-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H3m8g4ehyWP+XYD3SIBESWXXNA/41ScT69O8Uv7txbY9zaGmIqjTEB4GJ2BV+VtM 1Cq8vyTHDrkn+ewYWEKRcA== 0000950128-00-000541.txt : 20000320 0000950128-00-000541.hdr.sgml : 20000320 ACCESSION NUMBER: 0000950128-00-000541 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 25 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EQUITABLE RESOURCES INC /PA/ CENTRAL INDEX KEY: 0000033213 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 250464690 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-03551 FILM NUMBER: 572936 BUSINESS ADDRESS: STREET 1: ONE OXFORD CENTRE STREET 2: 301 GRANT ST SUITE 3300 CITY: PITTSBURGH STATE: PA ZIP: 15219 BUSINESS PHONE: 4125535700 MAIL ADDRESS: STREET 1: 301 GRANT ST SUITE 3300 CITY: PITTSBURGH STATE: PA ZIP: 15219 FORMER COMPANY: FORMER CONFORMED NAME: EQUITABLE GAS CO DATE OF NAME CHANGE: 19841120 10-K405 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ COMMISSION FILE NUMBER 1-3551 EQUITABLE RESOURCES, INC. (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-0464690 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) ONE OXFORD CENTRE, SUITE 3300 PITTSBURGH, PENNSYLVANIA 15219 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 553-5700 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ----------------------------- Common Stock, no par value New York Stock Exchange Philadelphia Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Philadelphia Stock Exchange 7.35% Capital Securities due April 15, 2038 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods 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 __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by non-affiliates of the registrant as of February 29, 2000: $1,218,817,565 The number of shares outstanding of the issuer's classes of common stock as of February 29, 2000: 32,800,787 DOCUMENTS INCORPORATED BY REFERENCE Part III, a portion of Item 10 and Items 11, 12 and 13 are incorporated by reference to the Proxy Statement for the Annual Meeting of Stockholders on May 17, 2000 to be filed with the Commission within 120 days after the close of the Company's fiscal year ended December 31, 1999. Index to Exhibits -- Page 63 2 TABLE OF CONTENTS
PAGE ---- PART I Item 1 Business.................................................... 3 Item 2 Properties.................................................. 8 Item 3 Legal Proceedings........................................... 9 Item 4 Submission of Matters to a Vote of Security Holders......... 10 Executive Officers of the Registrant........................ 11 PART II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters....................................... 12 Item 6 Selected Financial Data..................................... 12 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 13 Item 7A Qualitative and Quantitative Disclosures About Market Risk...................................................... 29 Item 8 Financial Statements and Supplementary Data................. 30 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................................... 59 PART III Item 10 Directors and Executive Officers of the Registrant.......... 60 Item 11 Executive Compensation...................................... 60 Item 12 Security Ownership of Certain Beneficial Owners and Management................................................ 60 Item 13 Certain Relationships and Related Transactions.............. 60 PART IV Item 14 Exhibits and Reports on Form 8-K............................ 61 Index to Financial Statements Covered by Report of Independent Auditors...................................... 61 Index to Exhibits........................................... 63 Signatures.................................................. 67
3 PART I ITEM 1. BUSINESS Equitable Resources, Inc. (Equitable or the Company) is an integrated energy company, with emphasis on Appalachian area natural gas production and transportation, natural gas distribution and transmission, and energy services marketing in the northeastern section of the United States. The Company also has exploration and production interests in the Gulf of Mexico and energy service management projects in selected U.S. and international markets. The Company and its subsidiaries offer energy (natural gas, natural gas liquids and crude oil) products and services to wholesale and retail customers through three primary business segments: Equitable Utilities, Equitable Production and NORESCO. The Company and its subsidiaries had 1,620 employees at the end of 1999. The Company was formed under the laws of Pennsylvania by the consolidation and merger in 1925 of two constituent companies, the older of which was organized in 1888. In 1984, the corporate name was changed to Equitable Resources, Inc. to more appropriately reflect the Company's transition from a regulated utility to an integrated energy company. EQUITABLE UTILITIES Equitable Utilities contains both regulated and nonregulated operations. The regulated group consists of the distribution and interstate pipeline operations, while the unregulated group is involved in nonjurisdictional marketing of natural gas and risk management activities. Equitable Utilities generated 50 percent of the Company's net operating revenues in 1999. NATURAL GAS DISTRIBUTION Equitable Utilities' distribution operations are conducted by Equitable Gas Company (Equitable Gas), a division of the Company, and Carnegie Natural Gas Company (Carnegie Natural Gas or Carnegie), acquired on December 15, 1999. The service territory for Equitable Gas and Carnegie Natural Gas includes southwestern Pennsylvania, municipalities in northern West Virginia and field line sales in eastern Kentucky. The distribution operations provide natural gas services to more than 274,000 customers, comprising 256,000 residential customers and 18,000 commercial and industrial customers. Equitable Gas' natural gas portfolio includes short-term, medium-term and long-term natural gas supply contracts. Most natural gas is purchased from Southwest suppliers and transported by either Texas Eastern Transmission Corporation or Tennessee Gas Pipeline Company. A smaller percentage of natural gas is purchased from production properties in Kentucky owned by Equitable Production and transported by Columbia Gas Transmission Company. Because many of its customers use natural gas for heating purposes, Equitable Gas's revenues are seasonal, with approximately 68% of calendar year 1999 revenues occurring during the winter heating season from November through March. Significant quantities of purchased natural gas are placed in underground storage inventory during the off-peak season to accommodate higher customer demand during the winter heating season. Competition in markets served by Equitable Gas is expected to continue. Equitable Gas faces price competition with other energy forms. In addition, with unbundling of natural gas sales from natural gas distribution and transmission in the natural gas industry, competition is increasing to provide natural gas sales to commercial and residential customers. Unregulated natural gas marketers have been selling natural gas to commercial and industrial customers in Equitable Gas's service territory for over 20 years and Equitable Gas has provided transportation services to those customers through contract. Large customers have been able to select individually or in combination the various natural gas supply, storage and/or transportation services they require. Equitable Gas has responded to this competitive environment by offering a variety of firm and interruptible services, including natural gas transportation, supply pooling, balancing and brokering, to industrial and commercial customers. 3 4 On April 1, 1998, Equitable Gas began to offer "unbundled" service to all of its customers in Pennsylvania, allowing them to choose their natural gas supplier. Revenues derived from transportation charges on natural gas sold by other suppliers enable Equitable Gas to minimize economic loss resulting from the switching of residential customers to other suppliers. Because the margin on natural gas bundled sales approximates the margin received on transportation-only volumes, Equitable Gas is neutral as to whether it provides transportation or bundled sales to retail customers. In June 1999, Pennsylvania's Governor signed into law the Natural Gas Choice and Competition Act (the Act) which requires local natural gas distribution companies to extend the availability of natural gas transportation service to residential and small commercial customers by July 1, 2000 pursuant to a plan approved by the Pennsylvania Public Utility Commission (PUC). In accordance with the Act, Equitable Gas made its restructuring filing on August 16, 1999. The filing was generally a restatement of Equitable's existing tariff, which reflected its earlier unbundling as previously described. The tariff provides for recovery of costs associated with Equitable Gas' existing pipeline capacity and natural gas supply contracts. The Company does not expect that the Act will have a material adverse impact on the financial statements. Equitable's distribution rates, terms of service, contracts with affiliates and issuance of securities are regulated primarily by the Pennsylvania PUC, along with the Kentucky Public Service Commission and the West Virginia Public Service Commission. Significant changes in the residential customer base are considered unlikely in the near term, even in the deregulated environment, due to the large investment in infrastructure required for residential natural gas transportation. On December 15, 1999, Equitable acquired the distribution, transmission and production operations of Carnegie Natural Gas. The Carnegie Natural Gas acquisition is complementary to Equitable's plans to grow its core business and increase utilization and operational efficiencies of its local distribution and interstate pipeline operations. The acquisition of Carnegie added approximately 8,000 new distribution customers. INTERSTATE PIPELINE Equitable Utilities' interstate pipeline operations include the natural gas transmission and storage activities of Equitrans, L.P. (Equitrans) and two smaller affiliates, Three Rivers Pipeline Corporation and Carnegie Interstate Pipeline Company, which are regulated by the Federal Energy Regulatory Commission (FERC). The pipeline division transported 73.6 billion cubic feet (Bcf) of natural gas to both affiliated and nonaffiliated customers in 1999. A substantial portion of the transportation system's annual throughput has been natural gas purchased by Equitable Gas. No margin loss is expected as a result of residential customers of Equitable Gas switching to other suppliers, as natural gas transported to Equitable Gas by such suppliers will continue to flow through this pipeline system. The evolving regulatory environment designed to increase competition in the natural gas industry has created a number of opportunities for pipeline companies to expand services and serve new markets. The Company has taken advantage of selected market expansion opportunities, concentrating on Equitrans' underground storage facilities and the location and nature of its pipeline system as a link between the country's major long-line natural gas pipelines. The pipeline operations consist of approximately 2,800 miles of transmission, storage and gathering lines, including 670 miles of transmission and gathering pipeline obtained in the December 1999 purchase of Carnegie Interstate Pipeline Company, and interconnections with five major interstate pipelines. Equitrans also has 15 natural gas storage reservoirs with approximately 500 MMcf per day of peak delivery capacity. The acquisition of the Carnegie assets enhances transportation access to large industrial customers in western Pennsylvania. ENERGY MARKETING Equitable Utilities' unregulated marketing operation purchases, stores and markets natural gas at both the retail and wholesale level, primarily in western Pennsylvania and West Virginia. Services and products offered by the marketing division include commodity procurement and delivery, physical natural gas management 4 5 operations and control, and customer support services to the Company's energy customers. To manage the price exposure risk of its marketing operations, the Company engages in risk management activities including the purchase and sale of financial energy derivative products. Because of this activity, this energy marketing division is also able to offer energy price risk management services to its larger industrial customers. EQUITABLE PRODUCTION Equitable Production explores for, produces and delivers natural gas and crude oil, with operations in the Appalachian and the Louisiana offshore Gulf of Mexico regions of the United States. It also engages in natural gas gathering and interstate transportation and the processing and sale of natural gas liquids. Equitable Production generated approximately 42 percent of the Company's net operating revenues in 1999. All of the information with respect to Equitable Production - East and Equitable Production - Gulf in this description of the business is current as of December 31, 1999. Subsequent to that date, the Company completed a substantial acquisition in Equitable Production - East and separately, agreed to merge the assets of Equitable Production - Gulf with those of another company. A description of these transactions is included in "Management's Discussion and Analysis of Financial Condition and Results of Operations, Capital Resources and Liquidity, Acquisitions and Dispositions" and in Note V to the consolidated financial statements. EQUITABLE PRODUCTION - EAST Equitable Production - East is engaged in the development, production, acquisition, marketing, gathering and transportation of natural gas and oil in the Appalachian Basin. Equitable Production - East is one of the largest owners of proved natural gas reserves in the Appalachian Basin. The majority of the Company's exploration and production properties are located in the Appalachian Basin, which is the oldest and geographically one of the largest natural gas producing regions in the United States. Equitable Production - East currently owns approximately 6,400 net producing wells in Appalachia. As of December 31, 1999, the Company estimates the total proved reserves to be 1,067 billion cubic feet equivalent (Bcfe). Of this total, the Company estimates the proved developed reserves to be 907 Bcfe, with future net cash flows discounted at 10% before income taxes of approximately $652 million. Approximately 93% of the future net discounted cash flows before income taxes are represented by proved developed reserves located in eastern Kentucky and western Virginia and approximately 7% of the future net discounted cash flows before income taxes are represented by proved developed reserves located in Pennsylvania and West Virginia. As of December 31, 1999, the Company estimates proved undeveloped reserves to be 160 Bcfe. The areas in which the Company's Appalachian properties are located are characterized by wells with comparatively low rates of annual decline in production, low production costs and high Btu, or energy, content. Once drilled and completed, wells in the Appalachian Basin typically have low ongoing operating and maintenance requirements and minimal capital expenditures. These formations are characterized by slow recovery of the reserves in place, low rates of production and wells that generally produce for longer than 20 years and often more than 50 years. Many of the Company's wells in these areas have been producing for many years, in some cases since the early 1900's. Reserve estimates for properties with long production histories are generally more reliable than estimates for properties with shorter histories. Substantially all of the Appalachian wells are relatively shallow, with depths ranging from 1,000 to 7,000 feet below the surface. Many of these wells are completed in more than one producing zone and production from these zones may be mixed or commingled. Commingled production lowers producing costs on a per unit basis compared to isolated zone completions. Natural gas produced in the Appalachian Basin has historically received a premium over natural gas produced in other regions. The higher average prices are principally due to the proximity to a substantial number of industrial and commercial end-users in the northeast United States. For the period 1991 through 1998, natural gas price indices for Appalachian Basin production have averaged $0.25 per MMbtu more than prices for natural gas contracts traded on the NYMEX for the delivery of natural gas at Henry Hub, Louisiana. During these eight years, the average annual Appalachian Basin premium has ranged from $0.14 per MMbtu to $0.47 per MMbtu. 5 6 The Appalachian Basin premium is typically lower during warmer-than-normal winters, such as the previous two winters. The premium is somewhat offset by the high gathering and compression costs in the region. Natural gas sold from Equitable Production - East properties has historically received an additional premium because of its higher Btu content. The average Btu content for each cubic foot of natural gas produced from the Company's Appalachian properties is approximately 1,160, which has historically provided an average 16% premium over the standard measure of 1,000 Btu per cubic foot when calculating realized prices on a per Mcf basis. The productive lives of producing natural gas properties are often compared using their reserve-to-production index. This index is calculated by dividing total proved reserves of the property by annual production for the prior 12 months. The reserve-to-production index for the underlying properties at December 31, 1999 was approximately 23 years. This reserve-to-production index shows a relatively long producing life compared to an average index of 8.6 years for U.S. natural gas properties at year-end 1998. Because production rates naturally decline over time, the reserve-to-production index may not be a useful estimate of how long properties should economically produce. Based on the Company's reserve report, production from the underlying properties is expected to continue for at least 50 more years. Equitable Production - East has a record of successfully adding reserves to the underlying properties through development at costs which are generally less than U.S. industry averages. Over the three years ended December 31, 1999, Equitable Production - East has added through development drilling approximately 123 Bcfe of proved developed reserves at an average cost of $0.60 per Mcfe. For public reporting companies in the United States, the average industry cost of adding natural gas reserves from 1996 through 1998 was $0.76 per Mcfe. In addition, during 1998 and 1999, Equitable Production - East had substantial upward revisions of its proved undeveloped reserve estimates on the producing properties. Equitable Production - East currently has an inventory of 2.2 million gross acres, of which approximately 62% have not been developed. As of December 31, 1999, the Company estimated the proved undeveloped reserves of the underlying leases to be 160 Bcfe from 495 proved undeveloped drilling locations, with estimated future net discounted cash flows of $45 million. In the last three years, Equitable Production has completed approximately 99% of the wells it has drilled in Appalachia, adding 121 bcfe of proved natural gas and oil reserves. In December 1999, the unregulated production properties and operations of Equitable Utilities' Equitrans pipeline division were transferred to Equitable Production - East. These properties include 800 producing natural gas wells and 38.9 Bcfe of proved developed reserves. EQUITABLE PRODUCTION - GULF Equitable Production - Gulf conducts exploration and production activities in the U.S. Gulf of Mexico, primarily offshore the state of Louisiana. This is a very competitive market requiring substantial ongoing investment in federal leases, in which drilling and production activity by producers has increased in recent years. Approximately 12% of the Company's year-end natural gas and crude oil reserves are located in the Gulf region. Historically, Equitable Production has not been successful at consistently earning net income from its operations in the Gulf region. Equitable Production sold its oil and natural gas properties in six western states and the Canadian Rockies in the second half of 1997. The Company used a part of the proceeds from the property sales to finance the acquisition from Chevron USA of two producing natural gas and oil fields off Louisiana's Gulf Coast. ACQUISITION In December 1999, the Company completed the acquisition of Carnegie Natural Gas Company. The production operations of Carnegie include approximately 1,100 producing natural gas wells and 45.1 Bcfe of proved developed reserves. The Company estimates that the Carnegie acquisition will increase annual production of natural gas by approximately 8%. 