Exhibit 10.8
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of the 14th day of September,
2001 (the "Effective Date") by and between DQE, Inc. (hereinafter called the
"Company"), a Pennsylvania corporation,
a
n
d
Morgan K. O'Brien, an individual residing in Allegheny County,
Pennsylvania (hereinafter called the "Executive");
WITNESSETH THAT:
WHEREAS, the Executive has been employed by the Company for a number
of years in executive capacities and with increasing responsibilities; and
WHEREAS, as of the Effective Date, the Executive was designated as the
President and Chief Executive Officer of the Company; and
WHEREAS, the Executive and the Company mutually desire to set forth
the terms of such employment relationship in this Agreement; and
WHEREAS, the execution and delivery of this Agreement have been duly
authorized by the Compensation Committee of the Board of Directors of the
Company and ratified by the Board of Directors of the Company (the "Board"); and
WHEREAS, simultaneously with the execution of this Agreement, the
parties are entering into a Non-Competition and Confidentiality Agreement, of
even date herewith (the "Non-Competition and Confidentiality Agreement"), which
sets forth certain covenants and obligations of the Executive.
NOW, THEREFORE, the Company and the Executive, each intending to be
legally bound, hereby mutually covenant and agree as follows:
1. Employment and Term.
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(a) Employment. The Company hereby offers to employ the Executive as
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the President and Chief Executive Officer of the Company, and the Executive
hereby accepts such employment with the Company, for the term set forth in
Paragraph 1(b).
(b) Term. The term of the Executive's employment under this Agreement
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shall commence as of the Effective Date and end on September 13, 2004, subject
to the extension of such term as hereinafter provided and earlier expiration of
such term as provided in Paragraph 7. The term of this Agreement shall be
extended
automatically for one additional year as of each annual anniversary date hereof
unless, no later than ninety (90) days prior to such anniversary date, either
the Board, on behalf of the Company, or the Executive gives written notice to
the other, in accordance with Paragraph 12, that the term of this Agreement
shall not be so extended.
2. Duties. During the period of employment as provided in Paragraph l(b)
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hereof, the Executive shall serve as President and Chief Executive Officer of
the Company and perform all duties consistent with such positions at the
direction of the Board. The Executive shall devote his entire time during
reasonable business hours (reasonable sick leave and vacations excepted) and
best efforts to fulfill faithfully, responsibly and satisfactorily his duties
hereunder.
3. Base Salary. For services performed by the Executive for the Company
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pursuant to this Agreement during the period of employment as provided in
Paragraph l(b) hereof, the Company shall pay the Executive a base salary at the
rate of at least $450,000 per year, payable in substantially equal semi-monthly
installments (or otherwise in accordance with the Company's regular payroll
practices). Any compensation which may be paid to the Executive under any
additional compensation or incentive plan of the Company or which may be
otherwise authorized from time to time by the Board (or an appropriate committee
thereof) shall be in addition to the base salary to which the Executive shall be
entitled under this Agreement.
4. Salary Increases. During the period of employment as provided in
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Paragraph l(b) hereof, the base salary of the Executive shall be reviewed
annually from and after the Effective Date by the Compensation Committee of the
Board to determine whether or not the same should be increased in light of the
duties and responsibilities of the Executive and the performance thereof, and,
if it is determined that an increase is merited, such increase shall be put into
effect as determined by the Compensation Committee of the Board and the base
salary of the Executive as so increased shall constitute the base salary of the
Executive for purposes of Paragraph 3.
