. The RIPUC reviewed the exogenous
changes agreement to ensure consistency with the terms of Energize RI and
affirmed the agreement at its May 28, 1999 open meeting.
During fiscal 1999, the Registrant recognized into revenue $2.45 million
for the exogenous changes recovery, and has deferred approximately $.5 million
of revenue under the provisions of the earnings cap of Energize RI.
The Registrant intends to file for recovery of exogenous changes
experienced in 1999 which resulted from factors similar to 1998. Absent further
exogenous recovery and/or other factors such as colder than normal weather, the
Registrant's ability to earn a 10.9 percent return on average common equity this
year, the final year of Energize RI, is substantially impaired.
As Energize RI is due to expire on September 30, 2000, several alternatives
are available to the Registrant to address the expiration of this program
including the possible extension or replication of Energize RI or filing a rate
case. On January 31, 2000, the Registrant filed for a two-month extension of
Energize RI to allow time for the Registrant to discuss its options with the
appropriate parties.
3. Gas Supply
----------
As part of the Price Stabilization Plan Settlement Agreement described
above in Rates and Regulations, the Registrant entered into a full requirements
---------------------
gas supply contract with Duke Energy Trading and Marketing, L.L.C. (DETM), a
joint venture of Duke Energy Corporation and Mobil Corporation, for a term of
three years commencing October 1, 1997. Under the contract, DETM guarantees to
meet the Registrant's supply requirements; however, the Registrant must purchase
all of its gas supply exclusively from DETM. In addition, under the contract,
the Registrant transferred responsibility for its pipeline capacity resources,
storage contracts, and liquified natural gas (LNG) capacity to DETM. As a
result, the Registrant's gas inventories of approximately $18 million at
September 30, 1997 were sold at book value to DETM on October 1, 1997.
In addition to providing supply for firm customers at a fixed price, DETM
will provide gas at market prices to cover the Registrant's non-firm sales
customers' needs and to make up the supply imbalances of transportation
customers. DETM will also provide various other services to the Registrant'
transportation service customers including enhanced balancing, standby, and the
storage and peaking services available under the Registrant's approved Firm
Transportation (FT-2) storage service effective December 1, 1997. DETM will
receive the supply-related revenues from these services in exchange for
providing the supply management inherent in these services.
Included in the DETM contract are a number of other important features. The
Registrant has retained the right to continue to make gas supply 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 outsourcing of day-to-day supply management relieves the
Registrant of the need to perform certain upstream supply management functions.
This will make it possible for the Registrant to take on the additional supply
management workload required by the further unbundling of firm sales customers
without major staffing additions.
I-6
<PAGE>
The Registrant has entered into an agreement replacing its existing LNG
service contract with Algonquin Gas Transmission Company (Algonquin), a
subsidiary of Duke Energy Corporation. Algonquin is the owner and operator of a
LNG tank located in Providence, Rhode Island. The Registrant relies upon this
service to provide gas supply into its distribution system during the winter
period. The service provided for in the agreement began November 10, 1999.
Under the terms of the agreement, Algonquin replaced and expanded the
vaporization capability at the tank. The Registrant has received approximately
$2.6 million from Algonquin. Of the $2.6 million, approximately $.9 million
represents reimbursement received by the Registrant in 1999 for costs incurred
related to the project including labor, engineering, and legal expenses. The
remaining portion of the payment, or approximately $1.7 million was received in
January 2000,and serves as reimbursement for the additional costs that DETM will
incur as a result of the release of the Algonquin storage capacity to DETM as
provided for in the gas supply asset management contract described above.
In June 1999, the Federal Energy Regulatory Commission (FERC) issued an
order in Docket Number CP99-113 approving Algonquin's project described above.
In that order FERC also approved the new 10-year contract between Algonquin and
the Registrant for service from the tank and the Registrant's parallel filing,
PR99-8, requesting regulatory authorization to charge Algonquin for displacement
of gas for other Algonquin customers.
As a result of FERC Order 636 and other related 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. As part of the above supply contract, DETM assumed 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 is not expected to be material.
4. Environmental Matters
---------------------
Federal, state, and local laws and regulations establishing standards and
requirements for the protection of the environment have increased in number and
in scope within recent years. The Registrant cannot predict the future impact
of such standards and requirements, which are subject to change and can take
effect retroactively. The Registrant continues to monitor the status of these
laws and regulations. Such monitoring involves the review of past activities
and current operations, and may include expending funds to investigate or clean
up certain sites. To the best of its knowledge, subject to the following, the
Registrant believes it is in substantial compliance with such laws and
regulations.
At December 31, 1999, the Registrant was aware of five sites at which
future costs may be incurred.
Plympton Sites (2)
- ------------------
The Registrant has been designated as a potentially responsible party (PRP)
under the Comprehensive Environmental Response Compensation and Liability Act of
1980 at two C. M. Brackett sites in Plympton, Massachusetts. Disposal
contractors employed in the past, either directly or indirectly by the
Registrant and other PRPs, allegedly deposited waste materials at the C. M.
Brackett sites. With respect to one of the sites, the Registrant has joined
with other PRPs in entering into an Administrative Consent Order with the
Massachusetts Department of Environmental Protection. The same group is
currently negotiating a similar agreement for the second site. 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.
I-7
<PAGE>
Providence Site
- ---------------
During 1995, the Registrant began a study at its primary gas distribution
facility located at 642 Allens Avenue in Providence, Rhode Island. This site
formerly contained a manufactured gas plant operated by the Registrant. As of
December 31, 1999, approximately $3.0 million had been spent primarily on
studies and the formulation of remediation work plans under Rhode Island
Department of Environmental Management (DEM) supervision.
The Registrant has completed the initial investigation to determine the
extent of environmental contamination for the most contaminated portions of the
property. The Registrant has compiled a preliminary range of costs, based on
removal and off-site disposal of the most contaminated soil, ranging from $7.0
million to in excess of $9.0 million. As of December 31, 1999, approximately
$2.7 million had been spent on the remediation of this soil. The remediation of
the most contaminated portions of the property is scheduled to be completed in
August 2000.
An investigation of the remaining property was begun in December 1999. The
Registrant anticipates this investigation to be completed in March 2000 at a
cost of approximately $1.5 million. In addition, as of December 31, 1999, the
Registrant has not begun its groundwater investigation at this site.
Because of the uncertainties associated with the pending investigations,
the Registrant can not offer any conclusions as to the total future cost of
remediation of the property at this time. Based on the proposals for remediation
work, the Registrant has an accrual balance of $5.7 million at December 31, 1999
for anticipated future remediation and investigation costs at this site.