6 7 COMPETITIVE ENVIRONMENT The combination of its long-lived production, low drilling costs, high drilling completion rates at shallow depths and proximity to natural gas markets has had a substantial impact on the development of the Appalachian Basin resulting in a highly fragmented operating environment. In 1998, Kentucky and West Virginia had more than 500 independent operators and more than 85,000 producing oil and natural gas wells. Also, the historical availability of tax incentives has resulted in extensive drilling in the shallow formations with these low technical risk characteristics. HEDGING ACTIVITIES Equitable has historically entered into hedging contracts with respect to its natural gas and crude oil production at specified prices for a specified period of time. The Company's hedging strategy and information regarding derivative instruments used are outlined below in Item 7A, "Qualitative and Quantitative Disclosures About Market Risk." NATURAL GAS REGULATION The availability, terms and cost of transportation significantly affect sales of natural gas. The interstate transportation and sale for resale of natural gas is subject to federal regulation, including transportation rates, storage tariffs and various other matters, primarily by the Federal Energy Regulatory Commission. Federal and state regulations govern the price and terms for access to natural gas pipeline transportation. The Federal Energy Regulatory Commission's regulations for interstate natural gas transmission in some circumstances may also affect the intrastate transportation of natural gas. NORESCO NORESCO provides energy and energy related products and services that are designed to reduce its customers' operating costs and improve their productivity. NORESCO's customers include commercial, governmental, institutional and industrial end-users. The energy services business segment was formed in 1995 and was built through a series of acquisitions of privately held energy performance and facility management companies. NORESCO operates in a highly competitive industry, with a significant number of companies, including affiliates of large energy companies that have entered this market in recent years. NORESCO provided approximately 8 percent of the Company's net operating revenues in 1999. The majority of NORESCO's revenue and earnings comes from energy saving performance contracting services. NORESCO provides the following integrated energy management services: project development and engineering analysis; construction; management; financing; equipment operation and maintenance; and energy savings metering, monitoring and verification. The segment's energy infrastructure division develops and operates private power, cogeneration and central plant facilities in the U.S. and selected international markets. These projects serve a diverse clientele including hospitals, universities, commercial and industrial customers and utilities. NORESCO's capabilities offer a "turnkey" approach to energy infrastructure programs including project development, equipment selection, fuel procurement, environmental permitting, construction, financing and operations and maintenance. ERI Services is an autonomous business unit included for financial reporting purposes within the NORESCO segment. ERI Services provides energy savings performance contracting (ESPC) services exclusively to the federal government. In 1996, the Department of Defense (DOD) and the Department of Energy (DOE) initiated a series of competitive bids for ESPC contracts. The impetus for these programs are mandated targets to reduce energy use by 30% by the year 2005. These contracts serve as a "master" agreement between the DOD/DOE and an energy service company (ESCO), under which the ESCO may enter into individual site-specific contracts with government agencies to develop and implement ESPC projects. Under the terms of these agreements, the ESCO incurs the cost of developing and implementing projects in exchange for a defined share of the cost savings that result from the energy conservation measures, over the term of the contract. 7 8 At the end of 1999, NORESCO employed 338 people including professional staff, trades-people and plant operators. Construction backlog decreased from $86.8 million at year-end 1998 to $57.6 million at the end of 1999. The reduction in backlog is attributable mainly to the facilities management division, which completed the build-out of three large infrastructure projects during the fourth quarter of 1999. NORESCO completed $151.8 million of construction during 1999, an increase of $72.0 million over 1998. DISCONTINUED OPERATIONS In December 1998, the Company sold its natural gas midstream operations. The operations included an integrated gas gathering, processing and storage system in Louisiana and a natural gas and electricity trading and marketing business based in Houston, Texas, with an office in Calgary. These businesses are classified in the consolidated financial statements as discontinued operations. OPERATING REVENUES Operating revenues as a percentage of total operating revenues for each of the three business segments during the years 1997 through 1999 are as follows:
1999 1998 1997 ---- ---- ---- Equitable Utilities: Residential natural gas sales............................. 19% 25% 32% Commercial and industrial natural gas sales............... 6 6 7 Marketed natural gas...................................... 31 28 27 Transportation service.................................... 8 6 5 Other..................................................... 1 2 2 --- --- --- Total Utilities........................................ 65 67 73 --- --- --- Equitable Production: Produced natural gas...................................... 14 15 11 Natural gas liquids....................................... 2 2 3 Crude oil................................................. 2 2 3 Other..................................................... 1 2 4 --- --- --- Total Production....................................... 19 21 21 --- --- --- NORESCO: Energy service contracting................................ 16 12 6 --- --- --- Total Revenues......................................... 100% 100% 100% === === ===
See Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes T and U to the consolidated financial statements in Part II, Items 7 and 8 for financial information by business segment and information regarding environmental matters. ITEM 2. PROPERTIES Principal facilities are owned by the Company's business segments with the exception of various office locations and warehouse buildings. A limited amount of equipment is also leased. The majority of transmission, storage and distribution pipelines are located on or under (1) public highways under franchises or permits from various governmental authorities, or (2) private properties owned in fee, or occupied under perpetual easements or other rights acquired for the most part without examination of underlying land titles. The Company's facilities have adequate capacity, are well maintained and, where necessary, are replaced or expanded to meet operating requirements. Equitable Utilities. Equitable Gas and Carnegie Natural Gas own and operate natural gas distribution properties as well as other general property and equipment in Pennsylvania, West Virginia and Kentucky. Equitrans owns and operates production, underground storage and transmission facilities as well as other general 8 9 property and equipment in Pennsylvania and West Virginia. Three Rivers Pipeline Corporation and Carnegie Interstate Pipeline own transmission properties in southwestern Pennsylvania. Equitable Production. This business segment owns or controls all of the Company's acreage of proved developed and undeveloped natural gas and oil production properties principally located in the Appalachian region, with additional holdings in the U.S. Gulf of Mexico area. In addition, Kentucky West owns and operates gathering and transmission properties as well as other general property and equipment in Kentucky. Equitable Production's properties also include hydrocarbon extraction facilities in Kentucky with a 100-mile liquid products pipeline which extends into West Virginia. Information relating to Company estimates of natural gas and crude oil reserves and future net cash flows is provided in Note X to the consolidated financial statements in Part II. Natural Gas and Crude Oil Production:
1999 1998 1997 ------- ------- ------- Natural Gas -- MMcf produced............................... 66,328 62,135 58,952 -- Average sales price per Mcf sold............ $ 2.39 $ 2.41 $ 2.40 Crude Oil -- Thousands of barrels produced............... 1,070 996 1,544 -- Average sales price per barrel.............. $ 15.53 $ 13.59 $ 17.23
Average production cost (lifting cost) of natural gas and crude oil during 1999, 1998 and 1997 was $.373, $.462, and $.482 per Mcf equivalent, respectively.
NATURAL GAS OIL ----------- --- Total productive wells at December 31, 1999: Total gross productive wells.............................. 6,250 415 Total net productive wells................................ 6,087 370 Total acreage at December 31, 1999: Total gross productive acres.............................. 925,396 Total net productive acres................................ 880,520 Total gross undeveloped acres............................. 1,463,760 Total net undeveloped acres............................... 1,306,898
Number of net productive and dry exploratory and development wells drilled:
1999 1998 1997 ----- ---- ---- Exploratory wells: Productive................................................ 3.5 4.3 2.9 Dry....................................................... 0.8 5.0 1.5 Development wells: Productive................................................ 118.6 74.6 88.7 Dry....................................................... -- 2.0 --
No report has been filed with any federal authority or agency reflecting a 5% or more difference from the Company's estimated total reserves. NORESCO. NORESCO is based in Framingham, Massachusetts, and leases offices in 24 locations throughout the country. Headquarters. The headquarters is located in leased office space in Pittsburgh, Pennsylvania. ITEM 3. LEGAL PROCEEDINGS Two subsidiaries of the Company, ET Blue Grass Company and EQT Capital Corporation, were among a group of defendants in a lawsuit filed by Raytheon Engineers & Constructors, Inc. (Raytheon). The lawsuit was filed in the Supreme Court of New York, Steuben County, in June 1997 for payment for work done by Raytheon in connection with a natural gas storage project in Avoca, New York. The storage project's operating partnership and partners, including another subsidiary of the Company, subsequently filed for bankruptcy. The claims of 9 10 Raytheon and other creditors against all defendants were settled by mediation. The Company's portion of the settlement is approximately $1 million, included in accrued liabilities at December 31, 1999. In May 1998, the jury in U.S. Gas Transportation, Inc. v. Equitable Resources Marketing Company, a breach of contract action filed in the Judicial District Court of Dallas County, Texas, in July 1996, returned a verdict against the Company in the amount of $4.36 million. On motion by the Company, the judge subsequently reduced the award to $762,000. Final judgment was entered, together with $550,000 in attorneys' fees. The case is on appeal. In Interstate Natural Gas Company v. Equitable Resources Energy Company et al. (including Kentucky West Virginia Gas Company), a royalty case filed in June 1995 in the Kentucky Circuit Court in Floyd County, the judge granted plaintiffs' motion for summary judgment against the Company for breach of fiduciary duty and contract unconscionability. In late 1998, the court entered judgment for damages totaling $1.9 million. After posting a guarantee of $2.6 million (including estimated postjudgment interest), the Company appealed the judgments to the Kentucky Court of Appeals. The Kentucky Court of Appeals has set oral argument for April 11, 2000. There are no other material pending legal proceedings, other than those which are adequately covered by insurance, to which the Company or any of its subsidiaries is a party, or to which any of their property is subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the last quarter of its fiscal year ended December 31, 1999. 10 11 EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AND AGE TITLE BUSINESS EXPERIENCE - ------------ ----- ------------------- Murry S. Gerber (47) President and First elected to present Chief Executive Officer position June 1, 1998; Chief Executive Officer of Coral Energy, Houston, TX, from November 1995; Treasurer, Shell Oil Company, Houston, from October 1994. Johanna G. O'Loughlin (53) Vice President, General Counsel Elected to present position May and Secretary 26, 1999; Vice President and General Counsel from December 19, 1996; Deputy General Counsel from April 1996; Senior Vice President and General Counsel of Fisher Scientific Company, Pittsburgh, PA, from June 1986. David L. Porges (42) Executive Vice President and Chief Elected to present position Financial Officer effective February 1, 2000; Senior Vice President and Chief Financial Officer from July 1, 1998; Managing Director, Bankers Trust Corporation, Houston, TX, and New York, NY, from December 1992. Gregory R. Spencer (51) Senior Vice President and Chief First elected to present Administrative Officer position May 23, 1996; Vice President-Human Resources and Administration from May 1995; Vice President-Human Resources from October 1994. Jeffrey C. Swoveland (44) Vice President - Finance First elected to present and Treasurer position May 23, 1996; Interim Chief Financial Officer from October 1997 to July 1998; Treasurer from December 1995; Director of Alternative Finance from September 1994.
- --------------- Officers are elected annually to serve during the ensuing year or until their successors are chosen and qualified. Except as indicated, the officers listed above were elected on May 26, 1999. 11 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is listed on the New York Stock Exchange and the Philadelphia Stock Exchange. The high and low sales prices reflected in the New York Stock Exchange Composite Transactions as reported by The Wall Street Journal and the dividends declared and paid per share are summarized as follows (in U.S. dollars per share):
1999 1998 --------------------------- --------------------------- HIGH LOW DIVIDEND HIGH LOW DIVIDEND ---- --- -------- ---- --- -------- 1st Quarter.................................. 29 3/4 24 1/4 $0.295 35 1/4 29 5/8 $0.295 2nd Quarter.................................. 37 3/4 23 1/4 $0.295 35 27 $0.295* 3rd Quarter.................................. 39 35 15/16 $0.295 30 1/4 20 9/16 $0.295 4th Quarter.................................. 38 3/8 32 9/16 $0.295 29 15/16 25 $0.295
- --------------- * Actually declared near the end of the preceding quarter. As of February 29, 2000, there were approximately 5,400 shareholders of record of the Company's common stock. The indentures under which the Company's long-term debt is outstanding contain provisions limiting the Company's right to declare or pay dividends and make certain other distributions on, and to purchase any shares of, its common stock. Under the most restrictive of such provisions, $496 million of the Company's consolidated retained earnings at December 31, 1999 was available for declarations or payments of dividends on, or purchases of, its common stock. The Company anticipates dividends will continue to be paid on a regular quarterly basis. ITEM 6. SELECTED FINANCIAL DATA
1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- (THOUSANDS EXCEPT PER SHARE AMOUNTS) Operating revenues............... $1,062,738 $ 870,628 $ 913,069 $ 856,367 $ 624,998 ========== ========== ========== ========== ========== Net income (loss) from continuing operations (a)................. $ 69,130 $ (27,052) $ 74,187 $ 53,527 $ 17,812 ========== ========== ========== ========== ========== Net income (loss) from continuing operations per common share: Basic....................... $ 2.03 $ (0.73) $ 2.06 $ 1.52 $ 0.51 ========== ========== ========== ========== ========== Assuming dilution........... $ 2.01 $ (0.73) $ 2.05 $ 1.52 $ 0.51 ========== ========== ========== ========== ========== Total assets..................... $1,789,574 $1,860,856 $2,328,051 $2,096,299 $1,963,313 Long-term debt................... $ 298,350 $ 281,350 $ 417,564 $ 422,112 $ 415,527 Preferred trust securities....... $ 125,000 $ 125,000 $ -- $ -- $ -- Cash dividends paid per share of common stock................... $ 1.18 $ 1.18 $ 1.18 $ 1.18 $ 1.18