5. Other Benefits. In addition to the base salary to be paid to the
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Executive pursuant to Paragraph 3 hereof, the Executive shall also be entitled
to the following:
(a) Participation in Plans. The Executive shall be eligible for
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participation in any bonus, incentive (short-term or long-term), stock option or
similar plan or program now in effect or hereafter established by the Company in
the manner and to the extent determined by the Board. The Executive shall also
participate in the various benefit plans maintained in force by the Company from
time to time, including qualified and nonqualified pension, supplemental
pension, disability, medical, group life insurance, supplemental life insurance
coverage, business travel insurance, sick leave, and other similar retirement
and welfare benefit plans, programs and arrangements, subject to the eligibility
criteria and all of the other terms and conditions thereof. Without limiting the
scope of the foregoing, the Company shall continue in force and effect the
existing nonqualified pension arrangements (the "Nonqualified Arrangements")
under which the Company has agreed to pay to the Executive or his beneficiary an
additional pension representing (i) the additional benefit the Executive
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would have accrued under the Retirement Plan for Employees of Duquesne Light
Company (the "Retirement Plan") and the Supplemental Retirement Plan for
Nonrepresented Employees of Duquesne Light Company (the "Supplemental Plan") but
for certain limitations on such benefits set forth in the Internal Revenue Code
and (ii) the additional benefits the Executive would have accrued under the
Retirement Plan and the Supplemental Plan if he were credited thereunder with a
total number of years of Continuous Service (as defined in such Plans) equal to
the sum of (A) two (2) times the actual years of Continuous Service accumulated
by the Executive to age sixty (60), not to exceed thirty-five (35), plus (B)
such Continuous Service as may be accrued by the Executive after age sixty (60)
under the terms of such Plans.
(b) Fringe Benefits. The Executive shall be entitled to perquisites of
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office, fringe benefits and other similar benefits no less favorable than those
available to the Executive immediately prior to the effective date of this
Agreement, or, if greater, those available to the Executive at any time during
the term of this Agreement.
(c) Expense Reimbursement. The Company shall reimburse the Executive,
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upon proper accounting, for reasonable business expenses and disbursements
incurred by him in the course of the performance of his duties under this
Agreement.
(d) Vacation. The Executive shall be entitled to vacation time,
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without reduction in salary or other benefits, in accordance with the Company's
vacation policy.
6. Covenants of the Employee. In order to induce the Company to enter into
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this Agreement, the Executive hereby agrees as follows:
(a) Confidentiality. Except for acts with the consent of or as
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directed by the Board or as may be required by law, the Executive shall keep
confidential and shall not divulge to any other person or entity, during the
term of employment or thereafter any of the business secrets or other
confidential information regarding the Company, or any of its affiliates, which
has not otherwise become public knowledge; provided, however, that nothing in
this Agreement shall preclude the Executive from disclosing information to
parties retained to perform services for the Company, or any of its affiliates.
(b) Records. All papers, books and records of every kind and
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description relating to the business and affairs of the Company, or any of its
affiliates, whether or not prepared by the Executive, other than personal notes
prepared by or at the direction of the Executive, shall be the sole and
exclusive property of the Company, and the Executive shall surrender them to the
Company at any time upon request by the Board.
(c) Enforcement. The Executive agrees and warrants that the covenants
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contained herein are reasonable, that valid consideration has been and will be
received therefor and that the agreements set forth herein are the result of
arm's-length negotiations between the parties hereto. The Executive recognizes
that the
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provisions of this Paragraph 6 are vitally important to the continuing welfare
of the Company, and its affiliates, and that money damages constitute a totally
inadequate remedy for any violation thereof. Accordingly, in the event of any
such violation by the Executive, the Company, and its affiliates, in addition to
any other remedies they may have, shall have the right to institute and maintain
a proceeding to compel specific performance thereof or to issue an injunction
restraining any action by the Executive in violation of this Paragraph 6.
7. Termination. Unless his employment is earlier terminated in accordance
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with the following provisions of this Paragraph 7, the Company shall continue to
employ the Executive and the Executive shall remain employed by the Company
during the entire term of this Agreement as set forth in Paragraph 1(b).
Paragraph 8 hereof sets forth certain obligations of the Company in the event
that the Executive's employment hereunder is terminated. Certain capitalized
terms used in this Paragraph 7 and Paragraph 8 hereof are defined in Paragraph
7(c) below.
(a) Death or Disability. Except to the extent otherwise expressly
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stated herein, including without limitation, as provided in Paragraph 8(a) with
respect to certain post-Date of Termination payment obligations of the Company,
this Agreement shall terminate immediately as of the Date of Termination in the
event of the Executive's death or in the event that the Executive becomes
disabled. The Executive will be deemed to be disabled upon the earlier of (i)
the end of a twelve (12) consecutive month period during which, by reason of
physical or mental injury or disease, the Executive has been unable to perform
substantially the Executive's usual and customary duties under this Agreement
and (ii) the date that a reputable physician selected by the Company determines
in writing that the Executive will, by reason of physical or mental injury or
disease, be unable to perform substantially the Executive's usual and customary
duties under this Agreement for a period of at least twelve (12) consecutive
months. At any time and from time to time, upon reasonable request therefor by
the Company, the Executive shall submit to reasonable medical examination for
the purpose of determining the existence, nature and extent of any such
disability. In accordance with Paragraph 12, the Company shall promptly give the
Executive written notice of any such determination of the Executive's disability
and of the decision of the Company to terminate the Executive's employment by
reason thereof. In the event of disability, until the Date of Termination the
base salary payable to the Executive under Paragraph 3 hereof shall be reduced
dollar-for-dollar by the amount of disability benefits, if any, paid to the
Executive in accordance with any disability policy or program of the Company.