Westerly Site
- -------------
The Registrant acquired the Westerly, Rhode Island operations center in
1990 from another company. In 1996 an environmental investigation revealed the
existence of coal tar waste on the site. The Registrant never operated a
manufactured gas plant at this location, but the previous owner did. The former
manufactured gas plant is allegedly the source of the coal tar waste. In
February 1999, DEM issued the Registrant and the previous owner a letter of
responsibility for the site. As of December 31, 1999, the Registrant had removed
an underground oil storage tank and regulators containing mercury from the site,
as well as some localized contamination. The costs associated with the
investigation and removal of localized contamination were shared equally with
the former owner of the property.
The Registrant is currently engaged in negotiations to transfer the
property back to the previous owner, who would continue to remediate the site at
no cost to the Registrant. The purchase and sale agreement is anticipated to be
signed during the current fiscal year, at which time the previous owner will
assume responsibility for removal of coal tar waste. The Registrant has
completed the required cleanup related to any mercury-containing regulators and
remains responsible for cleanup of any mercury released into adjacent water.
Costs incurred by the Registrant to remediate this site were approximately $.1
million.
Allens Avenue Site
- ------------------
In November 1998, the Registrant received a letter of responsibility from
DEM relating to possible contamination on previously-owned property at 170
Allens Avenue in Providence. The current operator of the property has also
received a letter of responsibility. A work plan has been created and approved
by DEM. An investigation has begun to determine the extent of contamination as
well as the extent of the Registrant's responsibility. The Registrant has
entered into a cost-sharing agreement with the current operator of the property,
under which the Registrant is responsible for approximately 20 percent of the
costs related to the investigation. Costs of testing at this site as of December
31, 1999 were approximately $.2 million. Until the results of the investigation
are known, the Registrant cannot offer any conclusions as to its responsibility.
I-8
<PAGE>
General
- -------
In prior rate cases filed with the RIPUC, ProvGas requested that
environmental investigation and remediation costs be recovered by inclusion in
its depreciation factors consistent with the rate recovery treatment for all
types of cost of removal. Due to the magnitude of ProvGas' environmental
investigation and remediation expenditures, ProvGas sought current recovery for
these amounts. As a result, in accordance with the Price Stabilization Plan
Settlement Agreement described in Rates and Regulations, effective October 1,
1997, all environmental investigation and remediation costs incurred through
September 30, 1997, as well as all costs incurred during the three-year term of
the Plan, will be amortized over a 10-year period, in accordance with the levels
authorized in Energize RI. Additionally, it is ProvGas' practice to consult with
the RIPUC on a periodic basis when, in management's opinion, significant amounts
might be expended for environmental-related costs. As of December 31, 1999,
ProvGas has incurred environmental assessment and remediation costs of $6.7
million and has an accrual balance of $5.7 million for future costs.
Management has begun discussions with other parties who may assist ProvGas
in paying the costs associated with the remediation of the above sites.
Management believes that its program for managing environmental issues, combined
with rate recovery and financial contributions from others, will likely avoid
any material adverse effect on its results of operations or its financial
condition as a result of the ultimate resolution of the above sites.
5. Commitments and Contingencies
-----------------------------
The Registrant has employment agreements with three officers which become
operative upon a change in control of the Registrant and continue in effect for
a range of two to three years. Potential salary severance expense under
the agreements could total approximately $1.1 million.
I-9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
The Providence Gas Company (the Registrant) 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
10-Q including without limitation statements regarding the Registrant's
financial position, strategic initiatives, the effect of its proposed merger
with Southern Union Company (Southern Union), and statements addressing industry
developments are forward-looking statements. Where, in any forward-looking
statement, the Registrant or its management expresses an expectation or belief
as to future results, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
The following are some of the factors which could cause actual results to differ
materially from those anticipated: general economic, financial, and business
conditions; changes in government regulations, the actions taken or decisions
rendered by any regulatory body, and the impact such changes, actions, or
decisions might have on the Registrant, including the regulatory approvals or
the timeliness of such approvals of the Registrant's parent company's proposed
merger with Southern Union; 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; unanticipated environmental liabilities;
the Registrant's ability to grow its business through significant customer
growth; the costs and effects of unanticipated legal proceedings; the impacts of
unusual items resulting from ongoing evaluations of business strategies and
asset valuations; and changes in business strategy.
RESULTS OF OPERATIONS
The Registrant's operating revenues, operating margin, and net income for
the three and twelve months ended December 31, 1999 and for comparable periods
ended December 31, 1998 are as follows:
<TABLE>
<CAPTION>
(thousands)
Three Months Twelve Months
Ended December 31 Ended December 31
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating
revenues $53,052 $53,301 $179,090 $178,427
======= ======= ======== ========
Operating margin $27,737 $27,673 $ 96,817 $ 93,484
======= ======= ======== ========
Net income
applicable to
common stock $ 4,262 $ 4,464 $ 9,245 $ 8,438
======= ======= ======== ========
</TABLE>
I-10
<PAGE>
Operating Margin
- ----------------
Operating margin increased approximately $.1 million or .2 percent compared
to the same quarter last year and approximately $3.3 million or 3.6 percent for
the twelve months ended December 31, 1999 versus the same period last year.
During the latest quarter, the Registrant experienced weather that was .7
percent warmer than the same quarter last year. This warmer weather resulted in
a margin decrease of approximately $.3 million.
The Registrant experienced weather that was 7.1 percent colder for the
twelve months ended December 31, 1999 versus the same period last year. The
colder temperatures resulted in increased margin of approximately $1.8 million
compared to last year. Also contributing to the increase was $1.9 million
related to the 1998 exogenous change recovery, $.5 million in non-firm margin
and $.5 million in customer growth.
Operating and Maintenance Expenses
- ----------------------------------
Overall, operating and maintenance expenses decreased approximately $.5
million or 4.4 percent from the same quarter last year and approximately $1.1
million or 2.5 percent for the twelve months ended December 31, 1999 when
compared to the same twelve month period last year. The twelve-month decrease
is primarily attributable to a one-time reimbursement of approximately $.9
million for costs incurred under a FERC-approved contract with Algonquin Gas
Transmission Company. The remaining decrease is attributable to cost control
measures which were implemented in response to warmer weather.
The Company continually reviews its operating expenses in order to keep
expenses as low as possible; however, expenses can vary from year to year.
Depreciation and Amortization Expenses
- --------------------------------------
Depreciation and amortization expense increased approximately $.4 million
or 10.0 percent compared to the same quarter last year and approximately $2.9
million or 20.2 percent for the twelve months ended December 31, 1999 versus the
same period last year. This increase is the result of increased capital spending
for Energize RI commitments; technology projects; Year 2000 costs, which were
capitalized as authorized under the provisions of Energize RI; and the
amortization of environmental costs. Effective October 1, 1997, the Registrant
began amortizing environmental and Year 2000 costs over 10-year and 5-year
periods, respectively, in accordance with the levels authorized in Energize RI.