- --------------- (a) Includes nonrecurring items in 1998 and 1997, as described in Management's Discussion and Analysis of Financial Condition and Results of Operations and in Notes C, D and F to the consolidated financial statements. Excludes discontinued operations and extraordinary items recognized in 1998 and 1997, as described in Management's Discussion and Analysis of Financial Condition and Results of Operations and in Notes E and L to the consolidated financial statements. 12 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONSOLIDATED RESULTS OF OPERATIONS Equitable's consolidated net income from continuing operations for 1999 was $69.1 million, or $2.01 per diluted share, compared with a loss of $(27.1) million, or $(0.73) per diluted share, for 1998 and $74.2 million, or $2.05 per diluted share, for 1997. The improved 1999 earnings are due to increased natural gas production; increased throughput in the regulated distribution operations, primarily due to cooler weather; lower exploration costs; increased construction volume in the Company's NORESCO business; and lower operating and administrative expenses throughout the organization due to prior years' restructuring efforts coupled with continuing process improvement efforts in all significant business units. Equitable's net loss from continuing operations for 1998 of ($27.1) million, or ($0.73) per diluted share, compared with net income from continuing operations of $74.2 million, or $2.05 per diluted share, for 1997. In addition to the nonrecurring items described below, 1998 earnings were impacted by discontinued operations and an extraordinary loss on early extinguishment of debt, described in Notes E and L to the consolidated financial statements. In December 1998, the Company completed the sale of its natural gas midstream operations. Income (loss) from these discontinued operations after taxes was $(8.8) million or $(.24) per share in 1998; and $3.9 million, or $0.11 per share, for 1997. The 1998 results from discontinued operations are recorded net of an after-tax gain on the sale of the operations of $10.1 million, or $0.28 per share. In the fourth quarter of 1998, the Company recognized an extraordinary loss of $8.3 million after taxes, or $0.22 per share, for early retirement of certain long-term debt, repurchased with a portion of the proceeds of the sale of the midstream operations. Also, in 1998, the Company recognized $81.8 million for restructuring, impairment charges and nonrecurring items across all segments, and a $6.2 million reduction of utility operating revenues primarily as a result of the FERC rejection of a proposed pipeline rate case settlement in December 1998. Earnings for 1997 include the following items: an after-tax gain of $31.3 million, $0.87 per share, on the sale of certain crude oil and natural gas producing properties in the western United States and Canada and its contract drilling operations; an after-tax charge of $8.5 million, $0.24 per share, from the impairment of a proposed bedded salt natural gas storage project; and a $6.7 million after-tax charge, $0.19 per share, related to the evaluation and reduction of headquarters and noncore business functions. The decrease in operating income in 1998 compared to 1997, excluding restructuring, impairment charges and nonrecurring items, and the impact of the FERC settlement rejection, is primarily due to increased dry hole cost due to unsuccessful wells in the offshore region, decreases in crude oil and natural gas liquids prices, decreased sales volumes in the distribution division resulting from 19% warmer weather, and increased depreciation, depletion and amortization (DD&A) expense. The increase in DD&A is principally a result of increased production in the offshore Gulf of Mexico, where depletion rates are substantially higher than in the Company's other operating regions. The decrease in 1998 operating income was partially offset by higher revenues in the Equitable Utilities distribution division from increased customer charges in tariff rates established in the fourth quarter of 1997 and increased income from the inclusion of a full year of operations at NORESCO, acquired in mid-1997. BUSINESS SEGMENT RESULTS Business segment operating results are presented in the segment discussions and financial tables on the following pages. The Company revised its presentation of business segment information beginning with the 1999 Form 10-K. Equitable Energy is now reported in the Equitable Utilities segment instead of Equitable Services, and Equitable Services is now being reported as NORESCO. Prior periods have been reclassified to conform to the current presentation. 13 14 EQUITABLE UTILITIES Equitable Utilities' operations are comprised of the sale and transportation of natural gas to retail customers at state-regulated rates, interstate transportation and storage of natural gas subject to federal regulation, and the unregulated marketing of natural gas. DISTRIBUTION The local distribution operations of Equitable Gas Company (Equitable Gas) and Carnegie Natural Gas Company (Carnegie) provide natural gas services in southwestern Pennsylvania, municipalities in northern West Virginia and field line sales in eastern Kentucky. Equitable Gas and Carnegie are subject to rate regulation by state regulatory commissions in Pennsylvania, West Virginia and Kentucky. On April 1, 1998, Equitable Gas began to offer "unbundled" service to all of its customers in Pennsylvania, allowing them to choose their natural gas supplier. Revenues derived from transportation charges on natural gas sold by other suppliers enable Equitable Gas to minimize economic loss resulting from the switching of residential customers to other suppliers. Because the margin on natural gas bundled sales approximates the margin received on transportation-only volumes, Equitable Gas is economically neutral as to whether it provides transportation or sales to retail customers. In addition, the new rate structure approved by the Pennsylvania Public Utility Commission (PUC) increased the portion of revenues derived from the fixed monthly customer charge making margins for the residential distribution operation less sensitive to weather fluctuations. In June 1999, Pennsylvania Governor Ridge signed into law the Natural Gas Choice and Competition Act (the Act) which requires local natural gas distribution companies to extend the availability of natural gas transportation service to residential and small commercial customers by July 1, 2000 pursuant to a PUC-approved plan. In accordance with the Act, Equitable made its restructuring filing on August 16, 1999. The filing was generally a restatement of Equitable's existing tariff. The tariff provides for recovery of costs associated with Equitable Gas' existing pipeline capacity and natural gas supply contracts. The Company does not expect that the Act will have a material adverse impact on the financial statements. INTERSTATE PIPELINE The pipeline operations of Equitrans, L.P., Three Rivers Pipeline Corporation and Carnegie Interstate Pipeline are subject to rate regulation by the FERC. Under present rates, a majority of the annual costs are recovered through fixed charges to customers. Equitrans filed a rate case in April 1997, which addressed the recovery of certain stranded plant costs related to the implementation of FERC Order No. 636. The requested rates were placed into effect in August 1997, subject to refund, pending the issuance of a final order. On April 29, 1999, the FERC approved, without modification, the joint stipulated settlement agreement resolving all issues in the proceeding. The approved settlement provides for prospective collection of increased gathering charges. In addition, the settlement provides Equitrans the opportunity to retain all revenues associated with interruptible transportation and negotiated rate agreements, as well as moving its gathering charge toward a cost based rate. In the second quarter of 1999, Equitrans recorded the final settlement of the rate case, including adjustment of the prior provisions for refund and recognition of the previously deferred revenues and costs related to the stranding of certain gathering facilities. ENERGY MARKETING Equitable's unregulated marketing division provides natural gas operations, commodity procurement and delivery, risk management and customer services to energy consumers including large industrial, utility, commercial, institutional and residential end-users. This division's primary focus is to provide products and services in those areas where the Company has a strategic marketing advantage, usually due to geographic coverage and ownership of physical or contractual assets. 14 15 CAPITAL EXPENDITURES Equitable Utilities has set the 2000 capital expenditure level at $32.0 million, a 26% increase over capital expenditures of $25.3 million for 1999. The 2000 capital expenditures include $24.4 million for the distribution operations and $7.6 million for pipeline operations, including maintenance and improvements to existing lines and facilities, and approximately $7.0 million for new business development opportunities. EQUITABLE UTILITIES
YEARS ENDED DECEMBER 31 -------------------------------- 1999 1998 1997 -------- -------- -------- (THOUSANDS) FINANCIAL DATA Utility revenues........................................... $324,869 $322,057 $402,826 Marketing revenues......................................... 487,005 329,967 312,057 -------- -------- -------- Total revenues........................................ 811,874 652,024 714,883 Purchased natural gas cost................................. 573,101 449,098 492,678 Revenue related taxes...................................... 10,873 11,587 15,437 -------- -------- -------- Net revenues.......................................... 227,900 191,339 206,768 Operating and maintenance expense.......................... 67,923 68,749 71,137 Selling, general and administrative expense................ 43,740 55,153 63,346 Depreciation, depletion and amortization................... 35,596 20,570 19,778 Restructuring and impairment charges....................... -- 14,693 13,000 -------- -------- -------- Total expenses........................................ 147,259 159,165 167,262 -------- -------- -------- Operating income........................................... $ 80,641 $ 32,174 $ 39,507 ======== ======== ======== Capital expenditures....................................... $ 43,979 $ 20,860 $ 29,957 VALUE DRIVERS Operating expenses/net revenues............................ 64.62% 75.51% 80.89% Earnings (loss) before interest and taxes: Distribution............................................. $ 54,704 $ 30,385 $ 36,917 Pipeline................................................. 22,354 8,663 8,136 Marketing................................................ 3,583 (6,873) (5,547)
Operating income for Equitable Utilities increased 150% from 1998 to 1999. Results for the 1999 period include $3.9 million from the recognition of the settlement of Equitrans' rate case described above. Results also include charges of $3.0 million for improvement of utility segment operating processes and consolidation of facilities. Results for 1998 include a pretax charge of $14.7 million related to restructuring as more fully described in Note C to the consolidated financial statements. Excluding the nonrecurring items in both periods, operating income increased $33.8 million, or 72.1% over the $46.9 million in 1998. The increase in 1999 is a result of higher net revenues due principally to cooler weather during the heating season, increased revenues from energy marketing activities and lower operating expenses due to restructuring initiatives begun in the fourth quarter of 1998. Operating income for Equitable Utilities decreased 18.5% from 1997 to 1998. Results for 1998 include charges related to restructuring of $14.7 million as described above. Results for 1997 include a charge of $13.0 million related to the Avoca natural gas storage project as more fully described in Note C to the consolidated financial statements. Excluding the nonrecurring items in both periods, operating income decreased $5.6 million to $46.9 million in 1998 due primarily to warmer weather and lower margins from marketed natural gas sales. 15 16 DISTRIBUTION OPERATIONS
1999 1998 1997 -------- -------- -------- (THOUSANDS) FINANCIAL DATA Net revenues............................................... $144,969 $133,393 $136,729 Operating costs............................................ 73,179 85,130 85,663 Depreciation, depletion and amortization................... 17,086 14,986 14,149 Restructuring and impairment charge........................ -- 2,892 -- -------- -------- -------- Operating income........................................... $ 54,704 $ 30,385 $ 36,917 ======== ======== ======== VALUE DRIVERS Degree days (normal = 5,964)............................... 5,485 4,808 5,919 O&M* per customer.......................................... $ 254.85 $ 311.94 $ 309.61 Volumes (MMcf): Residential.............................................. 25,431 22,641 28,503 Commercial industrial.................................... 22,209 19,165 21,383 -------- -------- -------- Total natural gas sales and transportation............ 47,640 41,806 49,886 ======== ======== ========
- --------------- * O&M is defined for this calculation as the sum of operating and maintenance and selling, general and administrative expenses, excluding other taxes. Weather in the distribution service territory during 1999 was 8% warmer than normal (normal is based on the 30-year average determined by the National Oceanic and Atmospheric Administration) but 14% cooler than 1998. Total system throughput increased 5.8 billion cubic feet (Bcf) primarily as a result of the cooler weather's effect on residential and commercial customers who use natural gas for heating. Net revenues for the distribution operations increased 8.7% from 1998 to 1999. The increase in net revenues for 1999 is due to the impact of weather that was 14% colder than the prior year. In addition, total margin from delivery service customers was higher in 1999, reflecting higher average delivery service rates and slightly higher volumes transported. Operating expenses for the distribution operations for 1999 decreased 12.4% from 1998. Results for 1998 period include $2.9 million related to the restructuring of utility segment operating functions and consolidation of facilities. Excluding the restructuring charge in 1998, operating expenses decreased $9.9 million, or 9.8%, over the $100.1 million in 1998. The decrease in 1999 is due principally to restructuring initiatives begun in the fourth quarter of 1998. Operating income for 1999 increased 64.4% from the operating income of 1998, excluding the impact of restructuring charges. The increase was due primarily to higher throughput, resulting from the colder weather and lower operating expenses due to restructuring initiatives begun in the fourth quarter of 1998. Net revenues for the distribution operations decreased 2.4% from 1997 to 1998. The decrease in net revenues for 1998 is due to the impact of weather that was 19% warmer than the prior year. This decrease was partially offset by an increase in net revenues from fixed monthly customer charges of $12.5 million, which reduced the earnings impact of the lower throughput. Operating expenses of $100.1 million for 1998, excluding restructuring charges of $2.9 million, were substantially unchanged from the $99.8 million for 1997. Operating income of $33.3 million for 1998, excluding the impact of restructuring charges, decreased $3.6 million, or 9.9%, from the operating income of $36.9 million for 1997. The decrease was due primarily to lower throughput resulting from the warmer weather, partially offset by the impact of the new rate structure. 16 17 PIPELINE OPERATIONS
1999 1998 1997 ------- ------- ------- (THOUSANDS) FINANCIAL DATA Net revenues................................................ $73,273 $51,344 $60,575 Operating costs............................................. 32,607 28,611 34,433 Depreciation, depletion and amortization.................... 18,312 5,299 5,006 Restructuring and impairment charge......................... -- 8,771 13,000 ------- ------- ------- Operating income............................................ $22,354 $ 8,663 $ 8,136 ======= ======= ======= VALUE DRIVERS Transportation throughput (MMBtu)........................... 76,727 67,590 75,016
Net revenues for the pipeline operations increased 42.7% from 1998 to 1999. Pipeline revenues in 1999 include $15.5 million related to recognition of the rate settlement and pass-through of stranded costs described above and $1.7 million for the pass-through of FERC surcharges and products extraction costs to customers. Net revenues of $56.1 million for the period, excluding the impact of the rate settlement and extraction revenues, increased $4.8 million, or 9.4%, over the $51.3 million for the 1998 period. The increase in revenues for 1999 was due primarily to increased margins on gathering throughput and increased storage service revenues. Operating expenses increased 19.3% in 1999 over 1998. The operating expenses for 1999 include $11.6 million of amortization expense related to the stranded plant from recognition of the rate settlement, $1.7 million of products extraction costs and $4.0 million for utility segment process improvements as more fully described above. Operating expenses for 1998 include restructuring charges of $8.8 million as more fully described in Note C to the consolidated financial statements. Operating expenses, excluding the nonrecurring charges in both periods, were substantially the same. Excluding the nonrecurring items in both periods, operating expenses of $33.6 million reflected a decrease of $0.3 million from $33.9 million in 1998. Excluding the impact of nonrecurring charges in both periods, operating income of $22.4 million for 1999 increased $4.9 million, or 28.2%, from the operating income of $17.4 million for 1998. The increase in operating income is due primarily to increased revenues from the pipeline gathering and storage services and the benefit of restructuring initiatives. Net revenues for the pipeline operations decreased 15.2% in 1998 from 1997. The decrease in revenues for 1998 was due primarily to lower unit margin rates and reduced revenues from extraction services resulting from a change in the contract arrangements. Operating expenses decreased 18.6% from 1997 to 1998. The operating expenses for 1998 and 1997 include nonrecurring charges of $8.8 million and $13.0 million, respectively, as more fully described above. The decrease in expenses for 1998, excluding nonrecurring charges, was due primarily to lower expenses for extraction services resulting from a change in the contract arrangements, lower benefits costs reflecting regulatory treatment and lower corporate overhead costs. Excluding the impact of nonrecurring charges in both periods, operating income of $17.4 million for 1998 decreased $3.7 million, or 17.5%, from the operating income of $21.1 million for 1997. The decrease in operating income is due primarily to lower margins due to the 1997 base rate case partially offset by reduced operating costs. 17 18 ENERGY MARKETING
1999 1998 1997 -------- -------- -------- (THOUSANDS) FINANCIAL DATA Net revenues............................................... $ 9,658 $ 6,603 $ 9,464 Operating costs............................................ 5,877 10,161 14,387 Depreciation, depletion and amortization................... 198 285 624 Restructuring and impairment charge........................ -- 3,030 -- -------- -------- -------- Operating income (loss).................................... $ 3,583 $ (6,873) $ (5,547) ======== ======== ======== VALUE DRIVERS Marketed gas sales (MMBtu)................................. 181,453 134,455 111,031 Net revenue/MBtu........................................... $ 0.0513 $ 0.0471 $ 0.0740
The increase in gross margins in 1999 is attributable to increased throughput and more extensive use of storage. The increased volume in 1999 compared to 1998 is a result of the addition of residential customer choice programs in Pennsylvania and Ohio and increased utility/marketing company volumes transported during the 1999 winter heating season. Gross margin per MMBtu was also higher in 1999, due primarily to the residential choice programs and greater volatility in weather in 1999. The 1999 decrease in operating costs is primarily due to a significant staff reduction and office closings completed as part of the corporate-wide restructuring in the fourth quarter of 1998. Net revenues decreased by $2.9 million in 1998 from 1997. A large group of high margin customers were renewed at lower rates reflecting the highly competitive nature of the business. Also in the last half of 1998, the business yielded lower margins due to decreased throughput for large industrial steel producing clients. SG&A expenses decreased from 1997 to 1998 by $4.2 million. The decreases were due primarily to decreased consulting costs and reduced staffing and office closures. Included in 1998 operating costs is a $3.0 million restructuring charge for office closings and personnel reductions. EQUITABLE PRODUCTION Production operations comprise the production and sale of natural gas, natural gas liquids and crude oil through Equitable Production Company (Equitable Production). In 1999, the exploration and production operations conducted by Equitrans were transferred to Equitable Production - East from Equitable Utilities. The financial results of both segments have been restated to reflect the new structure for all periods presented. EQUITABLE PRODUCTION - EAST In the Appalachian Region during 1999, 153 gross wells were drilled at a success rate of 100%. This drilling was concentrated within the core areas of southwest Virginia and southeast Kentucky. This activity resulted in an additional 9 Mcf per day of gas sales and proved reserve additions of 46.5 Bcfe. EQUITABLE PRODUCTION - GULF In the Gulf Region during 1999, 11 gross wells were drilled at a success rate of 82%. This activity resulted in additions of 48.5 Bcfe. The increase is the result of successful development of the West Cameron Block 180 and 198 fields and South Marsh Island 39 field. Equitable Production operates both fields. Equitable Production also participated in exploratory activity during the year, including a successful well at South Timbalier 196, in which Equitable Production has a 50% working interest. Unsuccessful exploratory activity during 1999 on the West Cameron 575 and the Eugene Island 44 blocks resulted in dry hole expense of approximately $2.5 million in 1999. 18 19 CAPITAL EXPENDITURES Equitable Production has set the 2000 capital expenditure level at $116 million. This includes $46 million for exploration and development drilling in the Gulf of Mexico and $70 million for development of Appalachian holdings, including $4 million for improvements to gathering system pipelines. The evaluation of new prospects, market forecasts and price trends for natural gas and oil will continue to be the principal factors for the economic justification of drilling investments. EQUITABLE PRODUCTION