(b) Notification of Discharge for Cause or Resignation for Good
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Reason. In accordance with the procedures hereinafter set forth, the Company may
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discharge the Executive from his employment hereunder for Cause and the
Executive may resign from his employment hereunder for Good Reason. Any
discharge of the Executive by the Company for Cause or resignation by the
Executive for Good Reason shall be communicated by a Notice of Termination to
the Executive (in the case of discharge) or the Company (in the case of
resignation) given in accordance with Paragraph 12 of this Agreement. For
purposes of this Agreement, a "Notice of
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Termination" means a written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii) if the Date of
Termination is to be other than the date of receipt of such notice, specifies
the termination date (which date shall in all events be within fifteen (15) days
after the giving of such notice). In the case of a discharge of the Executive
for Cause, a Notice of Termination shall include a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds (2/3) of the entire
membership of the Board (not including the Executive) at a meeting of the Board
called and held for the purpose (after reasonable notice to the Executive and
reasonable opportunity for the Executive, together with the Executive's counsel,
to be heard before the Board prior to such vote), finding that in the good faith
opinion of the Board the Executive was guilty of conduct constituting Cause. No
purported termination of the Executive's employment for Cause shall be effective
without a Notice of Termination. The failure by the Executive to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason shall not waive any right of the Executive hereunder or
preclude the Executive from asserting such fact or circumstances in enforcing
the Executive's rights hereunder.
(c) Definitions. For purposes of this Paragraph 7 and Paragraph 8
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hereof, the following capitalized terms shall have the meanings set forth below:
(i) "Accrued Obligations" shall mean, as of the Date of
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Termination, the sum of (A) the Executive's base salary under Paragraph 3
through the Date of Termination to the extent not theretofore paid, (B) the
amount of any bonus, incentive compensation, deferred compensation and
other cash compensation, if any, accrued by the Executive as of the Date of
Termination pursuant to the plans and policies relating thereto to the
extent not theretofore paid and (C) any vacation pay, expense
reimbursements and other cash entitlements accrued by the Executive as of
the Date of Termination pursuant to the plans and policies relating thereto
to the extent not theretofore paid.
(ii) "Cause" shall mean either of the following that is
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materially and demonstrably detrimental to the goodwill of the Company or
any of its affiliates or materially damaging to the relationships of the
Company or any of its affiliates with customers, suppliers or employees:
(A) conviction of the Executive of a felony involving moral turpitude or
(B) negligence or willful misconduct by the Executive in the performance of
his duties under this Agreement.