The Registrant will have increased environmental amortization expense in future
years as its planned environmental remediation program continues. Also,
amortization expense for Year 2000 costs will increase in the future as higher
levels of costs have been incurred from those originally anticipated.
Taxes
- -----
Taxes for the current quarter versus last year increased approximately $.1
million or 1.1 percent and approximately $1.0 million or 5.8 percent for the
current twelve-month period versus last year. The increases in taxes is due to
increased local property taxes as a result of capital spending and fluctuations
in federal income tax as a result of changes in pretax earnings.
Other income
- ------------
Other, net remained essentially flat in the current quarter versus the same
quarter last year and increased approximately $.6 million for the twelve months
ended December 31, 1999 versus the same period last year. In 1998, the
Registrant established a reserve for a refund under an order which was
subsequently vacated in 1999, at which time the original reserve was reversed,
contributing approximately $.5 million to the twelve-month increase.
I-11
<PAGE>
Interest Expense
- ----------------
Interest expense increased $.3 million or 16.7 percent during the latest
quarter compared to the same quarter last year and approximately $.5 million or
7.4 percent during the latest twelve months compared to the same twelve months
last year. Long-term interest expense increased as a result of ProvGas' Series
T First Mortgage Bond issuance in February 1999, which refinanced short-term
borrowings. The Series T issuance enabled the Company to secure a favorable
long-term financing rate. However, this increase was partially offset by the
Series S First Mortgage Bond issuance in April 1998, which refinanced higher
cost long-term debt. Additionally, short-term interest expense has increased as
a result of increased notes payable.
FUTURE OUTLOOK
Regulatory
Under the Price Stabilization Plan Settlement Agreement (Energize RI or the
Plan), the Registrant may earn up to 10.9 percent, but not less than 7.0
percent, annually on its average common equity, which is capped at $81.0
million, $86.2 million, and $92.0 million in fiscal 1998, 1999, and 2000,
respectively. In the event that the Registrant earns in excess of 10.9 percent
or less than 7.0 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 to the Plan and approved
by the RIPUC.
As part of Energize RI, the Registrant is permitted to file annually with
the Rhode Island Division of Public Utilities and Carriers (Division) for the
recovery of exogenous changes which may occur during the three-year term of the
Plan. Exogenous changes are defined as "...significant increases or decreases in
the Registrant's costs or revenues which are beyond the Registrant's reasonable
control." Any disputes between the Registrant and the Division regarding either
the nature or quantification of the exogenous changes are to be resolved by the
Rhode Island Public Utilities Commission (RIPUC). The impact of any such
exogenous changes will be debited or credited to a regulatory asset or liability
account throughout the term of Energize RI and will be recovered or refunded at
the expiration of the Plan through a method to be determined.
In fiscal 1998, the Registrant did not earn its allowed rate of return
primarily as a result of the extremely warm winter weather and the loss of non-
firm margin. The Registrant believed the causes of these two events were beyond
its reasonable control and thus deemed them to be exogenous changes. In March
1999, the Registrant reached an agreement with the Division, which allowed it to
recover $2.45 million in revenue losses attributable to exogenous changes
experienced by the Registrant in fiscal 1998. The RIPUC reviewed the exogenous
changes agreement to ensure consistency with the terms of Energize RI and
affirmed the agreement at its May 28, 1999 open meeting.
During fiscal 1999, the Registrant recognized into revenue $2.45 million
for the exogenous changes recovery, and has deferred approximately $.5 million
of revenue under the provisions of the earnings cap of Energize RI.
The Registrant intends to file for recovery of exogenous changes
experienced in 1999 which resulted from factors similar to 1998. Absent further
exogenous recovery and/or other factors such as colder than normal weather, the
Registrant's ability to earn a 10.9 percent return on average common equity this
year, the final year of Energize RI, is substantially impaired.
As Energize RI is due to expire on September 30, 2000, several alternatives
are available to the Registrant to address the expiration of this program
including the possible extension or replication of Energize RI or filing a rate
case. On January 31, 2000, the Registrant filed for a two-month extension of
Energize RI to allow time for the Registrant to discuss its options with the
appropriate parties.
I-12
<PAGE>
On August 31, 1999, the Registrant's settlement agreement for enhancements
to its Business Choice program was approved by the RIPUC in Docket 2902 and
became effective September 1, 1999. Specifically, there will now be rolling
enrollment for transportation service, which will allow customers to execute
transportation agreements throughout the year, rather than during limited
enrollment periods. The program now has approximately 1,700 firm transportation
customers with annual deliveries of over 5 billion cubic feet per year, which is
approximately 25 percent of the Registrant's total annual firm deliveries. There
are 14 marketers serving the Registrant's customers and transporting on the
system. Additional enhancements to the Business Choice program were filed with
the RIPUC under a supplemental settlement agreement in Docket 2902 on October 8,
1999 and were approved on October 27, 1999. These enhancements do not generate
additional revenue.
LIQUIDITY AND CAPITAL RESOURCES
During the current year, the Registrant's cash flow from operating
activities decreased approximately $3.7 million for the quarter ended December
31, 1999 compared to the same period last year. On a comparative basis, the
current year cash flow decreased as a result of an increase in unbilled revenues
due to the time period covered in cycle billing.
Capital expenditures for the quarter ended December 31, 1999 of $7.0
million decreased $1.5 million or 17.2 percent when compared to $8.4 million for
the same period last year. This spending decrease was due primarily to
technology projects, which were completed during fiscal 1999. Capital
expenditures for the remainder of fiscal year 2000 and fiscal year 2001 are
expected to be approximately $48.0 million in total.
During the current quarter, the Registrant's cash flow from financing
activities increased $2.7 million due primarily to a temporary increase in
short-term borrowings.
YEAR 2000 UPDATE
Year 2000 (Y2K) readiness was a top priority for the Registrant. The
Registrant's company-wide Y2K Project was completed on schedule and all mission
critical systems and devices essential to providing safe, reliable service to
its customers were Y2K ready. The Registrant's operations were not in any way
disrupted by the rollover to January 1, 2000.
The Registrant has capitalized Year 2000 costs and is amortizing those
costs over a five-year amortization period consistent with the regulatory levels
authorized by the RIPUC under the Energize RI program. As of December 31, 1999,
the Registrant deferred total Year 2000 costs of approximately $7.7 million and
has amortized approximately $.5 million of these costs.
I-13
<PAGE>
THE PROVIDENCE GAS COMPANY
--------------------------
PART II. OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
The annual meeting of shareholders was held on January 20, 2000 and the
following nominees to the Registrant's Board of Directors were elected as
Directors for terms expiring at the time of the 2003 annual meeting by the
following vote:
Mr. James H. Dodge 4,837,975 FOR 77,756 WITHHELD
Mr. Kenneth W. Washburn 4,835,171 FOR 80,560 WITHHELD
Item 6 (a). Exhibits
---------------------
10a. Employment Agreement dated October 1, 1999 between Peter J. Gill,
Vice President, Information Technology and the Registrant.