YEARS ENDED DECEMBER 31 -------------------------------- 1999 1998 1997 -------- -------- -------- (THOUSANDS) FINANCIAL DATA Operating revenues......................................... $211,821 $200,479 $251,396 Cost of energy purchased................................... 24,188 21,494 26,543 -------- -------- -------- Net operating revenues................................ 187,633 178,985 224,853 Operating expenses: Operation and maintenance................................ 12,956 13,991 31,579 Lease operating expense.................................. 26,206 30,289 31,851 Dry hole................................................. 2,455 23,101 2,738 Other exploration........................................ 6,833 4,110 4,523 Selling, general and administrative...................... 26,003 30,783 30,922 Depreciation, depletion and amortization................. 58,565 56,380 50,418 Restructuring charges.................................... -- 44,675 2,200 -------- -------- -------- Total operating expenses.............................. 133,018 203,329 154,231 -------- -------- -------- Operating income (loss).................................... $ 54,615 $(24,344) $ 70,622 ======== ======== ======== Capital expenditures....................................... $ 92,099 $126,752 $185,558 VALUE DRIVERS Natural gas sales (MMcf)................................... 63,863 59,551 56,847 Crude oil sales (MBbls).................................... 1,070 996 1,544 Natural gas liquids sales (MGals.)......................... 66,072 67,137 65,525 Produced natural gas and oil (MMcfe)....................... 72,745 68,110 68,215 Average selling prices: Natural gas (per Mcf).................................... $ 2.39 $ 2.41 $ 2.40 Crude oil (per barrel)................................... $ 15.53 $ 13.59 $ 17.23 Natural gas liquids (per gallon)......................... $ 0.30 $ 0.27 $ 0.38
Net operating revenues, which are derived primarily from the sale of produced natural gas, crude oil and natural gas liquids, increased 4.8% from 1998 to 1999. The increase in net operating revenues of $8.6 million in 1999 compared to 1998, is due primarily to increases in natural gas sales volumes ($7.8 million), crude oil sales prices ($3.1 million), and natural gas liquids sales prices ($2.1 million). These improvements were offset somewhat by a $1.3 million reduction in transportation revenues due to lower throughput. In addition, 1998 includes $2.6 million of direct bill revenues resulting from a FERC pricing settlement, as described in Note D to the consolidated financial statements. Operating expenses decreased 34.6% in 1999 from 1998. The 1998 expenses include nonrecurring items primarily associated with write-downs of the carrying value of assets of approximately $44.7 million. The 1998 operating expenses also include $23.1 million of dry hole expense associated with the unsuccessful drilling of five exploratory prospects offshore in the Gulf of Mexico compared to $2.5 million in 1999 associated with two exploratory prospects. Other exploration expenses increased $2.7 million in 1999 due primarily to a lease impairment and the impairment of an equity investment in an oil and natural gas production company. Depreciation, depletion and amortization (DD&A) increased $2.2 million in 1999 because of increased 19 20 production and a $1.0 million impairment associated with the abandonment of a processing facility. Also included in 1999 operating expenses is $2.8 million related to process improvements, including the Company's decision to close its regional office in Kingsport, Tennessee, consolidate administration and realign field offices; $2.0 million of charges related to the decertification of Kentucky West Virginia Gas Company; and $1.8 million in performance-related compensation. Partially offsetting these items are $700,000 and $1.0 million reductions in environmental and pension liabilities, respectively. The decrease in operating expenses in 1999 of approximately $14.6 million, excluding the items above, is due to continued improvements in operating efficiencies and decreased staff, as a result of the initiatives begun in 1998. Net operating revenues decreased 20.4% from 1997 to 1998. Included in 1997 are $5.2 million additional revenues from direct bill settlements as described in Note D to the consolidated financial statements, $18.3 million from contract drilling services associated with Union Drilling, a contract drilling operation which the Company sold in 1997, and $22.8 million from the western United States and Canada oil and natural gas properties sold in 1997. The decrease in net operating revenues of $0.5 million in 1998 compared to 1997, excluding nonrecurring amounts and sold operations, is due primarily to decreases in commodity prices and reduced transportation revenues from affiliated companies. These decreases are essentially offset by increased natural gas and crude oil production excluding production associated with the operations in the western United States and Canada. Operating expenses for 1998 increased 32% from 1997. The 1998 operating expenses include the restructuring charges of $44.7 million discussed above. The 1998 operating expenses also include approximately $23.1 million of dry hole expense primarily associated with unsuccessful drilling of five exploratory prospects offshore Gulf of Mexico. Included in the 1997 amounts is approximately $34.4 million of operating expenses associated with the assets sold in 1997. The increase in operating expenses in 1998, excluding the nonrecurring items and sold operations, is primarily due to higher DD&A from increased production. Additionally, production expenses increased $4.5 million in the Gulf operations as a result of a full year of the 1997 acquisition of West Cameron 180 and 198 fields. PRODUCTION - EAST OPERATIONS
1999 1998 1997 -------- -------- -------- (THOUSANDS) FINANCIAL DATA Net operating revenues..................................... $122,739 $126,450 $154,517 Operating costs............................................ 53,064 55,940 56,689 Depreciation, depletion and amortization................... 29,141 28,728 28,905 Restructuring charges...................................... -- 7,575 -- -------- -------- -------- Operating income........................................... $ 40,534 $ 34,207 $ 68,923 ======== ======== ======== VALUE DRIVERS Natural gas sales (MMcf)................................... 40,763 40,649 40,940 Crude oil sales (MBbls).................................... 445 502 531 Natural gas liquids sales (MGals).......................... 59,062 61,878 61,900 Average selling prices: Natural gas (per Mcf).................................... $ 2.46 $ 2.47 $ 2.60 Crude oil (per barrel)................................... $ 14.33 $ 11.22 $ 17.12 Natural gas liquids (per gallon)......................... $ 0.30 $ 0.27 $ 0.38 LOE/Mcfe sales............................................. $ 0.445 $ 0.463 $ 0.450 G&A/Mcfe sales............................................. $ 0.438 $ 0.473 $ 0.467 Depletion/Mcfe produced.................................... $ 0.418 $ 0.445 $ 0.447
Net operating revenues for the East operations decreased 3% from 1998 to 1999. The decrease in net operating revenues of $3.7 million in 1999 compared to 1998 is primarily attributable to a $1.3 million reduction in transportation revenues in 1999 due to lower throughput and the direct bill settlements recognized in 1998 of 20 21 $2.6 million. These unfavorable variances are partially offset by the positive effects of higher crude oil and natural gas liquids prices. Operating expenses decreased 11% in 1999 from 1998. The decrease in operating expenses of $10 million in 1999 is due primarily to the $7.6 million of nonrecurring items in 1998 primarily associated with write-downs of the carrying value of assets. The remaining positive variance is due to continued improvements in operating efficiencies and decreased staff partially offset by charges for 1999 process improvements discussed in the Equitable Production comparison above. Net operating revenues decreased 18% from 1997 to 1998 primarily due to lower commodity prices and reduced transportation revenues from affiliated companies. In addition, 1997 includes $5.2 million of additional revenues from direct bill settlements. Operating expenses for 1998 were $6.6 million higher than 1997 due to the $7.6 million of restructuring charges recorded in 1998. PRODUCTION - GULF OPERATION
1999 1998 1997 ------- -------- ------- (THOUSANDS) FINANCIAL DATA Net operating revenues...................................... $64,894 $ 52,535 70,336 Operating costs............................................. 21,389 46,334 44,925 Depreciation, depletion and amortization.................... 29,424 27,652 21,512 Restructuring charges....................................... -- 37,100 2,200 ------- -------- ------- Operating income (loss)..................................... $14,081 $(58,551) $ 1,699 ======= ======== ======= VALUE DRIVERS Natural gas sales (MMcf).................................... 23,100 18,902 15,907 Crude oil sales (MBbls)..................................... 625 494 1,013 Natural gas liquids sales (MGals)........................... 7,010 5,259 3,625 Average selling prices: Natural gas (per Mcf)..................................... $ 2.26 $ 2.28 $ 1.88 Crude oil (per barrel).................................... $ 16.38 $ 15.99 $ 17.30 Natural gas liquids (per gallon).......................... $ 0.26 $ 0.16 $ 0.36 LOE/Mcfe sales.............................................. $ 0.256 $ 0.461 $ 0.544 G&A/Mcfe sales.............................................. $ 0.260 $ 0.463 $ 0.469 Depletion/Mcfe produced..................................... $ 1.090 $ 1.216 $ 0.849
Net operating revenues for the Gulf operations increased 24% from 1998 to 1999. The increase in net operating revenues of $12.4 million in 1999 compared to 1998, is due primarily to increases in natural gas and crude oil sales volumes of $8.0 million and $2.1 million, respectively. In addition, higher commodity prices in 1999 contributed $1.8 million to the increase in net operating revenues. Operating expenses decreased 54.3% in 1999 from 1998. The 1998 expenses include $37.1 million of restructuring charges and $23.1 million of dry hole expense associated with the unsuccessful drilling of five wells. In 1999, two unsuccessful exploratory wells were drilled for a total of $2.5 million of dry hole cost. Other exploration expenses increased $2.0 million in 1999 due primarily to a lease impairment and the impairment of an equity investment in an oil and natural gas production company. DD&A increased $1.8 million in 1999 because of increased production. The remaining positive variance of $6.2 million is due to continued improvements in operating efficiencies and decreased staff. Net operating revenues decreased 25.3% from 1997 to 1998. Revenues in 1997 include $41.1 million associated with Union Drilling and the western United States and Canada operations, which were all sold during 1997. The increase in operating revenues of $23.3 million in 1998 compared to 1997, excluding sold operations, 21 22 is due primarily to increased production of natural gas and crude oil from the acquisition of West Cameron 180 and 198 in the fourth quarter 1997. Operating expenses for 1998 increased 61.8% from 1997. Excluding the 1998 restructuring charges and dry hole expenses, which are discussed above, and $34.4 million of 1997 operating costs related to the assets sold in that year, total operating expenses increased $16.7 million in 1998 compared with 1997. This increase is due primarily to higher depreciation and depletion from increased production. Additionally, production expenses increased $4.5 million as a result of a full year of the 1997 acquisition of the West Cameron 180 and 198 fields. NORESCO NORESCO provides energy and energy related products and services that are designed to reduce its customers' operating costs and improve their productivity. NORESCO's customers include commercial, governmental, institutional and industrial end-users. The majority of NORESCO's revenue and earnings comes from energy saving performance contracting services. NORESCO provides the following integrated energy management services: project development and engineering analysis; construction; management; financing; equipment operation and maintenance; and energy savings metering, monitoring and verification. NORESCO also manages the segment's facilities management division, which develops and operates private power, cogeneration and central plant facilities in the U.S. and selected international markets.
1999 1998 1997 -------- -------- ------- (THOUSANDS) FINANCIAL DATA Energy service contracting revenues......................... $169,633 $109,493 $52,790 Energy service contract cost................................ 133,088 80,800 37,164 -------- -------- ------- Gross margin........................................... 36,545 28,693 15,626 -------- -------- ------- Operating expenses: Selling, general and administrative....................... 19,889 19,218 15,298 Depreciation, depletion and amortization.................. 6,078 4,300 2,775 Restructuring charges..................................... -- 2,716 200 -------- -------- ------- Total operating expenses............................... 25,967 26,234 18,273 -------- -------- ------- Operating income (loss)..................................... 10,578 2,459 (2,647) Other income................................................ 2,863 2,667 -- -------- -------- ------- Earnings (loss) before interest and taxes................... $ 13,441 $ 5,126 $(2,647) ======== ======== ======= Capital expenditures........................................ $ 6,041 $ 11,102 $28,096 VALUE DRIVERS Contract backlog at December 31 (thousands)................. $ 57,299 $ 77,270 $15,296 Gross profit margin......................................... 21.5% 26.2% 29.7% SG&A as a % of revenue...................................... 11.7% 17.6% 29.0% Development expense as a % of revenue....................... 2.6% 3.3% 2.6%
Revenues increased from 1998 to 1999 by $60.1 million, or 55%, reflecting the continued expansion of the business. Total construction completed during 1999 was $151.8 million, an increase of $72.0 million over 1998. Gross margins from energy services contracting activities decreased to 21.5% in 1999 from 26.2% in 1998. The deterioration in gross margin results mainly from the higher proportion of lower margin government contracts implemented in 1999. SG&A expenses increased from 1998 to 1999 by $0.7 million. Increases during 1999 include project development expense of $0.8 million, marketing expense of $0.2 million and rent expense of $0.1 million which were partially offset by a $0.7 million reduction in corporate overhead expense. 22 23 Depreciation, depletion and amortization (DD&A) expense increased from 1998 to 1999 by $1.8 million, or 41.3%. This increase is primarily due to the company's cogeneration facility in Jamaica which was put into service in February 1999. Other income of $2.9 million in 1999 and $2.7 million in 1998 reflects NORESCO's share of the earnings from its equity investments in power plant assets, primarily a 50 mega-watt facility in Panama which is 50% owned by the company. A 96 mega-watt facility in Panama and a 7 mega-watt facility in Providence, RI were brought on line in late 1999. Revenues increased from 1997 to 1998 by $56.7 million. On an annualized basis, NORESCO's revenues increased by 74% from 1997 to 1998 reflecting both the continued expansion of the business and a movement toward higher value contracts. Total construction completed during 1998 was $79.7 million, an increase of $49.0 million over 1997. Gross margins from energy services contracting activities decreased to 26.2% in 1998 from 29.7% in 1997. The deterioration in gross margin is a result of a change in the mix of contracts due to the increase in revenues from the lower margin government market and increased competition. SG&A expenses increased from 1997 to 1998 by $3.9 million. Increases in corporate overhead expense of $2.0 million and NORESCO's SG&A of $6.0 million (12 months in 1998 compared to 7 months in 1997) were partially offset by expense reductions in NORESCO's facilities management division of $2.1 million. ERI Services reduced SG&A expense by $3.2 million in 1998, reflecting a shift away from a start-up enterprise focused mainly on business and staff development and toward a focus on implementation and construction of contract assets. DD&A expense increased from 1997 to 1998 by $1.5 million. This increase reflects goodwill amortization for the full year in 1998 of $3.7 million as compared to $2.2 million in 1997. 1998 AND 1997 RESTRUCTURING, IMPAIRMENT AND OTHER NONRECURRING CHARGES During 1998, management expressed its intention to focus on fundamental strengths in its core businesses. In October 1998, the Company's Board of Directors approved a restructuring plan. As a result of this plan, along with its earlier decision to discontinue and sell the natural gas midstream business, and the sustained decrease in oil and natural gas commodity prices, the Company took specific actions to reduce its overall cost structure. Certain of the actions taken by the Company resulted in pretax impairment, restructuring and other nonrecurring charges in the fourth quarter of 1998 amounting to $81.8 million. The restructuring activities (shown below in tabular format) primarily relate to the following: The elimination of employment positions Company-wide: Early in the fourth quarter of 1998, the Company announced that the restructuring plan would eliminate a substantial number of positions. Related charges included severance packages, cash payments made directly to terminated employees as well as outplacement services and noncash charges for curtailment of certain defined benefit pension and other postretirement benefit plans. A total of 164 employees terminated employment. Redirection of offshore Gulf production: As a result of the decrease in oil and natural gas prices and unsuccessful drilling results in several of the Company's nonoperated blocks, a review of the Gulf operations was undertaken. The Company eliminated several layers of management and focused its operations on lower risk, Company-operated exploration and development. In addition, the production and commodity price trends indicated that the undiscounted cash flows from this division would be substantially less than the carrying value of the producing properties. Producing property write-downs were measured based on a comparison of the assets' net book value to the net present value of the properties' estimated future net cash flows. The undeveloped leases no longer intended to be developed were written down to estimated market value less costs to dispose. Improved integration of Appalachian production operations: To improve the efficiency of Appalachian production operations, the Company obtained authority in 1999 from the Federal Energy Regulatory Commission to decertify the pipeline facilities of Kentucky West Virginia Gas Company, LLC. 23 24 Decentralization of administrative functions: In the fall of 1998, management initiated a major decentralization and downsizing of administrative functions. Costs incurred, in addition to severance and other employee separation costs described above, included one-time costs for third party processing, costs to make assets available for sale, lease cancellations for office and computer equipment and noncash charges for the write-down of assets no longer in use and subsequently sold. Exiting certain noncore businesses: As a result of the continued evaluation of profitability of the Company's nonregulated retail natural gas sales business, the Company has refocused its marketing along core regional lines and eliminated five field offices. In addition, the Company intends to curtail its involvement in several auxiliary business ventures, such as radio dispatch operations and residential real estate development, and has written these investments down to net realizable value.