(iii) "Change in Control" shall mean (A) any person (as such term
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is used in Section 13(d) of the Securities Exchange Act of 1934 (the
"Act"), excluding a corporation at least 80% of the ownership of which
after acquiring its interest in the Company is owned directly or indirectly
by those who were the holders of common stock of the Company immediately
prior to such acquisition ("Person")), is the beneficial owner, directly or
indirectly, of 20% or more of the outstanding stock of the Company
requiring the filing of a report with the
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Securities and Exchange Commission under Section 13(d) of the 1934 Act; (B)
a purchase by any Person of shares pursuant to a tender or exchange offer
to acquire any stock of the Company (or securities convertible into stock)
for cash, securities or any other consideration provided that, after
closing of the offer, such Person is the beneficial owner (as defined in
Rule 13d-3 under the 1934 Act), directly or indirectly, of 20% or more of
the outstanding stock of the Company (calculated as provided in Paragraph
(d) of Rule 13d-3 under the 1934 Act in the case of rights to acquire
stock); (C) public announcement of a transaction approved by the Board
which involves (1) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant to which
shares of stock of the Company would be converted into cash, securities or
other property, other than a consolidation or merger of the Company in
which holders of its stock immediately prior to the consolidation or merger
own at least 80% of the common stock of the surviving corporation
immediately after the consolidation or merger, or (2) any consolidation or
merger in which the Company is the continuing or surviving corporation but
in which the common shareholders of the Company immediately prior to the
consolidation or merger do not hold at least 80% of the outstanding common
stock of the continuing or surviving corporation (except where such holders
of common stock hold at least 80% of the common stock of the corporation
which owns all of the common stock of the Company), or (3) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the Company (except
to an entity 80% of the common stock of which is owned by the holders of
the common stock of the Company immediately prior to such transaction or by
an entity 80% of which is owned directly or indirectly by the Company), or
(4) any merger or consolidation of the Company where, after the merger or
consolidation, one Person owns 100% of the shares of stock of the Company
(except where the holders of the Company's common stock immediately prior
to such merger or consolidation own at least 80% of the outstanding stock
of such Person immediately after such merger or consolidation); or (D) a
change in the majority of the members of the Board within a 24-month period
unless the election or nomination for election by the Company's
shareholders of each new director was approved by the vote of at least
two-thirds of the directors then still in office who were in office at the
beginning of the 24-month period. With respect to subparagraph (C) above,
upon the Board's determination that the transaction subject to the public
announcement thereunder will not be closed, a Change in Control shall not
be deemed to have occurred from such date forward and this Agreement shall
continue in effect as if no Change in Control had occurred except to the
extent termination requiring payments under Paragraph 8(b) hereof occurs
prior to such Board's determination.
(iv) "Date of Termination" shall mean (A) in the event of a
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discharge of the Executive by the Company for Cause, the date the Executive
receives a Notice of Termination, or any later date specified in such
Notice of Termination, (B) in the event of a discharge of the Executive
without Cause, the date the Executive receives notice of such termination
of employment, (C) in the
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event of a resignation by the Executive with or without Good Reason, the
date specified in the Notice of Termination or any earlier date specified
by the Company in a written notice to the Executive given following the
Company's receipt of such Notice of Termination, (D) in the event of the
Executive's death, the date of the Executive's death and (E) in the event
of termination of the Executive's employment by reason of disability
pursuant to Paragraph 7(a), the date the Executive receives written notice
of such termination or as of any later date as may be set forth in such
notice.
(v) "Good Reason" shall mean any of the following: (A) the
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assignment to the Executive of any duties inconsistent in any respect with
the Executive's positions with the Company as set forth in this Agreement
(including status, offices, titles and reporting requirements), authority,
duties or responsibilities as contemplated by Paragraph 2, or any action by
the Company which results in diminution in such positions, authority,
duties or responsibilities, excluding for this purpose any isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company, as appropriate, promptly after receipt of written
notice thereof given by the Executive in accordance with Paragraph 12; (B)
any failure by the Company to comply with any of the provisions of this
Agreement, other than any isolated, insubstantial and inadvertent failure
not occurring in bad faith and which is remedied by the Company, as
appropriate, promptly after receipt of written notice thereof given by the
Executive in accordance with Paragraph 12; or (C) any purported termination
by the Company of the Executive's employment otherwise than as expressly
permitted by this Agreement.
(vi) "Monthly Bonus Amount" shall mean one-twelfth (1/12) of the
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Executive's target annual bonus for the fiscal year in which the Date of
Termination occurs.
8. Obligations of the Company Upon Termination.
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(a) Discharge for Cause, Resignation without Good Reason, Death or
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Disability. In the event of a discharge of the Executive for Cause or a
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resignation by the Executive without Good Reason, or in the event this Agreement
terminates pursuant to Paragraph 7(a) by reason of the death or disability of
the Executive:
(i) the Company shall pay all Accrued Obligations to the
Executive, or to his heirs or estate in the event of the Executive's death,
in a lump sum in cash within thirty (30) days after the Date of
Termination; and
(ii) the Executive, or his beneficiary, heirs or estate in the
event of the Executive's death, shall be entitled to receive all benefits
accrued by him as of the Date of Termination under the Retirement Plan, the
Supplemental Plan, the Nonqualified Arrangements (but only to the extent
not previously paid or distributed to the Executive through the purchase of
annuity contracts or
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otherwise) and all other qualified and nonqualified retirement, pension,
profit sharing and similar plans of the Company in such manner and at such
time as are provided under the terms of such plans and arrangements; and
(iii) solely in the case of a termination by reason of the
Executive's disability pursuant to clause (ii) of Section 7(a), the
Executive shall be entitled to continue to receive his salary and employee
benefits for a period of twelve (12) months from the onset of such
disability; provided, however, that such continued base salary shall be
reduced dollar-for-dollar by the amount of disability benefits, if any,
paid to the Executive in accordance with any disability policy or program
of the Company; and
(iv) except as otherwise provided in Paragraph 16 hereof, all
other obligations of the Company hereunder shall cease forthwith.