10b. Employment Agreement dated October 1, 1999, between Robert W. Owens,
Senior Vice President, Gas Distribution and the Registrant.
10c. Employment Agreement dated October 1, 1999 between Timothy S. Lyons,
Vice President, Marketing and Regulatory Affairs and the Registrant.
Item 6 (b). Reports on Form 8-K
--------------------------------
On November 15, 1999, the Registrant's parent company, Providence
Energy Corporation (ProvEnergy), filed a report on Form 8-K regarding
ProvEnergy's Agreement and Plan of Merger with Southern Union Company.
II-1
<PAGE>
THE PROVIDENCE GAS COMPANY
--------------------------
It is the opinion of management that the financial information contained in
this report reflects all adjustments necessary for a fair statement of
results for the periods reported, but such results are not necessarily
indicative of results to be expected for the year, due to the seasonal
nature of the Registrant's gas operations. All accounting policies and
practices have been applied in a manner consistent with prior periods.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Providence Gas Company
(Registrant)
BY: /s/ Kenneth W. Hogan
-------------------------------
KENNETH W. HOGAN
Vice President, Chief Financial
Officer, and Treasurer
Date: February 10, 2000
-----------------
II-2
<PAGE>
Exhibit 10a.
CONTENTS
--------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 1. Term of Employment........................................... 1
Section 2. Position and Responsibilities................................ 2
Section 3. Standard of Care............................................. 2
Section 4. Compensation................................................. 2
Section 5. Expenses..................................................... 4
Section 6. Employment Terminations other than
during the Change in Control Period................................ 4
Section 7. Change in Control............................................ 8
Section 8. Confidentiality.............................................. 12
Section 9. Indemnification.............................................. 12
Section 10. Outplacement Assistance..................................... 12
Section 11. Assignment.................................................. 12
Section 12. Dispute Resolution and Notice............................... 13
Section 13. Miscellaneous............................................... 13
Section 14. Governing Law............................................... 14
</TABLE>
<PAGE>
The Providence Gas Company
Amended and Restated Employment Agreement
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made, entered into, and is
effective as of this 1ST day of October, 1999 (hereinafter referred to as the
"Effective Date"), by and between The Providence Gas Company, (hereinafter
referred to as the "Company"), a Rhode Island corporation and wholly-owned
subsidiary of Providence Energy Corporation ("PEC"), and Peter J. Gill
(hereinafter referred to as the "Executive").
WHEREAS, the Executive is presently employed by the Company in the capacity of
Vice President, Information Technology of the Company;
WHEREAS, the Executive possesses considerable experience and an intimate
knowledge of the business and affairs of the Company, its policies, methods,
personnel, and operations; and
WHEREAS, the Company recognizes that the Executive's contribution has been
substantial and meritorious and, as such, the Executive has demonstrated unique
qualifications to act in an executive capacity for the Company; and
WHEREAS, the Company is desirous of assuring the continued employment of the
Executive in the above stated capacity, and Executive is desirous of having such
assurance.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and
agreements of the parties set forth in this Agreement, and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
Section 1. Term of Employment
The Company hereby agrees to employ the Executive, and the Executive hereby
agrees to continue to serve the Company, in accordance with the terms and
conditions set forth herein, for an initial period of three (3) 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 additional successive one-year terms thereafter. However, either party may
terminate this Agreement, effective at the end of any term, 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 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
involuntary termination of the Executive by the Company without Cause following
the effective
<PAGE>
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 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. However, regardless of the above,
if at any time during the initial period of employment or any successive term, a
Change in Control of the Company (as defined in Section 7 herein) occurs, then
the term of this Agreement shall automatically become 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 including without limitation provision of all benefits to be provided
hereunder.
Section 2. Position and Responsibilities
During the term of this Agreement, the Executive agrees to serve as Vice
President, Information Technology of the Company. In his capacity as Vice
President, Information Technology, 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.
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 $115,500 per year. This
<PAGE>
Base Salary shall be paid to the Executive in equal 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, based upon goals and measures for
the Executive and the Company established annually by the Human Resources and
Planning Committee of the Board of Directors of 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, based upon goals and measures for the Executive and the Company
established annually by the Human Resources and Planning Committee of the Board
of Directors of 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.
<PAGE>
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 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 Sections 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 Other than During the Change of Control
Period
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 Sections 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
<PAGE>
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 Section 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 Section 6.3 herein, the Company
shall pay to the Executive's surviving spouse, or other beneficiary as so
designated by the Executive during his lifetime, or to the Executive's estate,
as appropriate, all benefits to which the Executive had a vested right pursuant
to this Agreement.
6.3 Termination Due to Disability. In the event that the Executive becomes
Disabled during the term of this Agreement and is, therefore, unable to perform
his duties herein for a period of more than ninety (90) calendar days in the
aggregate, during any period of twelve (12) consecutive months, or in the event
of the Board's reasonable expectation that the Executive's Disability will exist
for more than a period of ninety (90) calendar days, the Company shall have the
right to terminate the Executive's active employment as provided in this
Agreement. However, the Board shall deliver written notice to the Executive of
the Company's intent to terminate for Disability at least thirty (30) calendar
days prior to the effective date of such termination.
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 Incentive Compensation (as
provided in Sections 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 Section 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
<PAGE>
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. The termination automatically
shall become effective upon the expiration of the thirty (30) day notice period.
Such notice shall also constitute the resignation by the Executive of his/her
positions as an officer or director of the Company and its subsidiaries and
affiliates.
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
Section 4.1 herein, through the effective date of termination, and shall provide
the Executive with all other benefits to which the Executive has a vested right
at the time in accordance with the provisions of the governing policy, plan or
program. With the exception of the foregoing obligations of the Company and the
covenants of the Executive contained in Section 8 (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. Subject to Section 7
hereof, the Board of Directors 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, effective thirty (30) calendar days following
the date on which the Company gave notice.
Following the effective date of such termination, the Company shall pay to the
Executive the greater of (i) severance benefits payable in accordance with any
severance pay policy of the Company then in effect, or (ii) an amount equal to
the Executive's annual Base Salary then in effect, and shall continue to provide
the Executive with Welfare Benefits (as defined in Section 7.1(e)) for the
twelve (12) month period following the effective date of termination (the
"Severance Period").
Further, the Company shall provide the Executive with all other benefits to
which the Executive has a vested right at the time, in accordance with the
provisions of the governing policy, plan or program. With the exceptions of the
foregoing obligations of the Company and the Executive's 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.