RESERVE RESERVE CASH/ RESTRUCTURING 1998 BALANCE AT 1999 BALANCE AT NONCASH CHARGE ACTIVITY 12/31/98 ACTIVITY 12/31/99 ------- ------------- -------- ---------- -------- ---------- 1998 (MILLIONS) Elimination of employment positions Company-wide: Severance and other employment packages........................... Cash $ (8.2) $ 2.6 $(5.6) $5.6 $-- Pension/other benefit plan curtailments....................... Noncash (2.1) 2.1 -- -- -- Other................................ Cash (0.8) 0.5 (0.3) 0.3 -- Redirection of offshore Gulf production: Impairment of undeveloped leases..... Noncash (15.9) 15.9 -- -- -- Impairment of producing properties... Noncash (19.6) 19.6 -- -- -- Improved integration of Appalachian production operations: Impairment of regulatory assets...... Noncash (4.0) 4.0 -- -- -- Impairment of undeveloped leases..... Noncash (1.4) 1.4 -- -- -- Decentralization of administrative functions: Impairment of headquarters building........................... Noncash (5.1) 5.1 -- -- -- Impairment of enterprise-wide computer system.................... Noncash (7.7) 7.7 -- -- -- Impairment of other assets........... Noncash (3.3) 3.3 -- -- -- Exiting certain noncore businesses: Office closing/lease buyout.......... Cash (1.7) 1.6 (0.1) 0.1 -- Impairment of radio system assets/buyout lease................ Noncash/Cash (3.3) 2.1 (1.2) 1.2 -- Impairment of investments............ Noncash (1.5) 1.5 -- -- -- Impairment of other assets........... Noncash (3.6) 3.6 -- -- -- Impairment of pipeline stranded costs.............................. Noncash (3.6) 3.6 -- -- -- ------ ----- ----- ---- --- Total.................................... $(81.8) $74.6 $(7.2) $7.2 $-- ====== ===== ===== ==== ===
24 25 In 1997, the Company recognized an impairment charge of $13.0 million related to its investment in a proposed bedded-salt natural gas storage project and began the restructuring of its headquarters and nonregulated energy sales offices. These latter actions resulted in an operating charge in that quarter of $11.1 million. The 1997 restructuring activities primarily relate to the following:
RESERVE RESERVE CASH/ RESTRUCTURING 1997 BALANCE AT 1998 BALANCE AT NONCASH CHARGE ACTIVITY 12/31/97 ACTIVITY 12/31/98 ------- ------------- -------- ---------- -------- ---------- 1997 (MILLIONS) Downsize headquarters staff: Severance packages.............. Cash $ (3.1) $ 2.8 $(0.3) $0.3 $-- Terminate consulting contracts..................... Cash (2.1) 2.1 -- -- -- Impairment of assets............ Noncash (1.7) 1.7 -- -- -- Impairment of investments....... Noncash (2.2) 2.2 -- -- -- Airplane lease exit costs....... Cash (1.7) 1.7 -- -- -- Other........................... Cash (0.3) 0.3 -- -- -- Exit Avoca storage project: Impairment of investment........ Noncash (12.7) 12.7 -- -- -- Other........................... Cash (0.3) 0.3 -- -- -- ------ ----- ----- ---- --- Total......................... $(24.1) $23.8 $(0.3) $0.3 $-- ====== ===== ===== ==== ===
OTHER INCOME STATEMENT ITEMS OTHER INCOME
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ------ ------ ------- Other income (thousands): Gain on sale of assets.................................... $ -- $ -- $50,120 Equity earnings of nonconsolidated subsidiaries........... 2,863 2,667 -- ------ ------ ------- Total other income..................................... $2,863 $2,667 $50,120 ====== ====== =======
In 1997, Equitable Production entered into sales agreements for $170 million with five purchasers covering its crude oil and natural gas properties in the western United States and Canada. Also in 1997, Equitable Production sold its Union Drilling division, a contract drilling company. These asset sales in 1997 resulted in pretax gains of $50.1 million. There were no other significant changes in other income between 1999 and 1997. INTEREST CHARGES
YEARS ENDED DECEMBER 31, ------------------------------- 1999 1998 1997 ------- ------- ------- Interest charges (thousands)................................ $37,132 $40,302 $34,903 ======= ======= =======
Interest costs decreased in 1999 as a result of an $86 million decrease in average debt outstanding, due to proceeds from the sale in late 1998 of the natural gas midstream operations, lower capital expenditures and improved cash flows from operations. The savings from the lower debt level were partially offset by a slightly higher overall interest rate, due to the full year effect of the Preferred Trust Debentures issued in 1998. Interest costs increased in 1998 as a result of a $44 million increase in average debt outstanding during the year and an increase in the Company's average overall interest rate. The increase in debt outstanding was due to increased capital spending for Gulf of Mexico and midstream projects completed during 1998. The increased rate is due to the April 1998 issuance of 7.35% Preferred Trust Debentures, which replaced lower rate commercial paper borrowings. Interest charges for 1998 and 1997 exclude interest related to discontinued operations sold in 1998. Average annual interest rates on short-term debt remained relatively constant, in a range of 5.0% to 5.7%, throughout the three-year period. 25 26 CAPITAL RESOURCES AND LIQUIDITY WORKING CAPITAL During 1998, the Company divested its natural gas midstream operations. Prior to this divestiture, these operations had entered into large volume natural gas trading contracts with expiration dates in 1999. Subsequent to the divestiture, these contracts were served out by the Energy Marketing division of Equitable Utilities. The balance in accounts receivable and payable at December 31, 1998 included $42.4 million and $44.8 million, respectively, related to these deals, which did not recur in 1999. There were no other significant changes in working capital between 1998 and 1999. HEDGING The Company's overall objective in its hedging program is to protect earnings from undue exposure to the risk of falling commodity prices. Since it is primarily a natural gas company, this leads to different approaches to hedging natural gas than for crude oil and natural gas liquids. With respect to hedging the Company's exposure to changes in natural gas commodity prices, management's objective is to provide price protection for the majority of expected production for the year 2000. Its preference is to use derivative instruments that create a price floor, in order to provide down-side protection while allowing the Company to participate in a portion of the upward price movements. This is accomplished with the use of a mix of costless collars, straight floors and some fixed price swaps. This mix allows the Company to participate in a range of prices, while protecting shareholders from significant price deterioration. In addition to this current strategy, part of the Company's portfolio of natural gas hedges is a swap entered into in 1995 as part of a financing transaction. This swap, covering about 15% of natural gas production at a NYMEX price of $1.82/Mcf, expires near the end of the year 2000. Crude oil and natural gas liquids prices are currently at relatively high levels compared to historical averages. As a result, the Company has used swaps and other derivative instruments to lock in current prices for the majority of expected production of crude oil and of natural gas liquids for the year 2000. CAPITAL EXPENDITURES The Company expended approximately $102 million in 1999 compared to $139 million in 1998 for capital expenditures. These expenditures in both years represented growth projects in the Equitable Production and NORESCO segments, and replacements, improvements and additions to plant assets in the Equitable Utilities unit. Equitable Production expenditures for 1999 in the Gulf region of $40.5 million include natural gas and crude oil production assets. Equitable Production invested $29.2 million in 1999 in the Appalachian region for new coal-bed methane and conventional natural gas wells. NORESCO expended $6.0 million for international power project development, in addition to its investment in nonconsolidated subsidiaries, described below. The Utilities segment expended $25.3 million for distribution plant replacements and improvements. A total of $166 million has been authorized for the 2000 capital expenditure program, described in more detail in the segment discussions above. The Company expects to finance this program with cash generated from operations and with short-term loans. INVESTMENTS IN NONCONSOLIDATED SUBSIDIARIES The Company, within the NORESCO segment, has equity ownership interests in independent power plant (IPP) projects located domestically and in select international countries. Long-term power purchase agreements (PPAs) are signed with the customer whereby they agree to purchase the energy generated by the plant. The length of these contracts range from 5 to 30 years. The Company has invested approximately $29.3 million in these operations since January 1998. The Company's share of the earnings for this same time period is approximately $5.5 million. These projects generally are financed on a project basis with nonrecourse financings established at the foreign subsidiary level. 26 27 ACQUISITIONS AND DISPOSITIONS In December 1999, the Company acquired Carnegie Natural Gas Company and subsidiaries for $40 million, including natural gas distribution, pipeline, exploration and production operations. The Company financed this purchase with commercial paper borrowings. In February 2000, the Company acquired the Appalachian production assets of Statoil Energy Inc. for $630 million plus working capital. The Company initially funded this acquisition through commercial paper, to be replaced by a combination of financings and cash from asset sales. In March 2000, the Company agreed to merge Equitable Production - Gulf with Westport, Inc., an oil and natural gas exploration and development company based in Denver, Colorado, for a 49% ownership interest in the combined entity. The combined company intends to repay $50 million of Equitable Production - Gulf intercompany debt and replace it with third party debt. SHORT-TERM BORROWINGS Cash required for operations is affected primarily by the seasonal nature of the Company's natural gas distribution operations and the volatility of oil and natural gas commodity prices. Short-term loans are used to support working capital requirements during the summer months and are repaid as natural gas is sold during the heating season. Bank loans and commercial paper, supported by available credit, are used to meet short-term financing requirements. Interest rates on these short-term loans averaged 5.26% during 1999. The Company maintains a revolving credit agreement with a group of banks providing $500 million of available credit, which expires in 2001. In addition, in January 2000, the Company obtained an additional $500 million, 364-day revolving credit agreement to back the issuance of commercial paper. Effective February 1, 2000, the Company has the authority and credit backing to support a $1 billion commercial paper program. This program is being used to finance the acquisition of the Appalachian oil and natural gas properties of Statoil Energy, Inc. described above, as well as ongoing working capital and other short-term financing requirements. FINANCING The Company has adequate borrowing capacity to meet its financing requirements. In July 1999, the Company repaid $75 million of 7 1/2% debentures, using cash proceeds received in 1998 from the sale of its natural gas midstream operations. In 1999, the Company received proceeds of $17.0 million from the issuance of nonrecourse debt used to finance a cogeneration facility owned by a subsidiary of the Company and located in Jamaica. The note is backed by the assets of the Jamaican facility. Beginning in October 1998, the Company has undertaken a stock buyback program. Total purchases under the program of 4.7 million shares include 3.3 million shares of stock repurchased in 1999 for $101.4 million. In total, the Company has repurchased 12.7% of shares outstanding at December 31, 1997. Cash generated in all years was partially offset by the payment of the Company's dividends on common shares, which for 1999 and 1998 were $40.4 million and $43.8 million, respectively. RATE REGULATION Accounting for the operations of Equitable's Utilities segment is in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." As described in Note A to the consolidated financial statements, regulatory assets and liabilities are recorded to reflect future collections or payments through the regulatory process. The Company believes that it will continue to be subject to rate regulation that will provide for the recovery of deferred costs. 27 28 ENVIRONMENTAL MATTERS Equitable and its subsidiaries are subject to extensive federal, state and local environmental laws and regulations that affect their operations. Governmental authorities may enforce these laws and regulations with a variety of civil and criminal enforcement measures, including monetary penalties, assessment and remediation requirements and injunctions as to future activities. Management does not know of any environmental liabilities that will have a material effect on Equitable's financial position or results of operations. The Company has identified situations that require remedial action for which approximately $4.0 million is accrued at December 31, 1999. Environmental matters are described in Note U to the consolidated financial statements. INFLATION AND THE EFFECT OF CHANGING ENERGY PRICES The rate of inflation in the United States has been moderate over the past several years and has not significantly affected the profitability of the Company. In prior periods of high general inflation, oil and natural gas prices generally increased at comparable rates; however, there is no assurance that this will be the case in the current environment or in possible future periods of high inflation. Regulated utility operations would be required to file a general rate case in order to recover higher costs of operations. Margins in the energy marketing business in the Equitable Utilities segment are highly sensitive to competitive pressures and may not reflect the effects of inflation. The results of operations in the Company's three business segments will be affected by future changes in oil and natural gas prices and the interrelationship between oil, natural gas and other energy prices. IMPACT OF YEAR 2000 In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company expensed approximately $1.0 million during 1999 in connection with remediating its systems. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. AUDIT COMMITTEE The Audit Committee, composed entirely of outside directors, meets periodically with Equitable's independent auditors and management to review the Company's financial statements and the results of audit activities. The Audit Committee, in turn, reports to the Board of Directors on the results of its review and recommends the selection of independent auditors. FORWARD-LOOKING STATEMENTS Disclosures in this annual report may include forward-looking statements related to projected Company plans and expected results of operations. The Company notes that a variety of factors could cause the Company's actual results to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company business include, but are not limited to, the following: weather conditions, the pace of deregulation of retail natural gas and electricity markets, the timing and extent of changes in commodity prices for natural gas and crude oil, changes in interest rates, availability of financing, the timing and extent of the Company's success in acquiring natural gas and crude oil properties and in discovering, developing and producing reserves, delays in obtaining necessary governmental approvals, the impact of competitive factors on profit margins in various markets in which the Company competes, and the successful integration of acquired companies. 28 29 ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk exposure is the volatility of future prices for natural gas, crude oil and propane, which can affect the operating results of Equitable through the Equitable Production segment and the unregulated marketing group within the Utilities segment. The Company's use of derivatives to reduce the effect of this volatility is described in Note B to the consolidated financial statements. The Company uses simple, nonleveraged derivative instruments that are placed with major institutions whose creditworthiness is continually monitored. The Company's use of these derivative financial instruments is implemented under a set of policies approved by the Board of Directors. For commodity price derivatives used to hedge Company production, Equitable sets policy limits relative to expected production and sales levels which are exposed to price risk. The level of price exposure is limited by the value at risk limits allowed by this policy. Volumes associated with future activities, such as new drilling, recompletions and acquisitions, are not eligible for hedging. Management monitors price and production levels on essentially a continuous basis and will make adjustments to quantities hedged as warranted. In general, Equitable's strategy is to become more highly hedged at prices considered to be at the upper end of historical levels. For commodity price derivatives used to hedge marketing physical positions, the marketing group will engage in financial transactions also subject to policies that limit the net positions to specific value at risk limits. In general, this marketing group considers profit opportunities in both physical and financial positions, and Equitable's policies apply equally thereto. With respect to the energy derivatives held by the Company as of December 31, 1999, a decrease of 10% in the market price of natural gas and crude oil from the December 31, 1999 levels would decrease the fair value of the natural gas instruments by approximately $.7 million and would increase the fair value of the crude oil instruments by approximately $.5 million. A 10% decrease would have minimal impact on the fair value of the propane instruments. The above analysis of the energy derivatives utilized for risk management purposes does not include the favorable impact that the same hypothetical price movement would have on the Company and its subsidiaries' physical purchases and sales of natural gas. The portfolio of energy derivatives held for risk management purposes approximates the notional quantity of the expected or committed transaction volume of physical commodities with commodity price risk for the same time periods. Furthermore, the energy derivative portfolio is managed to complement the physical transaction portfolio, reducing overall risks within limits. Therefore, an adverse impact to the fair value of the portfolio of energy derivatives held for risk management purposes associated with the hypothetical changes in commodity prices referenced above would be offset by a favorable impact on the underlying hedged physical transactions, assuming the energy derivatives are not closed out in advance of their expected term, the energy derivatives continue to function effectively as hedges of the underlying risk, and as applicable, anticipated transactions occur as expected. The disclosure with respect to the energy derivatives relies on the assumption that the contracts will exist parallel to the underlying physical transactions. If the underlying transactions or positions are liquidated prior to the maturity of the energy derivatives, a loss on the financial instruments may occur, or the options might be worthless as determined by the prevailing market value on their termination or maturity date, whichever comes first. The Company has variable rate short-term debt. As such, there is some limited exposure to future earnings due to changes in interest rates. A 100 basis point increase or decrease in interest rates would not have a significant impact on future earnings of the Company. 29 30 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE REFERENCE -------------- Report of Independent Auditors.............................. 31 Statements of Consolidated Income for each of the three years in the period ended December 31, 1999............... 32 Statements of Consolidated Cash Flows for each of the three years in the period ended December 31, 1999............... 33 Consolidated Balance Sheets December 31, 1999 and 1998...... 34 & 35 Statements of Common Stockholders' Equity for each of the three years in the period ended December 31, 1999......... 36 Notes to Consolidated Financial Statements.................. 37 - 59
30 31 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Equitable Resources, Inc. We have audited the accompanying consolidated balance sheets of Equitable Resources, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, common stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Equitable Resources, Inc. and Subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP -------------------------------- Ernst & Young LLP Pittsburgh, Pennsylvania February 14, 2000 31 32 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME YEARS ENDED DECEMBER 31,
1999 1998 1997 ---------- -------- ---------- (THOUSANDS EXCEPT PER SHARE AMOUNTS) Operating revenues........................................ $1,062,738 $870,628 $913,069 Cost of sales............................................. 610,659 471,609 467,163 ---------- -------- -------- Net operating revenues............................... 452,079 399,019 445,906 ---------- -------- -------- Operating expenses: Operation and maintenance............................... 80,879 82,744 104,200 Exploration............................................. 9,288 27,211 7,260 Production.............................................. 26,206 30,289 31,851 Selling, general and administrative..................... 92,229 103,563 100,328 Depreciation, depletion and amortization................ 100,722 85,170 76,032 Restructuring, impairment and other nonrecurring charges.............................................. -- 81,840 24,055 ---------- -------- -------- Total operating expenses............................. 309,324 410,817 343,726 ---------- -------- -------- Operating income (loss)................................... 142,755 (11,798) 102,180 Equity in earnings of nonconsolidated subsidiaries........ 2,863 2,667 -- Gain on sale of assets.................................... -- -- 50,120 ---------- -------- -------- Earnings (loss) from continuing operations, before interest & taxes........................................ 145,618 (9,131) 152,300 Interest charges.......................................... 37,132 40,302 34,903 ---------- -------- -------- Income (loss) before income taxes......................... 108,486 (49,433) 117,397 Income taxes (benefits)................................... 39,356 (22,381) 43,210 ---------- -------- -------- Net income (loss) from continuing operations before extraordinary loss...................................... 69,130 (27,052) 74,187 Income (loss) from discontinued operations after taxes.... -- (8,804) 3,870 Extraordinary loss after taxes -- early extinguishment of debt.................................................... -- (8,263) -- ---------- -------- -------- Net income (loss)......................................... $ 69,130 $(44,119) $ 78,057 ========== ======== ======== Earnings (loss) per share of common stock: Basic: Continuing operations, before extraordinary loss..... $ 2.03 $ (0.73) $ 2.06 Discontinued operations.............................. -- (0.24) 0.11 Extraordinary loss -- early extinguishment of debt... -- (0.22) -- ---------- -------- -------- Net income (loss).................................... $ 2.03 $ (1.19) $ 2.17 ========== ======== ======== Diluted: Continuing operations, before extraordinary loss..... $ 2.01 $ (0.73) $ 2.05 Discontinued operations.............................. -- (0.24) 0.11 Extraordinary loss -- early extinguishment of debt... -- (0.22) -- ---------- -------- -------- Net income (loss).................................... $ 2.01 $ (1.19) $ 2.16 ========== ======== ========