(b) Termination for any Other Reasons. If the Executive resigns with
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Good Reason, or if the Executive is discharged other than (x) for Cause or (y)
as a result of the disability of the Executive:
(i) The Company shall pay to the Executive in a lump sum in cash
within thirty (30) days after the Date of Termination all Accrued
Obligations.
(ii) The Company shall pay to the Executive in a lump sum in cash
within thirty (30) days after the Date of Termination a lump sum amount
equal to the actuarial equivalent of the additional benefit the Executive
would have accrued under the Retirement Plan, the Supplemental Plan and the
Nonqualified Arrangements if the Executive's actual service with the
Company had ended on the last day of the then remaining term of this
Agreement (taking into account any extensions of such term in effect
immediately prior to the Date of Termination pursuant to Paragraph l(b))
and had his covered compensation for each calendar year during such
additional period equaled his highest covered compensation for any of the
three most recent calendar years ended prior to the Date of Termination
(for purposes of the foregoing, actuarial equivalence shall be determined
in accordance with the Retirement Plan, the Supplemental Plan and the
Nonqualified Arrangements, as appropriate).
(iii) The Executive shall receive (A) the balance of the base
salary which as of the Date of Termination remains to be paid to the
Executive pursuant to Paragraph 3 for the then-remaining term of this
Agreement (taking into account any extensions of such term in effect
immediately prior to the Date of Termination pursuant to Paragraph l(b))
and (B) the product of (1) the Monthly Bonus Amount multiplied by (2) the
number of full calendar months within the period from the Date of
Termination through and including the last day of the then-remaining term
of this Agreement (taking into account any extensions of such term in
effect immediately prior to the Date of Termination pursuant to Paragraph
l(b)). If the Executive's termination of employment under this Paragraph
8(b) occurs within two years following the occurrence of a Change in
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Control, the foregoing amount shall be paid to the Executive in a lump sum
in cash within thirty (30) days after the Date of Termination. If the
Executive's termination of employment does not occur within two years
following the occurrence of a Change in Control, the foregoing amount shall
be paid to the Executive in substantially equal installments over the
then-remaining term of this Agreement (taking into account any extensions
of such term in effect immediately prior to the Date of Termination
pursuant to Paragraph l(b)); provided, however, that the obligation of the
Company to make these installment payments to the Executive shall terminate
forthwith if the Executive shall have breached any of his obligations under
this Agreement or the Non-Competition and Confidentiality Agreement.
(iv) For the then-remaining term of this Agreement (taking into
account any extensions of such term in effect immediately prior to the Date
of Termination pursuant to Paragraph l(b)), the Company shall either (A)
arrange to provide the Executive, at the Company's cost, with life,
disability and health-and-accident insurance coverage providing
substantially similar benefits to those which the Executive was receiving
immediately prior to the Date of Termination, to the extent the Company
continues to maintain benefit plans providing for such benefits for
executives generally or (B) in lieu of providing such coverage, pay to the
Executive within thirty (30) days after the Date of Termination a lump sum
amount in cash equal to two (2) times the projected cost to the Company of
providing the extended benefit coverage referred to in clause (A) (as such
cost shall be calculated by the Company's benefit consultants, using
reasonable assumptions). Notwithstanding the foregoing, the benefits
described above may be discontinued prior to the end of the period provided
in this subparagraph to the extent, but only to the extent, that the
Executive receives substantially similar benefits from a subsequent
employer.
(v) The Executive shall be entitled to receive all benefits
accrued by him as of the Date of Termination under the Retirement Plan, the
Supplemental Plan, the Nonqualified Arrangements (but only to the extent
not previously paid or distributed to the Executive through the purchase of
annuity contracts or otherwise) and all other qualified and nonqualified
retirement, pension, profit sharing and similar plans of the Company in
such manner and at such time as are provided under the terms of such plans.