Notwithstanding the foregoing, if (i) the Executive's employment is terminated
without Cause (as defined in Section 6.6) or (ii) the Company gives notice of
its intention not to renew this Agreement, in either case during the Change of
Control Period (as defined in Section 7.1) then in
<PAGE>
lieu of the foregoing payments and benefits, the Executive shall be entitled to
receive (1) the greater of severance benefits payable in accordance with any
severance pay policy then in effect or the payment provided for in Section 7.1
(a) and (2) the other payments and benefits provided in Section 7 (which
obligations shall survive expiration or termination of this Agreement).
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, the
Executive was guilty of conduct constituting "Cause" as 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 termination, setting forth the facts and
circumstances leading to the Board's determination. 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, and will provide the
Executive with all other benefits to which the Executive has a vested right at
that time. Except for the foregoing obligations of the Company and the
Executive's covenants under Section 8 (which shall survive such termination),
upon delivery to the Executive of written notice of termination, the Company and
the Executive thereafter shall have no further obligations under this Agreement.
"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 which is not cured within thirty
(30) days after notice to him of such default.
6.7 Termination for Good Reason. The Executive may terminate this Agreement
for Good Reason (as defined below) by giving the Board of Directors of the
Company written notice of termination, stating in reasonable detail the facts
and circumstances claimed to provide a basis for such termination, effective
upon receipt of such notice.
In the event such notice of termination for Good Reason is given during the
Change of Control Period then the Company shall pay and provide to the Executive
the amounts and the benefits set forth in Section 7 herein; otherwise, the
Company shall pay and provide to the Executive the amounts and benefits set
forth in Section 6.5 hereof.
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;
<PAGE>
(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 incentive compensation plans, or employee benefit or
retirement plans, Welfare Benefits (as defined in Section 7.1), 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, or the failure by any successor to
renew this Agreement or to offer the Executive a new employment agreement
comparable to this Agreement containing substantially the same terms and
conditions.
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) following execution of an
agreement relating to a transaction described in Section 7.2 or within twenty-
four months following the effective date of a Change of Control (the "Change of
Control Period"), then in lieu of all other benefits provided to the Executive
under the provisions of this Agreement, the Company shall pay to the Executive
the following lump sum payments 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, restricted stock and long-term) established for the fiscal year
in which the Executive's effective date of termination occurs; in addition,
any restricted stock outstanding on the effective date of termination shall
be deemed fully vested and exercisable, and shall be
<PAGE>
redeemed by the Company for an amount equal to the fair market value
(determined without regard to any restrictions) of such restricted stock;
(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 then in effect, including without
limitation medical insurance, dental insurance, and group term life and
disability insurance (the "Welfare Benefits") for two (2) full years after
the effective date of termination; to the extent any Welfare Benefits
cannot be provided pursuant to a Company plan, the Company shall provide
such Welfare Benefits outside such plan. The Welfare 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 executive employees of the Company, the cost
and/or coverage level, likewise, shall change for the Executive in a
corresponding manner.
The continuation of the Welfare Benefits shall be modified during such two
(2) year period to the extent that during such two (2) year period, 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, in which event the Welfare Benefits provided by the Company
shall be made secondary to those provided by such subsequent employer.
(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 total annual
compensation 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:
<PAGE>
(a) Any individual, corporation (other than the Company or PEC), partnership,
trust, association, pool, syndicate, or any other entity or any group of
persons acting in concert becomes the beneficial owner, as that concept is
defined in Rule 13d-3 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, of securities of PEC
possessing twenty percent (20%) or more of the voting power for the
election of directors of PEC.
(b) There shall be consummated any consolidation, merger, or other business
combination involving PEC or the securities of PEC in which holders of
voting securities of PEC immediately prior to such consummation own, as a
group, immediately after such consummation, voting securities of PEC (or,
if PEC does not survive such transaction, voting securities of the
corporation surviving such transaction) having less than sixty percent
(60%) of the total voting power in an election of directors of PEC (or
such other surviving corporation);
(c) During any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the directors of PEC cease for any
reason to constitute at least a majority thereof unless the election, or
the nomination for election by PEC's shareholders, of each new director of
PEC was approved by a vote of at least two-thirds (2/3) of the directors
of PEC then still in office who were directors of PEC at the beginning of
any such period; or
(d) There shall be consummated any sale, lease, exchange, or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company or PEC (on a consolidated
basis) to a party which is not controlled by or under common control with
the Company or PEC.
7.3 Excise Tax Equalization Payment. In the event that the Executive becomes
entitled to Severance Benefits or any other payment or benefit under this
Agreement, 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 Agreement
or any other plan, arrangement, or agreement with the Company, or with any
person (which shall have the
<PAGE>
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 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 Human Resources and Planning
Committee.
7.6 Payment of Legal Fees. To the extent permitted by law, the Company shall
pay all legal fees, costs of litigation, prejudgment interest, and other
expenses incurred in good faith by the Executive as a result of the Company's
refusal to provide the 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.
<PAGE>
Section 8. Confidentiality
8.1 Confidentiality. During the term of this Agreement and thereafter in
perpetuity, the Executive will not directly or indirectly divulge or appropriate
to his own use, or to the use of any third party, any "trade secrets" (as
defined in Section 8.2), 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 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.
8.3 Breach by Executive. The breach by the Executive of the covenants
contained in this Section 8 shall immediately and automatically relieve the
Company of all further obligations under Section 6 or Section 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 one (1)
year following a termination pursuant to Section 6.5 and two (2) years following
a termination pursuant to Section 6.7 or 7.1; 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 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 substantially all of the assets of the Company. Notwithstanding such
assignment, the Company shall remain, with such successor, jointly and severally
liable for all its obligations hereunder.
<PAGE>
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall immediately
entitle the Executive to compensation from the Company in the same amount and on
the same terms as the Executive would be entitled in the event of a termination
for Good Reason by the Executive, as provided in Section 6.7 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 in any way amended except by mutual agreement of the
parties in a written instrument executed by the parties hereto or their legal
representatives.
<PAGE>
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 govern-mental 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 substantive 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:
______________________________________
Peter J. Gill
ATTEST THE PROVIDENCE GAS COMPANY
By:________________ By:___________________________________
Corporate Secretary Chairman, President and CEO
<PAGE>
Exhibit 10b.
CONTENTS
--------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 1. Term of Employment..................................... 1
Section 2. Position and Responsibilities.......................... 2
Section 3. Standard of Care....................................... 2
Section 4. Compensation........................................... 2
Section 5. Expenses............................................... 4
Section 6. Employment Terminations other than during the Change
in Control Period..................................... 4
Section 7. Change in Control...................................... 8
Section 8. Confidentiality........................................ 12
Section 9. Indemnification........................................ 12
Section 10. Outplacement Assistance................................ 12
Section 11. Assignment............................................. 12
Section 12. Dispute Resolution and Notice.......................... 13
Section 13. Miscellaneous.......................................... 13
Section 14. Governing Law.......................................... 14
</TABLE>
<PAGE>
The Providence Gas Company
Amended and Restated Employment Agreement
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made, entered into, and is
effective as of this 1ST day of October, 1999 (hereinafter referred to as the
"Effective Date"), by and between The Providence Gas Company, (hereinafter
referred to as the "Company"), a Rhode Island corporation and wholly-owned
subsidiary of Providence Energy Corporation ("PEC"), 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, Gas Distribution 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 (3) 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 additional successive one-year terms thereafter. However, either party may
terminate this Agreement, effective at the end of any term, 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 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
involuntary termination of the Executive by the Company without Cause following
the effective
<PAGE>
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 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. However, regardless of the above, if
at any time during the initial period of employment or any successive term, a
Change in Control of the Company (as defined in Section 7 herein) occurs, then
the term of this Agreement shall automatically become 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 including without limitation provision of all benefits to be provided
hereunder.