See notes to consolidated financial statements. 32 33 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS YEARS ENDED DECEMBER 31,
1999 1998 1997 --------- --------- -------- (THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) from continuing operations, before extraordinary items..................................... $ 69,130 $ (27,052) $ 74,187 --------- --------- -------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of assets.................................. -- 75,245 13,000 Exploration expense................................... 9,288 27,211 7,260 Depreciation, depletion and amortization.............. 100,722 85,170 76,032 Gain on sale of property.............................. -- -- (50,120) Amortization of construction contract costs........... 23,100 8,271 7,925 Deferred income taxes (benefits)...................... 14,635 (29,537) 31,008 Changes in other assets and liabilities: Accounts receivable and unbilled revenues.......... 42,639 117,521 (59,015) Contract receivables............................... (25,170) 459 (4,000) Deferred purchased gas cost........................ 10,370 5,646 16,026 Prepaid expenses and other......................... (19,460) 32,353 (12,858) Accounts payable................................... (66,535) (121,396) 54,254 Deferred revenue................................... (13,867) (16,529) (22,156) Other -- net....................................... 28,543 (31,186) (28,003) --------- --------- -------- Total adjustments................................ 104,265 153,228 29,353 --------- --------- -------- Net cash provided by continuing operating activities................................... 173,395 126,176 103,540 Net cash (used in) provided by discontinued operations................................... -- (24,473) 18,321 --------- --------- -------- Net cash provided by operating activities...... 173,395 101,703 121,861 --------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures on continuing operations............. (101,991) (158,714) (227,360) Capital expenditures on discontinued operations........... -- (32,004) (32,835) Carnegie acquisition...................................... (40,128) -- -- Increase in investment in nonconsolidated subsidiaries.... (23,436) (17,010) (427) Proceeds from sale of property............................ 8,935 338,255 181,566 --------- --------- -------- Net cash provided by (used in) investing activities....................................... (156,620) 130,527 (79,056) --------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock.................................. -- 2,496 6,631 Purchase of treasury stock................................ (94,615) (37,747) (28,596) Dividends paid............................................ (40,384) (43,800) (42,679) Proceeds from issuance of nonrecourse note for project financing............................................... 17,000 -- -- Purchase of debt due 2000 through 2026.................... -- (68,556) -- Proceeds from preferred trust securities.................. -- 125,000 -- Repayments and retirements of long-term debt.............. (74,972) (10,880) -- Increase (decrease) in short-term loans................... 91,783 (165,741) 76,544 --------- --------- -------- Net cash provided (used) by financing activities... (101,188) (199,228) 11,900 --------- --------- -------- Net increase (decrease) in cash and cash equivalents........ (84,413) 33,002 54,705 Cash and cash equivalents at beginning of year.............. 102,444 69,442 14,737 --------- --------- -------- Cash and cash equivalents at end of year.................... $ 18,031 $ 102,444 $ 69,442 ========= ========= ======== CASH PAID DURING THE YEAR FOR: Interest (net of amount capitalized)...................... $ 54,516 $ 46,973 $ 43,533 ========= ========= ======== Income taxes.............................................. $ 5,759 $ 15,568 $ 16,030 ========= ========= ========
See notes to consolidated financial statements. 33 34 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31,
1999 1998 ---------- ---------- (THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 18,031 $ 102,444 Accounts receivable (less accumulated provision for doubtful accounts: 1999, $13,024; 1998, $9,818)........ 148,103 199,362 Unbilled revenues......................................... 46,686 41,616 Inventory................................................. 40,859 33,743 Deferred purchased gas cost............................... 29,075 39,445 Prepaid expenses and other................................ 44,084 34,832 ---------- ---------- Total current assets................................... 326,838 451,442 ---------- ---------- INVESTMENT IN NONCONSOLIDATED SUBSIDIARIES.................. 40,873 17,437 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT: Equitable Utilities....................................... 919,815 889,572 Equitable Production...................................... 1,107,345 1,041,269 NORESCO................................................... 25,368 25,922 ---------- ---------- Total property, plant and equipment.................... 2,052,528 1,956,763 Less accumulated depreciation and depletion................. 831,097 762,320 ---------- ---------- Net property, plant and equipment...................... 1,221,431 1,194,443 ---------- ---------- OTHER ASSETS: Regulatory assets......................................... 63,382 65,983 Goodwill.................................................. 64,382 68,128 Other..................................................... 72,668 63,423 ---------- ---------- Total other assets..................................... 200,432 197,534 ---------- ---------- Total................................................ $1,789,574 $1,860,856 ========== ==========
See notes to consolidated financial statements. 34 35 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31,
1999 1998 ---------- ---------- (THOUSANDS) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion long-term debt............................ $ -- $ 74,136 Short-term loans.......................................... 207,486 115,703 Accounts payable.......................................... 81,444 147,979 Other current liabilities................................. 140,600 104,142 ---------- ---------- Total current liabilities.............................. 429,530 441,960 ---------- ---------- LONG-TERM DEBT: Debentures and medium-term notes.......................... 281,350 281,350 Nonrecourse project financing............................. 17,000 -- ---------- ---------- Total long-term debt................................... 298,350 281,350 DEFERRED AND OTHER CREDITS: Deferred income taxes..................................... 183,896 172,676 Deferred investment tax credits........................... 16,614 17,695 Deferred revenue.......................................... 59,451 70,441 Other..................................................... 33,923 43,315 ---------- ---------- Total deferred and other credits....................... 293,884 304,127 ---------- ---------- Commitments and contingencies............................... -- -- ---------- ---------- PREFERRED TRUST SECURITIES.................................. 125,000 125,000 ---------- ---------- COMMON STOCKHOLDERS' EQUITY: Common stock, no par value, authorized 80,000 shares; shares issued: 1999 and 1998, 37,252................... 280,617 280,400 Treasury stock, shares at cost: 1999, 4,522; 1998, 1,396.................................................. (133,913) (39,298) Retained earnings......................................... 496,072 467,326 Accumulated other comprehensive income (loss)............. 34 (9) ---------- ---------- Total common stockholders' equity...................... 642,810 708,419 ---------- ---------- Total................................................ $1,789,574 $1,860,856 ========== ==========
See notes to consolidated financial statements. 35 36 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES STATEMENTS OF COMMON STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
COMMON STOCK ACCUMULATED ------------------------ OTHER COMMON SHARES NO RETAINED COMPREHENSIVE STOCKHOLDERS' OUTSTANDING PAR VALUE EARNINGS INCOME EQUITY ----------- --------- --------- ------------- ------------- (THOUSANDS) BALANCE, DECEMBER 31, 1996........... 35,346 $223,637 $519,867 $(1,221) $ 742,283 Comprehensive income: Net income for the year 1997..... 78,057 78,057 Foreign currency translation..... 1,168 1,168 --------- Total comprehensive income....... 79,225 Dividends ($1.18 per share)........ (42,679) (42,679) Stock issued: Acquisition of subsidiary........ 2,401 68,276 68,276 Conversion of 9 1/2% debentures..................... 33 370 370 Stock-based compensation plans... 106 3,323 3,323 Dividend reinvestment plan....... 43 1,318 1,318 Treasury stock purchases........... (1,000) (28,596) (28,596) --------- Net change in common stock....... 44,691 ------ -------- -------- ------- --------- BALANCE, DECEMBER 31, 1997........... 36,929 268,328 555,245 (53) 823,520 Comprehensive income (loss): Net loss for the year 1998....... (44,119) (44,119) Foreign currency translation..... 44 44 --------- Total comprehensive loss......... (44,075) Dividends ($1.18 per share)........ (43,800) (43,800) Stock issued: Acquisition of subsidiary........ 171 5,460 5,460 Stock-based compensation plans... 56 3,990 3,990 Dividend reinvestment plan....... 40 1,071 1,071 Stock repurchase program........... (1,340) (37,747) (37,747) --------- Net change in common stock....... (27,226) ------ -------- -------- ------- --------- BALANCE, DECEMBER 31, 1998........... 35,856 241,102 467,326 (9) 708,419 Comprehensive income: Net income for the year 1999..... 69,130 69,130 Foreign currency translation..... 43 43 --------- Total comprehensive income....... 69,173 Dividends ($1.18 per share)........ (40,384) (40,384) Stock issued: Stock-based compensation plans... 220 6,959 6,959 Stock repurchase program........... (3,347) (101,357) (101,357) --------- Net change in common stock....... (94,398) ------ -------- -------- ------- --------- BALANCE, DECEMBER 31, 1999........... 32,729 $146,704 $496,072 $ 34 $ 642,810 ------ -------- -------- ------- ---------
- --------------- Common shares authorized: 80,000,000 shares. Preferred shares authorized: 3,000,000 shares. There are no preferred shares issued or outstanding. Common shares outstanding are net of treasury stock: 1999 -- 4,522,000 shares ($133,913,000); 1998--1,396,000 shares ($39,298,000); 1997 -- 56,000 shares ($1,551,000). Retained earnings of $495,791,000 are available for dividends on, or purchase of, common stock pursuant to restrictions imposed by indentures securing long-term debt. See notes to consolidated financial statements. 36 37 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of Equitable Resources, Inc. and all subsidiaries, ventures and partnerships in which a controlling interest is held (Equitable or the Company). Equitable also consolidates its interest in oil and natural gas partnerships. Equitable uses the equity method of accounting for companies where its ownership is between 20% and 50%. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. These investments are accounted for at cost. Interest earned on cash equivalents is included in interest charges. Inventories: Inventories, which consist of natural gas stored underground and materials and supplies, are stated at average cost. Properties, Depreciation and Depletion: Plant, property and equipment is carried at cost. Depreciation is provided on the straight-line method based on estimated service lives, ranging from 3 to 70 years except for most natural gas and crude oil production properties as explained below. The Company uses the successful efforts method of accounting for exploration and production activities. Under this method, the cost of productive wells and development dry holes, as well as productive acreage, are capitalized and depleted on the unit-of-production method. Deferred Purchased Natural Gas Cost and Other Regulatory Assets: The Company's distribution and interstate pipelines are subject to rate regulation by state and federal regulatory commissions. Accounting for these operations is in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." Where permitted by regulatory authority under purchased natural gas adjustment clauses or similar tariff provisions, the Company defers the difference between purchased natural gas cost, less refunds, and the billing of such cost and amortizes the deferral over subsequent periods in which billings either recover or repay such amounts. Certain other costs, which will be passed through to customers under ratemaking rules for regulated operations, are deferred by the Company as regulatory assets when recovery through rates is expected. These amounts relate primarily to the accounting for income taxes. The Company believes that it will continue to be subject to rate regulation that will provide for the recovery of deferred costs. Derivative Commodity Instruments: The Company uses exchange-traded natural gas and crude oil futures contracts and options and over-the-counter (OTC) natural gas and crude oil swap agreements and options to hedge exposures to fluctuations in oil and natural gas prices and for trading purposes. At contract inception, the Company designates derivative commodity instruments as hedging or trading activities. The Company uses the deferral accounting method to account for exchange-traded derivative commodity instruments designated and effective as hedges. Under this method, changes in the market value of these hedge positions are deferred and included in other current assets and other current liabilities. These deferred realized and unrealized gains and losses are included in operating revenues when the hedged transactions occur. In the event a hedge contract is terminated early, the deferred gain or loss realized on early termination of the contract will be recognized as the hedged production occurs. The Company uses the settlement method to account for OTC swap agreements and options designated and effective as hedges. Under this method, gains or losses associated with the contract are recognized at the time the hedged production occurs. Premiums on option contracts are deferred in other current assets and recognized in operating revenues over the option term. 37 38 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Transactions that are not designated and effective as hedges are marked to market. Cash flows from derivative contracts are considered operating activities. In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133." This statement delays the required implementation for the Company until 2001. The Company has not yet determined when it will adopt the provisions of this statement, which may be implemented at the beginning of any fiscal quarter. SFAS No. 133 will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company has not yet determined what the effect of SFAS No. 133 will be on the earnings and financial position of the Company. Capitalized Interest: Interest costs for the construction of certain long-term assets are capitalized and amortized over the related assets' estimated useful lives. Interest costs during 1999, 1998 and 1997 of $4.6 million, $2.7 million and $4.1 million, respectively, were capitalized as a portion of the cost of the related long-term assets. Goodwill: Goodwill is the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. Goodwill is amortized on a straight-line basis over a period of 20 years. The Company assesses the impairment of goodwill related to consolidated subsidiaries whenever events or changes in circumstances indicate that the carrying value may not be recoverable. A determination of impairment (if any) is made based on estimates of future cash flows. In instances where goodwill has been recorded for assets that are subject to an impairment loss, the carrying amount of the goodwill is eliminated before any reduction is made to the carrying amounts of impaired long-lived assets and identifiable intangibles. Stock-Based Compensation: The Company has elected to follow Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for stock options and awards. Accordingly, compensation cost for stock options and awards is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the exercise price of the stock option or award. Revenue Recognition: Revenues for regulated natural gas sales to retail customers are recognized as service is rendered, including an accrual for unbilled revenues from the date of each meter reading to the end of the accounting period. Revenue is recognized for exploration and production activities when deliveries of natural gas, crude oil and natural gas liquids are made. Revenues from natural gas transportation and storage activities are recognized in the period service is provided. Revenues from energy marketing activities are recognized when deliveries occur. Revenues from activities classified as energy trading are recognized immediately. The Company recognizes revenue from shared energy savings contracts as energy savings are measured and verified. Revenue received from customer contract termination payments is recognized when received. Revenue from other long-term contracts, such as turnkey contracts, is recognized on a percentage-of-completion basis, determined using the cost-to-cost method. Any maintenance revenues are recognized as related services are performed. 38 39 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Sales of Receivables: The Company sells some amounts due from customers to financial institutions. At the time of the transfer, the amounts due from the customer are recognized as revenue, the transfer is accounted for as the sale of a receivable, the receivable is no longer reflected in the financial statements and any related deferred costs are charged to operations. Income Taxes: The Company files a consolidated federal income tax return. The current provision for income taxes represents amounts paid or estimated to be payable. Deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. Where deferred tax liabilities will be passed through to customers in regulated rates, the Company establishes a corresponding regulatory asset for the increase in future revenues that will result when the temporary differences reverse. Investment tax credits realized in prior years were deferred and are being amortized over the estimated service lives of the related properties where required by ratemaking rules. Earnings Per Share (EPS): "Basic" EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. "Diluted" EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted to common stock. Segment Disclosures: Operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally and are subject to evaluation by the Company's chief executive officer in deciding how to allocate resources. Operating segments are evaluated on their contribution to the Company's consolidated results, based on earnings before interest and taxes. Interest charges, income taxes and certain corporate office expenses are managed on a consolidated basis and are allocated pro forma to operating segments. Reclassification: Certain previously reported amounts have been reclassified to conform with the 1999 presentation. B. DERIVATIVE COMMODITY INSTRUMENTS The Company uses exchange-traded natural gas, crude oil and propane futures contracts, options and OTC natural gas, crude oil and propane swap agreements and options (collectively, derivative contracts) to hedge exposures to fluctuations in natural gas, oil and propane prices and for trading purposes. Futures contracts obligate the Company to buy or sell a designated commodity at a future date for a specified price. Swap agreements involve payments to or receipts from counterparties based on the differential between a fixed and variable price for the commodity. Exchange-traded instruments are generally settled with offsetting positions but may be settled by delivery of commodities. OTC arrangements require settlement in cash. HEDGING ACTIVITIES The Company is exposed to risk from fluctuations in energy prices in the normal course of business. The Company uses derivative contracts to hedge exposures to natural gas, oil and propane price changes. The following table summarizes the absolute notional quantities of the derivative contracts held for purposes other than trading at December 31, 1999 and 1998. The open futures and options contracts at year-end 1999 have maturities extending through December 2000, while the swap agreements have maturities extending through March of 2001. At December 31, 1998, the open futures and options contracts had maturities extending through 39 40 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 B. DERIVATIVE COMMODITY INSTRUMENTS (CONTINUED) October 2000 and December 1999, respectively, while the swap agreements had maturities extending through May of 2001.
ABSOLUTE NOTIONAL DEFERRED QUANTITY GAIN/LOSS ------------------ ---------------- 1999 1998 1999 1998 ------- ------- ------ ------ (BCF EQUIVALENT) (MILLIONS) Natural gas Futures............................................... 18.8 41.5 $ (0.8) $ (2.1) Swaps................................................. 71.2 300.8 (2.9) (11.6) Options............................................... 17.0 72.9 0.8 1.0 ----- ----- ------ ------ Totals.............................................. 107.0 415.2 $ (2.9) $(12.7) ----- ----- ------ ------ (MBLS EQUIVALENT) (MILLIONS) Oil Futures............................................... 0.2 -- $ (0.7) $ -- Swaps................................................. 0.8 -- (0.5) -- Options............................................... 0.3 -- (0.9) -- ----- ----- ------ ------ Totals.............................................. 1.3 -- $ (2.1) $ -- ----- ----- ------ ------ (MBLS EQUIVALENT) (MILLIONS) Propane Futures............................................... -- -- $ -- $ -- Swaps................................................. 0.8 -- (0.3) -- Options............................................... 0.1 -- -- -- ----- ----- ------ ------ 0.9 -- $ (0.3) $ -- ----- ----- ------ ------
Deferred realized amounts from hedge transactions were a $.1 million gain at December 31, 1999, and a $.6 million gain at December 31, 1998. The Company recognized net losses on its hedging activities of $8.5 million, $3.0 million and $9.8 million in 1999, 1998 and 1997, respectively. These losses are offset when the underlying products are sold. The Company is exposed to credit loss in the event of nonperformance by counterparties to derivative contracts. This credit exposure is limited to derivative contracts with a positive fair value. Futures contracts have minimal credit risk because futures exchanges are the counterparties. The Company manages the credit risk of the other derivative contracts by limiting dealings to those counterparties who meet the Company's criteria for credit and liquidity strength. TRADING ACTIVITIES The Company conducts trading activities through its deregulated marketing group. The function of the Company's trading business is to contribute to the Company's earnings by taking market positions within strictly defined trading limits. At December 31, 1999, the absolute notional quantities of the futures, swaps and physical contracts held for trading purposes were 1.4 Bcfe, 9.2 Bcfe and 17.0 Bcfe, respectively. There were no outstanding derivative contracts held for trading purposes at December 31, 1998. 40 41 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 B. DERIVATIVE COMMODITY INSTRUMENTS (CONTINUED) The table below sets forth the end of period fair value and average fair value during the year for all the derivative contracts held for trading purposes.