(vi) All stock options, stock appreciation rights, dividend
equivalent accounts and other stock interests or stock-based rights awarded
to the Executive on or before the Date of Termination under the Company's
Long-Term Incentive Plan, the Executive Incentive Plan or any similar plan
of the Company shall become fully vested and nonforfeitable as of the Date
of Termination and the exercise period thereof shall terminate upon the
later of (A) the first anniversary of the Date of Termination and (B) the
latest exercise date of such stock options, stock appreciation rights,
dividend equivalent accounts and other stock interests or stock-based
rights as set forth in the applicable award agreement; provided, however,
that in no event shall the exercise period extend
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beyond the tenth anniversary of the date of grant of such stock options,
stock appreciation rights, dividend equivalent accounts and other stock
interests or stock-based rights; and provided further, however, that, in
the sole and absolute discretion of the Board, in lieu of the vesting and
extension of such awards, the Company may redeem such award (or such
portion thereof) by paying to the Executive in a lump sum in cash within
thirty (30) days of the Date of Termination an amount which represents the
fair value of such award as of the Date of Termination (reduced by any
amount payable by the Executive under the terms of such award (or such
portion thereof) as an exercise or purchase price with respect thereto).
(vii) The Executive shall be entitled to receive a pro rata bonus
for the fiscal year in which the Date of Termination occurs. Such bonus, if
any, shall be equal to the bonus the Executive would have been entitled to
receive under his annual incentive arrangement had his employment with the
Company continued, as determined by the Compensation Committee of the
Board, times a fraction, the numerator of which is the number of days
elapsed from the first day of such fiscal year to and including the Date of
Termination and the denominator of which is 365. Any such bonus shall be
paid to the Executive, minus all applicable withholding taxes, at the same
time and in the same manner as active employees of the Company receive
their bonuses for such fiscal year.
(viii) Except as otherwise provided in Paragraph 16 hereof, all
other obligations of the Company hereunder shall cease forthwith.
(ix) As a condition to receiving any of the payments and benefits
in clauses (ii) through (vii) above (the "Conditional Benefits"), the
Executive shall execute a release (the "Release"), in a form and substance
satisfactory to the Company, of any claims, whether arising under Federal,
state or local statute, common law or otherwise, against the Company and
its direct or indirect subsidiaries, and their respective officers,
directors and stockholders which arise or may have arisen on or before the
date of the Release, other than any claims for payments and benefits
expressly provided for under this Agreement or any rights to
indemnification from the Company pursuant to any provisions of the
Company's certificate of incorporation or by-laws or any directors and
officers liability insurance policies maintained by the Company. If the
Executive fails or otherwise refuses to execute a Release within a
reasonable time after the Company's request to do so, the Executive will
not be entitled to any of the Conditional Benefits. In addition, if,
following a termination of employment that gives the Employee a right to
the payment of Conditional Benefits, the Executive engages in any
activities that violate any of the covenants in Paragraph 6, the Executive
shall have no further right or claim to any Conditional Benefits and shall
promptly repay any Conditional Benefits previously received (such repayment
to be in addition to any other rights or remedies available to the Company
in respect of such violation).
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(c) Certain Additional Payments.
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(i) If Independent Tax Counsel (as defined below) shall determine
that the aggregate payments made, and benefits provided, to the Executive
pursuant to this Agreement and any other payments, and benefits provided,
to the Executive from the Company, its affiliates and plans, which
constitute "parachute payments" as defined in Section 280G of the Internal
Revenue Code (or any successor provision thereto) ("Parachute Payments")
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code (the "Excise Tax") and if the amount of the Parachute Payments
in excess of 300% of the "base amount" (as defined in Section 280G of the
Internal Revenue Code, the "Base Amount") is greater than 10% of the total
value of the Parachute Payments, then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount
(determined by Independent Tax Counsel) such that after payment by the
Executive of all taxes (including any Excise Tax) imposed upon the Gross-Up
Payment and any interest or penalties imposed with respect to such taxes,
the Executive retains from the Gross-Up Payment an amount equal to the
Excise Tax imposed upon the payments. For purposes of this Paragraph 8(c),
"Independent Tax Counsel" shall mean a lawyer, a certified public
accountant with a nationally recognized accounting firm, or a compensation
consultant with a nationally recognized actuarial and benefits consulting
firm with expertise in the area of executive compensation tax law, who
shall be selected by the Company and shall be reasonably acceptable to the
Executive, and whose fees and disbursements shall be paid by the Company.