Section 2. Position and Responsibilities
During the term of this Agreement, the Executive agrees to serve as Senior Vice
President, Gas Distribution of the Company. In his capacity as Senior Vice
President, Gas Distribution, 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.
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 $166,050 per year.
<PAGE>
This Base Salary shall be paid to the Executive in equal 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, based upon goals and measures for
the Executive and the Company established annually by the Human Resources and
Planning Committee of the Board of Directors of 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, based upon goals and measures for the Executive and the Company
established annually by the Human Resources and Planning Committee of the Board
of Directors of 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.
<PAGE>
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 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 Sections 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 Other than During the Change of Control
Period
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 Sections 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
<PAGE>
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 Section 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 Section 6.3 herein, the Company
shall pay to the Executive's surviving spouse, or other beneficiary as so
designated by the Executive during his lifetime, or to the Executive's estate,
as appropriate, all benefits to which the Executive had a vested right pursuant
to this Agreement.
6.3 Termination Due to Disability. In the event that the Executive becomes
Disabled during the term of this Agreement and is, therefore, unable to perform
his duties herein for a period of more than ninety (90) calendar days in the
aggregate, during any period of twelve (12) consecutive months, or in the event
of the Board's reasonable expectation that the Executive's Disability will exist
for more than a period of ninety (90) calendar days, the Company shall have the
right to terminate the Executive's active employment as provided in this
Agreement. However, the Board shall deliver written notice to the Executive of
the Company's intent to terminate for Disability at least thirty (30) calendar
days prior to the effective date of such termination.
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 Incentive Compensation (as
provided in Sections 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 Section 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
<PAGE>
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 . The termination automatically
shall become effective upon the expiration of the thirty (30) day notice period.
Such notice shall also constitute the resignation by the Executive of his/her
positions as an officer or director of the Company and its subsidiaries and
affiliates.
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
Section 4.1 herein, through the effective date of termination, and shall provide
the Executive with all other benefits to which the Executive has a vested right
at the time in accordance with the provisions of the governing policy, plan or
program. With the exception of the foregoing obligations of the Company and the
covenants of the Executive contained in Section 8 (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. Subject to Section 7
hereof, the Board of Directors 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, effective thirty (30) calendar days following
the date on which the Company gave notice.
Following the effective date of such termination, the Company shall pay to the
Executive the greater of (i) severance benefits payable in accordance with any
severance pay policy of the Company then in effect, or (ii) an amount equal to
the Executive's annual Base Salary then in effect, and shall continue to provide
the Executive with Welfare Benefits (as defined in Section 7.1(e)) for the
twelve (12) month period following the effective date of termination (the
"Severance Period").
Further, the Company shall provide the Executive with all other benefits to
which the Executive has a vested right at the time, in accordance with the
provisions of the governing policy, plan or program. With the exceptions of the
foregoing obligations of the Company and the Executive's 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.
Notwithstanding the foregoing, if (i) the Executive's employment is terminated
without Cause (as defined in Section 6.6) or (ii) the Company gives notice of
its intention not to renew this Agreement, in either case during the Change of
Control Period (as defined in Section 7.1) then in
<PAGE>
lieu of the foregoing payments and benefits, the Executive shall be entitled to
receive (1) the greater of severance benefits payable in accordance with any
severance pay policy then in effect or the payment provided for in Section 7.1
(a) and (2) the other payments and benefits provided in Section 7 (which
obligations shall survive expiration or termination of this Agreement).
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, the
Executive was guilty of conduct constituting "Cause" as 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 termination, setting forth the facts and
circumstances leading to the Board's determination. 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, and will provide the
Executive with all other benefits to which the Executive has a vested right at
that time. Except for the foregoing obligations of the Company and the
Executive's covenants under Section 8 (which shall survive such termination),
upon delivery to the Executive of written notice of termination, the Company and
the Executive thereafter shall have no further obligations under this Agreement.
"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 which is not cured within thirty
(30) days after notice to him of such default.
6.7 Termination for Good Reason. The Executive may terminate this Agreement
for Good Reason (as defined below) by giving the Board of Directors of the
Company written notice of termination, stating in reasonable detail the facts
and circumstances claimed to provide a basis for such termination, effective
upon receipt of such notice.
In the event such notice of termination for Good Reason is given during the
Change of Control Period then the Company shall pay and provide to the Executive
the amounts and the benefits set forth in Section 7 herein; otherwise, the
Company shall pay and provide to the Executive the amounts and benefits set
forth in Section 6.5 hereof.
Good Reason shall mean, without the Executive's express written consent, the
occurrence of any one or more of the following:
<PAGE>
(a) The assignment of the Executive to duties materially inconsistent with the
Executive's authorities, duties, responsibilities, and status as an
officer of the Company, or a reduction or alteration in the nature or
status of the Executive's authorities, duties, or responsibilities from
those in effect during the immediately preceding fiscal year;
(b) The Company's requiring the Executive to be based at a location which is
at least fifty (50) miles further from the Executive's current primary
residence than is such residence from the Company's current headquarters,
except for required travel on the Company's business to an extent
substantially consistent with the Executive's business obligations as of
the Effective Date;
(c) A reduction by the Company in the Executive's Base Salary as in effect on
the Effective Date, as provided in Section 4.1 herein, or as the same
shall be increased from time to time;
(d) A material reduction in the Executive's level of participation in any of
the Company's incentive compensation plans, or employee benefit or
retirement plans, Welfare Benefits (as defined in Section 7.1), 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, or the failure by any successor to
renew this Agreement or to offer the Executive a new employment agreement
comparable to this Agreement containing substantially the same terms and
conditions.