(ii) If Independent Tax Counsel shall determine that no Excise
Tax is payable by the Executive, it shall furnish the Executive with a
written opinion that the Executive has substantial authority not to report
any Excise Tax on the Executive's Federal income tax return. If the
Executive is subsequently required to make a payment of any Excise Tax,
then the Independent Tax Counsel shall determine the amount of such
additional payment ("Gross-Up Underpayment"), and any such Gross-Up
Underpayment shall be promptly paid by the Company to or for the benefit of
the Executive. The fees and disbursements of the Independent Tax Counsel
shall be paid by the Company.
(iii) The Executive shall notify the Company in writing within 15
days of any claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of a Gross-Up Payment. If the
Company notify the Executive in writing that it desires to contest such
claim and that it will bear the costs and provide the indemnification as
required by this sentence, the Executive shall: (A) give the Company any
information reasonably requested by the Company relating to such claim, (B)
take such action in connection with contesting such claim as the Company
shall reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company, (C) cooperate with the Company
in good faith in order to effectively contest such claim, and (D) permit
the Company to participate in any proceedings relating to
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such claim; provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income
tax, including interest and penalties with respect thereto, imposed as a
result of such representation and payment of costs and expenses. The
Company shall control all proceedings taken in connection with such
contest; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax, including interest or penalties with respect
thereto, imposed with respect to such advance or with respect to any
imputed income with respect to such advance.
(iv) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to subparagraph (iii) above, the Executive becomes
entitled to receive any refund with respect to such claim, the Executive
shall, within 10 days, pay to the Company the amount of such refund,
together with any interest paid or credited thereon after taxes applicable
thereto.
(v) If Independent Tax Counsel shall make a determination that
Parachute Payments would be subject to the Excise Tax, but the amount of
Parachute Payments in excess of 300% of the Base Amount is not greater than
10% of the total value of the Parachute Payments, then such Parachute
Payments shall be reduced (but not below zero) but only to the extent the
Independent Tax Counsel shall determine is necessary that no portion
thereof shall be subject to the Excise Tax. The determination of
Independent Tax Counsel under this subparagraph (v) shall be final and
binding on all parties hereto. No additional payments by the Company or
return of payments by the Executive shall be required or made if a later
determination which based on case law, an IRS holding or otherwise would
result in a recalculation of the Excise Tax implications. Unless the
Executive gives prior written notice specifying a different order to the
Company to effectuate the limitations described above, the Company shall
reduce or eliminate the Parachute Payments by first reducing or eliminating
those payments or benefits which are not payable in cash and then by
reducing or eliminating other Parachute Payments, in each case in reverse
order beginning with payments or benefits which are to be paid the farthest
in time from the employment termination date. Any notice given by the
Executive pursuant to the preceding sentence shall take precedence over the
provisions of any other plan, arrangement of agreement governing the
Executive's rights and entitlements to any benefits or compensation.
9. Indemnification. The Company shall defend and hold the Executive
---------------
harmless to the fullest extent permitted by applicable law in connection with
any claim, action, suit, investigation or proceeding arising out of or relating
to performance by the Executive of services for, or action of the Executive as a
Director, officer or employee of
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the Company, or of any other person or enterprise at the request of the Company.
Expenses incurred by the Executive in defending a claim, action, suit or
investigation or criminal proceeding shall be paid by the Company in advance of
the final disposition thereof upon the receipt by the Company of an undertaking
by or on behalf of the Executive to repay said amount unless it shall ultimately
be determined that the Executive is entitled to be indemnified hereunder;
provided, however, that this indemnification arrangement shall not apply to a
nonderivative action commenced by the Company against the Executive. The
foregoing shall be in addition to any indemnification rights the Executive may
have by law, contract, charter, by-law or otherwise.
10. Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the heirs and representatives of the Executive and the successors and
assigns of the Company. The Company shall require any successor (whether direct
or indirect, by purchase, merger, reorganization, consolidation, acquisition of
property or stock, liquidation, or otherwise) to all or a significant portion of
its assets, by agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company, as the case may be, would be required to
perform this Agreement if no such succession had taken place. Regardless whether
such agreement is executed, this Agreement shall be binding upon any successor
of the Company in accordance with the operation of law and such successor shall
be deemed "the Company" or the "Company", as the case may be, for purposes of
this Agreement.
11. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement or the breach thereof (including the arbitrability of any
controversy or claim), shall be settled by arbitration in accordance with the
internal laws of the Commonwealth of Pennsylvania by three arbitrators, one of
whom shall be appointed by the Board, one by the Executive and the third of whom
shall be appointed by the first two arbitrators. If the first two arbitrators
cannot agree on the appointment of a third arbitrator, then the third arbitrator
shall be appointed by the American Arbitration Association. The arbitration
shall be conducted in accordance with the rules of the American Arbitration
Association, except with respect to the selection of arbitrators which shall be
as provided in this Paragraph 11. The cost of any arbitration proceeding
hereunder shall be borne equally by the Company and the Executive. The award of
the arbitrators shall be binding upon the parties. Judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
12. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed within the continental United States by first class
certified mail, return receipt requested, postage prepaid, addressed as follows:
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(a) to the Board or the Company, to:
DQE, Inc.
Cherrington Corporate Center
500 Cherrington Parkway
Suite 100
Moon Township, PA 15108
Attention: Board of Directors
with a copy to:
David R. High
Vice President and General Counsel
DQE, Inc.
411 Seventh Avenue
9th Floor (9-1)
Pittsburgh, PA 15219
(b) to the Executive, to:
Morgan K. O'Brien
4455 E. Lawnview Drive
Pittsburgh, PA 15227
Addresses may be changed by written notice sent to the other party at the last
recorded address of that party.
13. No Assignment. Except as otherwise expressly provided herein, this
-------------
Agreement is not assignable by any party and no payment to be made hereunder
shall be subject to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or other charge.
14. Execution in Counterparts. This Agreement may be executed by the
-------------------------
parties hereto in two or more counterparts, each of which shall be deemed to be
an original, but all such counterparts shall constitute one and the same
instrument, and all signatures need not appear on any one counterpart.
15. Jurisdiction and Governing Law. Jurisdiction over disputes with regard
------------------------------
to this Agreement shall be exclusively in the courts of the Commonwealth of
Pennsylvania, and this Agreement shall be construed and interpreted in
accordance with and governed by the laws of the Commonwealth of Pennsylvania,
other than the conflict of laws provisions of such laws.
16. Survival. The provisions of this Paragraph 16 and of Paragraphs 8, 9,
--------
10, 11, 13, 15, 17, 18 and 19 of this Agreement shall survive the termination of
this Agreement to the extent necessary or appropriate to effectuate the
respective purposes of such provisions.
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17. No Mitigation Required. The Executive shall not be required to mitigate
----------------------
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise, and, except as otherwise expressly
provided in Paragraph 8(b)(iii), in no event shall the amount of any payment
provided for under this Agreement be reduced by any compensation earned by the
Executive as the result of employment by another employer or otherwise after the
Date of Termination.
18. Severability. If any provision of this Agreement shall be adjudged by
------------
any court of competent jurisdiction to be invalid or unenforceable for any
reason, such judgment shall not affect, impair or invalidate the remainder of
this Agreement.
19. Prior Understandings. This Agreement embodies the entire understanding
--------------------
of the parties hereof, and supersedes all other oral or written agreements or
understandings between them regarding the subject matter hereof. No change,
alteration or modification hereof may be made except in a writing, signed by
each of the parties hereto. The headings in this Agreement are for convenience
and reference only and shall not be construed as part of this Agreement or to
limit or otherwise affect the meaning hereof. Notwithstanding the foregoing, the
Non-Competition and Confidentiality Agreement shall remain in full force and
effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
Attest: DQE, INC.
/s/William J. DeLeo By /s/David R. High
- ----------------------------- --------------------------------------------
David R. High
Vice President and General Counsel
By: /s/Robert P. Bozzone
-------------------------------------------
Robert P. Bozzone
Chairman, Compensation Committee
EXECUTIVE
By /s/Morgan K. O'Brien
--------------------------------------------
Morgan K. O'Brien
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