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) following execution of an
agreement relating to a transaction described in Section 7.2 or within twenty-
four months following the effective date of a Change of Control (the "Change of
Control Period"), then in lieu of all other benefits provided to the Executive
under the provisions of this Agreement, the Company shall pay to the Executive
the following lump sum payments and provide him with the following severance
benefits (hereinafter referred to as the "Severance Benefits"):
<PAGE>
(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, restricted stock and long-term) established for the fiscal
year in which the Executive's effective date of termination occurs; in
addition, any restricted stock outstanding on the effective date of
termination shall be deemed fully vested and exercisable, and shall be
redeemed by the Company for an amount equal to the fair market value
(determined without regard to any restrictions) of such restricted stock;
(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 then in effect, including without
limitation medical insurance, dental insurance, and group term life and
disability insurance (the "Welfare Benefits") for two (2) full years after
the effective date of termination; to the extent any Welfare Benefits
cannot be provided pursuant to a Company plan, the Company shall provide
such Welfare Benefits outside such plan. The Welfare 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 executive employees of the Company, the cost
and/or coverage level, likewise, shall change for the Executive in a
corresponding manner.
The continuation of the Welfare Benefits shall be modified during such two
(2) year period to the extent that during such two (2) year period, 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, in which event the Welfare Benefits provided by the Company
shall be made secondary to those provided by such subsequent employer.
(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 total annual
compensation 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
<PAGE>
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 or PEC), partnership,
trust, association, pool, syndicate, or any other entity or any group of
persons acting in concert becomes the beneficial owner, as that concept is
defined in Rule 13d-3 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, of securities of PEC
possessing twenty percent (20%) or more of the voting power for the
election of directors of PEC;
(b) There shall be consummated any consolidation, merger, or other business
combination involving PEC or the securities of PEC in which holders of
voting securities of PEC immediately prior to such consummation own, as a
group, immediately after such consummation, voting securities of PEC (or,
if PEC does not survive such transaction, voting securities of the
corporation surviving such transaction) having less than sixty percent
(60%) of the total voting power in an election of directors of PEC (or
such other surviving corporation);
(c) During any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the directors of PEC cease for any
reason to constitute at least a majority thereof unless the election, or
the nomination for election by PEC's shareholders, of each new director of
PEC was approved by a vote of at least two-thirds (2/3) of the directors
of PEC then still in office who were directors of PEC at the beginning of
any such period; or
(d) There shall be consummated any sale, lease, exchange, or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company or PEC (on a consolidated
basis) to a party which is not controlled by or under common control with
the Company or PEC.
7.3 Excise Tax Equalization Payment. In the event that the Executive becomes
entitled to Severance Benefits or any other payment or benefit under this
Agreement, 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.
<PAGE>
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 Agreement
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 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 Human Resources and Planning
Committee.
7.6 Payment of Legal Fees. To the extent permitted by law, the Company shall
pay all legal fees, costs of litigation, prejudgment interest, and other
expenses incurred in good faith by the Executive as a result of the Company's
refusal to provide the benefits under this Section 7 to which the Executive
becomes entitled under this Agreement, or as a result of the Company's
<PAGE>
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
8.1 Confidentiality. During the term of this Agreement and thereafter in
perpetuity, the Executive will not directly or indirectly divulge or appropriate
to his own use, or to the use of any third party, any "trade secrets" (as
defined in Section 8.2), 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 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.
8.3 Breach by Executive. The breach by the Executive of the covenants
contained in this Section 8 shall immediately and automatically relieve the
Company of all further obligations under Section 6 or Section 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 one (1)
year following a termination pursuant to Section 6.5 and two (2) years following
a termination pursuant to Section 6.7 or 7.1; 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 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,
<PAGE>
corporation, or business entity which at any time, whether by merger, purchase,
or otherwise, acquires all or substantially all of the assets of the Company.
Notwithstanding such assignment, the Company shall remain, with such successor,
jointly and severally liable for all its obligations hereunder.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall immediately
entitle the Executive to compensation from the Company in the same amount and on
the same terms as the Executive would be entitled in the event of a termination
for Good Reason by the Executive, as provided in Section 6.7 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.
<PAGE>
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 govern-mental 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 substantive 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:
______________________________________
Robert W. Owens
ATTEST THE PROVIDENCE GAS COMPANY
By:________________ By:____________________________________
Corporate Secretary Chairman, President and CEO
<PAGE>
Exhibit 10c.
CONTENTS
--------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 1. Term of Employment...................................... 1
Section 2. Position and Responsibilities........................... 2
Section 3. Standard of Care........................................ 2
Section 4. Compensation............................................ 2
Section 5. Expenses................................................ 4
Section 6. Employment Terminations other than during the Change in
Control Period............................................... 4
Section 7. Change in Control....................................... 8
Section 8. Confidentiality......................................... 12
Section 9. Indemnification......................................... 12
Section 10. Outplacement Assistance................................. 12
Section 11. Assignment.............................................. 12
Section 12. Dispute Resolution and Notice........................... 13
Section 13. Miscellaneous........................................... 13
Section 14. Governing Law........................................... 14
</TABLE>
<PAGE>
The Providence Gas Company
Amended and Restated Employment Agreement
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made, entered into, and is
effective as of this 1/ST/ day of October, 1999 (hereinafter referred to as the
"Effective Date"), by and between The Providence Gas Company together with its
subsidiaries and affiliates (hereinafter referred to as the "Company"), a Rhode
Island corporation and wholly-owned subsidiary of Providence Energy Corporation
("PEC"), and Timothy S. Lyons (hereinafter referred to as the "Executive").
WHEREAS, the Executive is presently employed by the Company in the capacity of
Vice President, Marketing and Regulatory Affairs 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 (3) 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 additional successive one-year terms thereafter. However, either party may
terminate this Agreement, effective at the end of any term, 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 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
involuntary termination of the Executive by the Company without Cause following
the effective
<PAGE>
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 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. However, regardless of the above,
if at any time during the initial period of employment or any successive term, a
Change in Control of the Company (as defined in Section 7 herein) occurs, then
the term of this Agreement shall automatically become 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 including without limitation provision of all benefits to be provided
hereunder.
Section 2. Position and Responsibilities
During the term of this Agreement, the Executive agrees to serve as Vice
President, Marketing and Regulatory Affairs of the Company. In his capacity as
Vice President, Marketing and Regulatory Affairs, 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.
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 $123,000 per year. This
<PAGE>
Base Salary shall be paid to the Executive in equal 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, based upon goals and measures for
the Executive and the Company established annually by the Human Resources and
Planning Committee of the Board of Directors of 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, based upon goals and measures for the Executive and the Company
established annually by the Human Resources and Planning Committee of the Board
of Directors of 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.
<PAGE>
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 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 Sections 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. In addition, in the event the Company, at any
time prior to July 20, 2004, requires the Executive to relocate his principal
office from Providence to a location more than twenty-five miles from
Providence, and the Executive, within two years after relocation of his office,
relocates his personal residence to a location closer to his new office, the
Company agrees to pay the Executive's direct costs of moving his furniture and
other household goods and personal possessions to his new residence and real
estate broker fees incurred in selling his former personal residence, in an
aggregate amount not to exceed $25,000.
Section 6. Employment Terminations Other than During the Change of Control
Period
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
<PAGE>
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 Sections 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 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 Section 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 Section 6.3 herein, the Company
shall pay to the Executive's surviving spouse, or other beneficiary as so
designated by the Executive during his lifetime, or to the Executive's estate,
as appropriate, all benefits to which the Executive had a vested right pursuant
to this Agreement.
6.3 Termination Due to Disability. In the event that the Executive becomes
Disabled during the term of this Agreement and is, therefore, unable to perform
his duties herein for a period of more than ninety (90) calendar days in the
aggregate, during any period of twelve (12) consecutive months, or in the event
of the Board's reasonable expectation that the Executive's Disability will exist
for more than a period of ninety (90) calendar days, the Company shall have the
right to terminate the Executive's active employment as provided in this
Agreement. However, the Board shall deliver written notice to the Executive of
the Company's intent to terminate for Disability at least thirty (30) calendar
days prior to the effective date of such termination.
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 Incentive Compensation (as
provided in Sections 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 Section 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.
<PAGE>
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 . The termination automatically
shall become effective upon the expiration of the thirty (30) day notice period.
Such notice shall also constitute the resignation by the Executive of his/her
positions as an officer or director of the Company and its subsidiaries and
affiliates.
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
Section 4.1 herein, through the effective date of termination, and shall provide
the Executive with all other benefits to which the Executive has a vested right
at the time in accordance with the provisions of the governing policy, plan or
program. With the exception of the foregoing obligations of the Company and the
covenants of the Executive contained in Section 8 (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. Subject to Section 7
hereof, the Board of Directors 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, effective thirty (30) calendar days following
the date on which the Company gave notice.
Following the effective date of such termination, the Company shall pay to the
Executive the greater of (i) severance benefits payable in accordance with any
severance pay policy of the Company then in effect, or (ii) an amount equal to
the Executive's annual Base Salary then in effect, and shall continue to provide
the Executive with Welfare Benefits (as defined in Section 7.1(e)) for the
twelve (12) month period following the effective date of termination (the
"Severance Period").
<PAGE>
Further, the Company shall provide the Executive with all other benefits to
which the Executive has a vested right at the time, in accordance with the
provisions of the governing policy, plan or program. With the exceptions of the
foregoing obligations of the Company and the Executive's 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.
Notwithstanding the foregoing, if (i) the Executive's employment is terminated
without Cause (as defined in Section 6.6) or (ii) the Company gives notice of
its intention not to renew this Agreement, in either case during the Change of
Control Period (as defined in Section 7.1) then in lieu of the foregoing
payments and benefits, the Executive shall be entitled to receive (1) the
greater of severance benefits payable in accordance with any severance pay
policy then in effect or the payment provided for in Section 7.1 (a) and (2) the
other payments and benefits provided in Section 7 (which obligations shall
survive expiration or termination of this Agreement).
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, the
Executive was guilty of conduct constituting "Cause" as 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 termination, setting forth the facts and
circumstances leading to the Board's determination. 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, and will provide the
Executive with all other benefits to which the Executive has a vested right at
that time. Except for the foregoing obligations of the Company and the
Executive's covenants under Section 8 (which shall survive such termination),
upon delivery to the Executive of written notice of termination, the Company and
the Executive thereafter shall have no further obligations under this Agreement.
"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 which is not cured within thirty
(30) days after notice to him of such default.
6.7 Termination for Good Reason. The Executive may terminate this Agreement
for Good Reason (as defined below) by giving the Board of Directors of the
Company written notice of termination, stating in reasonable detail the facts
and circumstances claimed to provide a basis for such termination, effective
upon receipt of such notice.
In the event such notice of termination for Good Reason is given during the
Change of Control Period then the Company shall pay and provide to the Executive
the amounts and the benefits set forth in Section 7 herein; otherwise, the
Company shall pay and provide to the Executive the amounts and benefits set
forth in Section 6.5 hereof.
<PAGE>
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 incentive compensation plans, or employee benefit or
retirement plans, Welfare Benefits (as defined in Section 7.1), 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, or the failure by any successor to
renew this Agreement or to offer the Executive a new employment agreement
comparable to this Agreement containing substantially the same terms and
conditions.
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) following execution of an
agreement relating to a transaction described in Section 7.2 or within twenty-
four months following the effective date of a Change of Control (the "Change of
Control Period"), then in lieu of all other benefits provided to the Executive
under the provisions of this Agreement, the Company shall pay to the Executive
<PAGE>
the following lump sum payments 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, restricted stock and long-term) established for the fiscal
year in which the Executive's effective date of termination occurs; in
addition, any restricted stock outstanding on the effective date of
termination shall be deemed fully vested and exercisable, and shall be
redeemed by the Company for an amount equal to the fair market value
(determined without regard to any restrictions) of such restricted stock;
(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 then in effect, including without
limitation medical insurance, dental insurance, and group term life and
disability insurance (the "Welfare Benefits") for two (2) full years after
the effective date of termination; to the extent any Welfare Benefits
cannot be provided pursuant to a Company plan, the Company shall provide
such Welfare Benefits outside such plan. The Welfare 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 executive employees of the Company, the cost
and/or coverage level, likewise, shall change for the Executive in a
corresponding manner.
The continuation of the Welfare Benefits shall be modified during such two
(2) year period to the extent that during such two (2) year period, 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, in which event the Welfare Benefits provided by the Company
shall be made secondary to those provided by such subsequent employer.
(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 total annual
compensation as of the effective date of termination shall be used.
<PAGE>
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
(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 Agreement, 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
<PAGE>
(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 Agreement
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 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 Human Resources and Planning
Committee.
<PAGE>
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 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
8.1 Confidentiality. During the term of this Agreement and thereafter in
perpetuity, the Executive will not directly or indirectly divulge or appropriate
to his own use, or to the use of any third party, any "trade secrets" (as
defined in Section 8.2), 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 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.
8.3 Breach by Executive. The breach by the Executive of the covenants
contained in this Section 8 shall immediately and automatically relieve the
Company of all further obligations under Section 6 or Section 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 one (1)
year following a termination pursuant to Section 6.5 and two (2) years following
a termination pursuant to Section 6.7 or 7.1; 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
<PAGE>
11.1 Assignment by Company. This Agreement may 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 substantially all of the assets of the Company. Notwithstanding such
assignment, the Company shall remain, with such successor, jointly and severally
liable for all its obligations hereunder.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall immediately
entitle the Executive to compensation from the Company in the same amount and on
the same terms as the Executive would be entitled in the event of a termination
for Good Reason by the Executive, as provided in Section 6.7 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.
<PAGE>
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 govern-mental 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 substantive 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:
______________________________________
Timothy S. Lyons
ATTEST THE PROVIDENCE GAS COMPANY
By:____________________ By:___________________________________
Corporate Secretary Chairman, President and CEO
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<PAGE>
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