1999 1997 --------------------- ---------------------- ASSETS LIABILITIES ASSETS LIABILITIES ------ ----------- ------- ----------- (THOUSANDS) (THOUSANDS) Fair value at December 31............... $2,695 $2,914 $82,912 $79,012 Average fair value...................... $2,583 $2,837 $12,161 $10,509
Trading activity resulted in net losses of $.6 million for 1999. There was no trading activity in 1998. In 1997 trading activity resulted in a net gain of $1.1 million. C. ASSET IMPAIRMENT AND OTHER NONRECURRING ITEMS The Company's 1998 and 1997 results of operations include several significant nonrecurring items which are included in operating expense. In December 1998, as a result of a sustained decrease in natural gas and crude oil prices and a change in management's objectives in the Gulf of Mexico, the Company recognized a write-down in the carrying value of crude oil and natural gas production assets of $36.9 million. To improve the efficiency of Appalachian production operations, the Company obtained authority in 1999 from the Federal Energy Regulatory Commission (FERC) to decertify the pipeline facilities of Kentucky West Virginia Gas Company, LLC (Kentucky West). In decertifying the pipeline, the Company determined that not all costs would be collectible in rates and reduced regulatory and other assets by $9.2 million, including $3.6 million in Equitable Utilities and $5.6 million in Equitable Production. In addition, the Company implemented a fundamental restructuring of its utility, nonregulated retail sales and headquarters groups. This process included a voluntary workforce reduction incentive offer to reduce staff, the closing or consolidation of several offices, reconfiguration of management information systems, the realignment of many administrative functions to specific operating segments and the curtailment of several auxiliary business ventures. Expenses associated with these initiatives totaled $35.7 million including $8.1 million in the utility group, $2.1 million in the production group, $2.7 million in energy services, $3.0 million in the energy sales unit and $19.8 million in headquarters. In June 1997, an evaluation of the carrying value of long-lived assets resulted in a write-down of the Utilities segment's investment in the Avoca bedded salt natural gas storage project, for which the Company recognized a $13 million charge. In September 1997, the Company recorded an additional charge of $10.7 million related to evaluation and reduction of headquarters and noncore business functions. D. DIRECT BILLING AND OTHER SETTLEMENTS Kentucky West received FERC approval of settlement agreements with all customers for direct billing to recover the higher Natural Gas Policy Act (NGPA) prices, which the FERC had denied on natural gas produced from exploration and production properties between 1978 and 1983. The portion of the settlement with the Equitable Gas Company division was subject to Pennsylvania Public Utility Commission (PUC) review. The PUC approved Equitable Gas Company's collection of $2.6 million in September 1998 and $7.8 million in September 1997 related to the direct billing settlement. These amounts are recognized as other operating revenues in the production segment for 1998 and 1997. 41 42 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 E. DISCONTINUED OPERATIONS In April 1998, management adopted a formal plan to sell the Company's natural gas midstream operations. The operations included an integrated natural gas gathering, processing and storage system in Louisiana and a natural gas and electricity trading and marketing business based in Houston. The financial statements for all periods have been restated to classify these as discontinued operations. In December 1998, the Company completed the sale of these operations to various parties for $338.3 million, which included working capital adjustments. Net income (loss) from discontinued operations was $(8.8) million and $3.9 million for the years ended December 31, 1998 and 1997, respectively. The net loss in 1998 reflects an after-tax gain on the sale of $10.1 million. The net income (loss) for each year was reported net of income tax expense (benefit) of $(0.2) million and $3.2 million in 1998 and 1997, respectively. Interest expense allocated to discontinued operations was $7.4 million and $7.2 million for the years ended December 31, 1998 and 1997, respectively. F. SALE OF PROPERTY In July 1997, the Company entered into agreements with five parties for the sale of the Company's crude oil and natural gas properties in the western United States and Canada. The sales were completed in September and October for an aggregate cash sales price of $170 million. In October 1997, the Company sold its Union Drilling division, a contract drilling company, for $7 million. These sales resulted in gains of $52 million in 1997. G. ACQUISITIONS In December 1999, the Company acquired Carnegie Natural Gas Company and subsidiaries (Carnegie) for $40 million, including transaction costs. The Carnegie operations include natural gas distribution and pipeline businesses which will be integrated into those divisions of the Company's Utilities segment, as well as exploration and production businesses which will be integrated into the Production segment. Carnegie operates more than 1,000 natural gas wells in Pennsylvania and West Virginia and supplies approximately 8,000 industrial, commercial and residential customers. No goodwill was recorded in connection with the acquisition, which was accounted for under the purchase method of accounting. In July 1997, the Company acquired Northeast Energy Services, Inc. (NORESCO) in exchange for a combination of 2.1 million shares of the Company's stock valued at approximately $67 million and $10 million in cash, including transaction costs. NORESCO is a provider of comprehensive energy efficiency systems and services for commercial, industrial, government and institutional customers. NORESCO's primary assets are accounts receivable from customers and deferred contract costs, which are included in other assets in the consolidated balance sheets. The transaction was treated as a purchase for accounting purposes. The Company recorded goodwill of $57 million which is being amortized over 20 years. The $67 million noncash portion of the acquisition is excluded from capital expenditures in the 1997 cash flows statement. In 1997, the NORESCO segment also acquired Scallop Thermal Industries (Scallop) and Lighting Management, Inc. (LMI) for a total cost of $4 million. These acquisitions were accounted for under the purchase method of accounting. The effect of each of these acquisitions, individually and aggregated by year of purchase, is not material to the results of operations or financial position of Equitable, and therefore, pro forma financial information is not presented. 42 43 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 H. INCOME TAXES The following table summarizes the source and tax effects of temporary differences between financial reporting and tax bases of assets and liabilities.
DECEMBER 31, -------------------- 1999 1998 -------- -------- (THOUSANDS) Deferred tax liabilities (assets): Exploration and development costs expensed for income tax reporting.............................................. $104,628 $ 86,742 Tax depreciation in excess of book depreciation........... 163,755 163,788 Regulatory temporary differences.......................... 25,069 26,095 Deferred purchased natural gas cost....................... 6,710 13,594 Deferred revenues/expenses................................ (14,507) (14,324) Alternative minimum tax................................... (50,114) (58,517) Investment tax credit..................................... (6,565) (6,998) Uncollectible accounts.................................... (6,450) (5,583) Postretirement benefits................................... (3,982) (3,971) Other..................................................... (21,836) (13,750) -------- -------- Total (including amounts classified as current liabilities of $12,812 for 1999 and $14,602 for 1998)................................................ $196,708 $187,076 ======== ========
As of December 31, 1999 and 1998, $59.1 million and $62.1 million, respectively, of the net deferred tax liabilities are related to rate-regulated operations and have been deferred as regulatory assets. Income tax expense (benefit) is summarized as follows:
YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 ------- -------- ------- (THOUSANDS) Current: Federal............................................. $23,758 $ 5,331 $10,333 State............................................... 916 339 717 Foreign............................................. 47 -- 232 ------- -------- ------- Deferred: Federal............................................. 14,756 (22,033) 27,756 State............................................... (121) (7,504) 3,252 Foreign............................................. -- 1,486 920 ------- -------- ------- Total............................................ $39,356 $(22,381) $43,210 ======= ======== =======
43 44 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 H. INCOME TAXES (CONTINUED) Provisions for income taxes differ from amounts computed at the federal statutory rate of 35% on pretax income. The reasons for the difference are summarized as follows:
YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 ------- -------- ------- (THOUSANDS) Tax at statutory rate................................. $37,970 $(17,301) $41,089 State income taxes.................................... 517 (4,657) 2,580 Nonconventional fuels tax credit...................... (817) (1,199) (816) Other................................................. 1,686 776 357 ------- -------- ------- Income tax expense (benefit)........................ $39,356 $(22,381) $43,210 ======= ======== ======= Effective tax rate (benefit).......................... 36.3% (45.3)% 36.8% ======= ======== =======
The consolidated federal income tax liability of the Company has been settled through 1994. The Company has not provided any U.S. tax on undistributed earnings of foreign subsidiaries or joint ventures that are reinvested indefinitely outside the United States. At December 31, 1999, consolidated retained earnings of the Company included approximately $5.1 million of undistributed earnings from these investments. I. INVESTMENTS IN NONCONSOLIDATED SUBSIDIARIES The NORESCO segment, through its energy infrastructure division, has investments in unconsolidated partnerships. These investments represent equity ownership interests in independent power plant (IPP) projects located domestically in the United States as well as in selected international countries.
DECEMBER 31, ------------------ EQUITY INVESTEES LOCATION OWNERSHIP 1999 1998 - ------------------------------- ---------- --------- ------- ------- (THOUSANDS) IGC/ERI Pan-Am Thermal Panama 50% $14,863 $ 510 Capital Center Energy USA 50% 12,779 4,401 Petroelectrica de Panama Panama 45% 9,228 8,807 Dona Julia Costa Rica 24% 3,235 2,958 Other USA Various 768 761 ------- ------- $40,873 $17,437 ======= =======
IPP projects which NORESCO and its partners develop, construct and operate are the result of specific needs of private or governmental entities to secure power that is more cost effective and reliable than the current source of power as well as to meet the growing energy demands of many international countries. Long-term power purchase agreements are signed with the customer whereby they agree to purchase the energy generated by the plant. The length of these contracts ranges from 5 to 30 years. The Company has invested approximately $29.3 million in these operations since January 1998 and the Company's ownership share of the earnings for this same time period is approximately $5.5 million. All projects have been completed within the NORESCO segment using nonrecourse financing at the subsidiary level. Foreign investments represent $27.3 million, or 67%, of investments in nonconsolidated subsidiaries. In addition, $20 million of fixed assets is included in NORESCO's property, plant and equipment balance at December 31, 1999, related to an independent power project located in Jamaica, of which NORESCO is a majority owner. Total Company investments located in foreign countries was $47.3 million at December 31, 1999. 44 45 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 J. INTANGIBLE ASSETS From 1995 to 1998, the Company acquired several energy services companies. These transactions were treated as purchases for accounting purposes, with goodwill being recorded. Amortization of the goodwill is provided on the straight-line method over a life of 20 years. Accumulated amortization at December 31, 1999 and 1998 was $10,011 and $6,265, respectively. For the years ended December 31, 1999, 1998 and 1997, amortization expense, included in depreciation, depletion and amortization, was $3,746, $3,858 and $2,214, respectively. K. SHORT-TERM LOANS Maximum lines of credit available to the Company were $500 million during 1999, 1998 and 1997. The Company is not required to maintain compensating bank balances. Commitment fees averaging one-tenth of one percent were paid to maintain credit availability. At December 31, 1999, short-term loans consisted of $207.2 million of commercial paper at a weighted average annual interest rate of 5.95% and the subsidiary note for project financing described below. At December 31, 1998, short-term loans consisted of $115.7 million of commercial paper at a weighted average annual interest rate of 5.02%. The maximum amount of outstanding short-term loans was $208 million in 1999, $315.7 million in 1998, and $302.5 million in 1997. The average daily total of short-term loans outstanding was approximately $127.9 million during 1999, $191.7 million during 1998, and $229.6 million during 1997; weighted average annual interest rates applicable thereto were 5.26% in 1999, 5.0% in 1998, and 5.7% in 1997. L. LONG-TERM DEBT
DECEMBER 31, -------------------- 1999 1998 -------- -------- (THOUSANDS) 7 1/2% debentures, due July 1, 1999 ($75,000 principal amount, net of unamortized original issue discount)........................................ $ -- $ 74,136 7 3/4% debentures, due July 15, 2026........................ 115,000 115,000 Medium-term notes: 8.0% to 9.0% Series A, due 2001 thru 2021................. 72,850 72,850 6.5% to 7.6% Series B, due 2003 thru 2023................. 75,500 75,500 6.8% to 7.6% Series C, due 2007 thru 2018................. 18,000 18,000 -------- -------- 281,350 355,486 Less debt payable within one year........................... -- 74,136 -------- -------- Total debentures and medium-term notes................. 281,350 281,350 Nonrecourse note for project financing...................... 17,000 -- -------- -------- Total long-term debt................................... $298,350 $281,350 ======== ========
In 1998, as a result of the sale of the Company's natural gas midstream operations, the Company repurchased and retired $35.0 million of 7 3/4% debentures and $22.2 million of Series A Medium-Term Notes. Premiums paid were $12.7 million, recognized net of income tax benefits, as an extraordinary loss on early extinguishment of debt in 1998 of $8.3 million. During 1999, a subsidiary of the Company issued a $17 million 9.25% nonrecourse note for project financing. The proceeds of this note were used to fund the operations of an independent power plant located in St. Catherine, Jamaica. Interest payments related to this note are due quarterly. 45 46 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 L. LONG-TERM DEBT (CONTINUED) At December 31, 1999, the Company has the ability to issue $150 million of additional long-term debt under the provisions of shelf registrations filed with the Securities and Exchange Commission. Interest expense on long-term debt amounted to $35.2 million in 1999, $34.9 million in 1998, and $35.1 million in 1997. Aggregate maturities of long-term debt will be none in 2000, $10.1 million in 2001, none in 2002, $24.3 million in 2003 and $20.5 million in 2004. M. DEFERRED REVENUE In 1995, the Company sold an interest in certain Appalachian natural gas properties, the production from which qualifies for nonconventional fuels tax credit. The Company retained an interest in the properties that will increase based on performance. As such, the proceeds of $133.5 million were recorded as deferred revenues and are being recognized in income as financial targets are achieved. N. TRUST PREFERRED CAPITAL SECURITIES In April 1998, $125 million of 7.35% Trust Preferred Capital Securities were issued. The capital securities were issued through a subsidiary trust, Equitable Resources Capital Trust I, established for the purpose of issuing the capital securities and investing the proceeds in 7.35% Junior Subordinated Debentures issued by the Company. The capital securities have a mandatory redemption date of April 15, 2038; however, at the Company's option, the securities may be redeemed on or after April 23, 2003. Proceeds were used to reduce short-term debt outstanding. Interest expense for the years ended December 31, 1999 and December 31, 1998 includes $9.2 million and $6.3 million, respectively, of preferred dividends related to the trust preferred capital securities. O. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS The Company has pension and other postretirement benefit plans covering certain Utilities segment employees. Plans covering union members generally provide benefits of stated amounts for each year of service. Plans covering salaried utility employees use a benefit formula which is based upon employee compensation and years of service. 46 47 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 O. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED) The following table sets forth the pension and other benefit plans' funded status and amounts recognized for those plans in the Company's consolidated balance sheets:
PENSION BENEFITS OTHER BENEFITS -------------------- ------------------ 1999 1998 1999 1998 -------- -------- ------- ------- (THOUSANDS) Change in benefit obligation: Benefit obligation at beginning of year........ $148,493 $143,440 $43,491 $40,077 Service cost................................... 2,294 2,177 297 334 Interest cost.................................. 9,488 9,933 3,002 2,759 Amendments..................................... 5,038 323 582 -- Actuarial (gain) loss.......................... (9,513) 10,017 (577) 2,983 Benefits paid.................................. (9,726) (9,319) (4,866) (4,168) Expenses paid.................................. (558) (205) -- -- Curtailments................................... (12) 2,519 -- -- Settlements.................................... (22,267) (11,362) -- -- Special termination benefits................... -- 970 -- 1,506 -------- -------- ------- ------- Benefit obligation at end of year........... 123,237 148,493 41,929 43,491 -------- -------- ------- ------- Change in plan assets: Fair value of plan assets at beginning of year........................................ 177,205 164,801 8,454 6,274 Actual return on plan assets................... 13,958 31,867 407 368 Employer contribution.......................... 91 1,632 219 1,812 Benefits paid.................................. (9,726) (9,319) (3,632) -- Expenses paid.................................. (558) (205) -- -- Settlements.................................... (22,151) (11,571) -- -- -------- -------- ------- ------- Fair value of plan assets at end of year.... 158,819 177,205 5,448 8,454 -------- -------- ------- ------- Funded status.................................... 35,582 28,712 (36,481) (35,037) Unrecognized net actuarial (gain) loss........... (31,733) (26,885) 14,988 16,595 Unrecognized prior service cost (credit)......... 14,825 13,125 410 (140) Unrecognized initial net (asset) obligation...... (436) (819) 12,420 13,376 -------- -------- ------- ------- Net asset (liability) recognized............ $ 18,238 $ 14,133 $(8,663) $(5,206) ======== ======== ======= ======= Weighted-average assumptions as of December 31: Discount rate.................................. 7.75% 6.75% 7.75% 6.75% Expected return on plan assets................. 10.00% 10.00% 10.00% 7.50% Rate of compensation increase.................. 4.50% 4.50% 4.50% 4.50%
For measurement purposes, a 5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1999. The rate was assumed to decrease gradually to 4% for 2002 and remain at that level thereafter. The pension asset of $18,238 at December 31, 1999 and $14,133 at December 31, 1998 is included in prepaid expenses and other current assets in the consolidated balance sheets. The accrued liability for other postretirement benefits of $8,663 at December 31, 1999 and $5,206 at December 31, 1998 is included in other current liabilities. 47 48 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 O. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED) The Company's costs related to defined benefit pension and other benefit plans comprised the following:
PENSION BENEFITS OTHER BENEFITS ------------------------------ ------------------------ 1999 1998 1997 1999 1998 1997 -------- -------- -------- ------ ------ ------ (THOUSANDS) Components of net periodic benefit cost: Service cost........................ $ 2,294 $ 2,177 $ 2,227 $ 297 $ 334 $ 254 Interest cost....................... 9,488 9,933 10,280 3,002 2,759 2,898 Expected return on plan assets...... (13,048) (13,377) (13,254) (898) (522) (483) Amortization of prior service cost............................. 1,823 1,579 1,441 31 (15) (214) Amortization of initial net (asset) obligation....................... (333) (390) (422) 955 986 985 Recognized net actuarial (gain) loss............................. 90 3 (30) 921 749 617 Divestitures........................ -- -- -- -- (1,719) -- Special termination benefits........ -- 970 1,139 -- 1,506 -- Settlement (gain) loss.............. (5,781) (2,295) (4,016) -- -- -- Curtailment loss.................... 1,453 319 587 -- 419 -- -------- -------- -------- ------ ------ ------ Net periodic benefit cost........ $ (4,014) $ (1,081) $ (2,048) $4,308 $4,497 $4,057 ======== ======== ======== ====== ====== ======
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $1,336, $1,336 and $0, respectively, as of December 31, 1999 and $31,695, $31,695 and $28,426, respectively, as of December 31, 1998. Assumed health care cost trend rates have an effect on the amounts reported for the health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects:
ONE-PERCENTAGE POINT ONE-PERCENTAGE POINT INCREASE DECREASE ------------------------ ------------------------ 1999 1998 1997 1999 1998 1997 ------ ------ ------ ------- ------- ---- (THOUSANDS) Effect on total of service and interest cost components.......................... $ 218 $ 188 $ 247 $ (207) $ (177) $-- Effect on postretirement benefit obligation............................... 2,105 2,316 2,983 (2,815) (2,238) --
As of December 31, 1999, approximately $1.5 million of the accrued postretirement benefits related to rate-regulated operations have been deferred as regulatory assets. Rate recovery requires the Company to place agreed upon amounts in trust when collected in rates until such time as they are applied to retiree benefits or returned to ratepayers. Trust assets consist principally of equity and debt securities. As of January 1, 1997, the Company amended its 401(k) employee savings plan for salaried employees to provide a base Company contribution to that plan for employees no longer eligible for defined benefit plans. In addition, during 1997 the present value of these employees' future retirement benefits under the defined benefit plans could be rolled over to the 401(k) plan, at the employee's option, or used to purchase an annuity. Expense recognized by the Company related to this and other 401(k) savings plans totaled $2.3 million in 1999, $3.5 million in 1998, and $3.9 million in 1997. 48 49 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 P. COMMON STOCK AND EARNINGS PER SHARE COMMON STOCK RESERVE At December 31, 1999, shares of Equitable's authorized and unissued common stock were reserved as follows:
(THOUSANDS) Possible future acquisitions............................. 6,607 Stock compensation plans................................. 4,892 ------ Total............................................... 11,499 ======
EARNINGS PER SHARE Basic EPS is computed by dividing income (loss) from continuing operations before extraordinary loss by the weighted average number of common shares outstanding during the period, without considering any dilutive items. Diluted EPS is computed by dividing income (loss) from continuing operations before extraordinary loss, adjusted for the assumed conversion of debt, by the weighted average number of common shares and potentially dilutive securities, net of shares assumed to be repurchased using the treasury stock method. Purchases of treasury shares are calculated using the average share price for the Company's common stock during the period. Potentially dilutive securities arise from the assumed conversion of outstanding stock options and awards and, in years prior to 1998, the assumed conversion of then-outstanding convertible debentures. The computation of basic and diluted earnings (loss) per common share from continuing operations is shown in the table below:
YEARS ENDED DECEMBER 31, ------------------------------------ 1999 1998 1997 --------- ---------- --------- (THOUSANDS EXCEPT PER SHARE AMOUNTS) BASIC EARNINGS (LOSS) PER COMMON SHARE: Net income (loss) from continuing operations, before extraordinary item, applicable to common stock......... $69,130 $(27,052) $74,187 Average common shares outstanding......................... 34,044 36,833 36,003 Basic earnings (loss) per common share from continuing operations, before extraordinary item.................. $ 2.03 $ (0.73) $ 2.06 DILUTED EARNINGS (LOSS) PER COMMON SHARE: Net income (loss) from continuing operations, before extraordinary item, applicable to common stock (a)..... $69,130 $(27,052) $74,190 Average common shares outstanding......................... 34,044 36,833 36,003 Potentially dilutive securities: Stock options and awards (b)........................... 293 -- 109 Common shares issuable upon conversion of 9 1/2% convertible debentures........................ -- -- 4 ------- -------- ------- Total................................................ 34,337 36,833 36,116 Diluted earnings (loss) per common share from continuing operations, before extraordinary item.................. $ 2.01 $ (0.73) $ 2.05
- --------------- (a) The after-tax benefit of interest expense on the assumed conversion of the 9 1/2% convertible debentures was $3,000 in 1997. 49 50 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 P. COMMON STOCK AND EARNINGS PER SHARE (CONTINUED) (b) Options to purchase 12,000 and 284,000 shares of common stock were not included in the computation of diluted earnings per common share because the options' exercise prices were greater than the average market prices of the common shares for 1999 and 1997, respectively. Q. STOCK-BASED COMPENSATION PLANS LONG-TERM INCENTIVE PLANS The Company's 1994 and 1999 Long-Term Incentive Plans provide for the granting of shares of common stock to officers and key employees of the Company. These grants may be made in the form of stock options, restricted stock, stock appreciation rights and other types of stock-based or performance-based awards as determined by the Compensation Committee of the Board of Directors at the time of each grant. Stock awarded under the plan, or purchased through the exercise of options, and the value of stock appreciation units are restricted and subject to forfeiture should an optionee terminate employment prior to specified vesting dates. In no case may the number of shares granted under the plan exceed 1,725,500 and 3,000,000 shares, respectively. Options granted under the plans expire 5 to 10 years from the date of grant and some contain vesting provisions which are based upon Company performance. Also reflected in the option tables below are options assumed in conjunction with the NORESCO acquisition in July 1997. All outstanding options granted under NORESCO's 1990 Incentive Stock Option Plan were converted by Equitable to nonqualified stock options with the right to receive, upon exercise of the option, the same Equitable stock and cash that shareholders of NORESCO received in the acquisition. As a result of this conversion, 872,000 NORESCO stock options were converted to 256,400 Equitable stock options with the exercise price per share proportionately adjusted. The adjusted exercise prices of these stock options range from $5.1012 to $5.9516 per share. The acquisition also accelerated the vesting period of these options, the latest of which expire in 2006. During 1999, 11,000 stock options were exercised under this plan, with 13,000 outstanding at December 31, 1999. Pro forma information regarding net income and earnings per share for options granted is required by SFAS No. 123, "Accounting for Stock-Based Compensation," and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value for these option grants was estimated at the dates of grant using a Black-Scholes option pricing model with the following assumptions for 1999, 1998 and 1997, respectively.
YEARS ENDED DECEMBER 31, -------------------------------------------------- 1999 1998 1997 -------------- -------------- -------------- Risk-free interest rate (range).......... 4.75% to 6.41% 4.80% to 5.63% 5.71% to 5.79% Dividend yield........................... 3.35% 4.06% 3.96% Volatility factor........................ .216 0.173 0.132 Weighted average expected life of options................................ 7 years 4 years 1.25 years Options granted.......................... 1,050,200 1,014,900 339,100 Weighted average fair market value of options granted during the year........ $7.16 $3.91 $1.93
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's 50 51 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 Q. STOCK-BASED COMPENSATION PLANS (CONTINUED) opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The amount of estimated expense that would have been recognized under SFAS No. 123 is not considered material to the financial statements in any of the years presented.
YEARS ENDED DECEMBER 31, ----------------------------------- 1999 1998 1997 --------- --------- --------- Options outstanding January 1............................ 1,258,185 758,534 948,650 Granted.................................................. 1,050,200 1,014,900 339,100 Forfeitures.............................................. (452,900) (453,257) (348,800) Exercised................................................ (165,922) (61,992) (180,416) --------- --------- --------- Options outstanding December 31.......................... 1,689,563 1,258,185 758,534 ========= ========= =========
Options outstanding at December 31, 1999 include 544,863 exercisable at that date.
1999 1998 1997 --------------- --------------- --------------- At December 31: Prices of options outstanding........... $5.10 to $37.88 $5.10 to $34.63 $5.10 to $36.50 Average option price.................... $29.58 $29.26 $28.02
On September 5, 1997, the Company granted 106,127 stock awards from the 1994 Long-Term Incentive Plan for the Executive Retention Program. This program was established to provide additional incentive benefits to retain senior executive employees of the Company. The vesting of these awards is contingent on attainment of specific stock price targets and the continued employment of the participants until January 1, 2001. In 1998 and 1999, the Company granted 25,000 and 128,000 additional stock awards, respectively, from this Long-Term Incentive Plan to key executives. The fair value of these awards was estimated at the date of grant utilizing a Black-Scholes pricing model and the same assumptions as listed above and would result in compensation expense not materially different from that recorded by the Company under APB Opinion No. 25. Compensation expense recorded by the Company related to stock awards was $4.6 million in 1999, $1.0 million in 1998 and $0.3 million in 1997. NONEMPLOYEE DIRECTORS' STOCK INCENTIVE PLANS The Company's 1994 and 1999 Nonemployee Directors' Stock Incentive Plans provide for the granting of up to 80,000 and 300,000 shares, respectively, of common stock in the form of stock option grants and restricted stock awards to non-employee directors of the Company. The exercise price for each share is equal to market price of the common stock on the date of grant. Each option is subject to time-based vesting provisions and expires 5-10 years after date of grant. At December 31, 1999, 70,000 options were outstanding at prices ranging from $28.38 to $34.63 per share and 6,000 options had been exercised under these plans. R. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of cash and cash equivalents, as well as short-term loans, approximates fair value due to the short maturity of the instruments. The estimated fair value of long-term debt described in Note L at December 31, 1999 and 1998 is $294.4 million and $391.2 million, respectively. The fair value was estimated based on discounted values using a current discount rate reflective of the remaining maturity. 51 52 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 R. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The estimated fair value of liabilities for derivative commodity instruments described in Note B, excluding trading activities which are marked-to-market, was $(5.3) million and $(12.7) million at December 31, 1999 and 1998, respectively. S. CONCENTRATIONS OF CREDIT RISK Revenues and related accounts receivable from the Equitable Production segment's operations are generated primarily from the sale of produced natural gas to utility and industrial customers located mainly in the Appalachian area, the sale of crude oil to refinery customers in the Appalachian area, the sale of produced natural gas liquids to a refinery customer in Kentucky and transportation of natural gas in Kentucky and Virginia. The Equitable Utilities segment's operating revenues and related accounts receivable are generated from state-regulated utility natural gas sales and transportation to more than 278,000 residential, commercial and industrial customers located in southwest Pennsylvania and parts of West Virginia and Kentucky; FERC-regulated interstate pipeline transportation and storage service for the affiliated utility, Equitable Gas, as well as other utility and end-user customers located in nine mid-Atlantic and northeastern states; and the nationwide marketing of natural gas to brokers and large volume utility and industrial customers. Under state regulations, the utility is required to provide continuous natural gas service to residential customers during the winter heating season. The NORESCO segment's operating revenues and related accounts receivable are generated from cogeneration and power plant development facilities in several U.S. and Latin American markets, and performance contracting for commercial, industrial and institutional customers and various government facilities including military facilities throughout the United States. The Company is not aware of any significant credit risks which have not been recognized in provisions for doubtful accounts. T. FINANCIAL INFORMATION BY BUSINESS SEGMENT The Company reports operations in three segments which reflect its lines of business. The Equitable Utilities segment's activities are comprised of the operations of the Company's state-regulated local distribution company, natural gas transportation, storage and marketing activities involving the Company's interstate natural gas pipelines, and supply and transportation services for the natural gas and electricity markets. The Equitable Production segment's activities are comprised of the exploration, development, production, gathering and sale of natural gas and oil, and the extraction and sale of natural gas liquids. NORESCO segment's activities are comprised of cogeneration and power plant development, the development and implementation of energy and water efficiency programs, performance contracting and central facility plant operations. During 1999, the structure of the Company's internal organization changed, causing the composition of the reportable segments to change. Segment information for prior periods has been restated to conform to this change. Operating segments are evaluated on their contribution to the Company's consolidated results, based on earnings before interest and taxes. Interest charges and income taxes are managed on a consolidated basis and allocated pro forma to operating segments. Headquarters costs are billed to operating segments based on a fixed allocation of the annual headquarters operating budget. Differences between budget and actual headquarters expenses are not allocated to operating segments, but included as a reconciling item to consolidated earnings from continuing operations. 52 53 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 T. FINANCIAL INFORMATION BY BUSINESS SEGMENT (CONTINUED) Substantially all of the Company's operating revenues, net income from continuing operations and assets are generated or located in the United States of America. The financial information by business segment in the following tables excludes amounts related to discontinued operations.
YEARS ENDED DECEMBER 31, -------------------------------------- 1999 1998 1997 ---------- ---------- ---------- (THOUSANDS) REVENUES FROM EXTERNAL CUSTOMERS: Equitable Utilities................................. $ 703,969 $ 580,767 $ 668,806 Equitable Production................................ 189,136 180,368 191,473 NORESCO............................................. 169,633 109,493 52,790 ---------- ---------- ---------- Total.......................................... $1,062,738 $ 870,628 $ 913,069 ========== ========== ========== INTERSEGMENT REVENUES: Equitable Utilities................................. $ 107,906 $ 71,257 $ 46,077 Equitable Production................................ 22,685 20,111 59,923 ---------- ---------- ---------- Total.......................................... $ 130,591 $ 91,368 $ 106,000 ========== ========== ========== DEPRECIATION, DEPLETION AND AMORTIZATION: Equitable Utilities................................. $ 35,596 $ 20,570 $ 19,778 Equitable Production................................ 58,565 56,380 50,418 NORESCO............................................. 6,078 4,300 2,775 Headquarters........................................ 483 3,920 3,061 ---------- ---------- ---------- Total.......................................... $ 100,722 $ 85,170 $ 76,032 ========== ========== ========== SEGMENT PROFIT (LOSS): Equitable Utilities................................. $ 80,641 $ 32,174 $ 39,507 Equitable Production................................ 54,616 (24,344) 122,962 NORESCO............................................. 13,441 5,126 (2,647) ---------- ---------- ---------- Total operating segments....................... 148,698 12,956 159,822 LESS: RECONCILING ITEMS Headquarters operating expenses (gains) not allocated to operating segments: Impairments of investments and other assets.... -- 19,756 8,655 Other.......................................... 3,080 2,331 (1,133) ---------- ---------- ---------- 145,618 (9,131) 152,300 Interest expense.................................... 37,132 40,302 34,903 Income tax expenses (benefit)....................... 39,356 (22,381) 43,210 ---------- ---------- ---------- Net income (loss) from continuing operations, before extraordinary item................... $ 69,130 $ (27,052) $ 74,187 ========== ========== ==========
53 54 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 T. FINANCIAL INFORMATION BY BUSINESS SEGMENT (CONTINUED)
YEARS ENDED DECEMBER 31, -------------------------------------- 1999 1998 1997 ---------- ---------- ---------- (THOUSANDS) OTHER SIGNIFICANT NONCASH EXPENSE ITEMS: Equitable Utilities: Increase (decrease) in deferred purchased natural gas cost....................................... $ (10,370) $ 4,608 $ 16,026 Noncash restructuring charges.................... -- 12,009 12,700 Equitable Production: Lease impairments................................ 3,518 36,908 -- Noncash restructuring charges.................... -- 6,812 2,200 NORESCO: Cost of contracts in excess of billings.......... 2,771 8,271 7,925 Noncash restructuring charges.................... -- 1,764 -- ---------- ---------- ---------- Total.......................................... $ (4,081) $ 70,372 $ 38,851 ========== ========== ========== SEGMENT ASSETS: Equitable Utilities................................. $ 914,630 $ 998,674 Equitable Production................................ 670,828 604,862 NORESCO............................................. 145,925 169,370 ---------- ---------- Total operating segments....................... 1,731,383 1,772,906 Headquarters assets, including cash and short-term investments and net intercompany accounts receivable....................................... 58,191 87,950 ---------- ---------- Total.......................................... $1,789,574 $1,860,856 ========== ========== EXPENDITURES FOR SEGMENT ASSETS (A): Equitable Utilities................................. $ 43,979 $ 20,860 Equitable Production................................ 92,099 126,752 NORESCO............................................. 6,041 11,102 ---------- ---------- Total.......................................... $ 142,119 $ 158,714 ========== ==========
- --------------- (a) 1999 expenditures include $40 million for the acquisition of Carnegie Natural Gas Company, including $17.7 million in Equitable Utilities and $22.3 million in Equitable Production. See Note G. U. COMMITMENTS AND CONTINGENCIES There are various claims and legal proceedings against the Company arising from the normal course of business. Although counsel is unable to predict with certainty the ultimate outcome, management and counsel believe the Company has significant and meritorious defenses to any claims and intends to pursue them vigorously. Management believes that the ultimate outcome of any matter currently pending against the Company will not materially affect the financial position of the Company although they could be material to the reported results of operations for the period in which they occur. The Company has annual commitments of approximately $32.3 million for demand charges under existing long-term contracts with pipeline suppliers for periods extending up to 12 years at December 31, 1999, which relate to natural gas distribution operations. However, substantially all of these costs are recoverable in customer rates. 54 55 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 U. COMMITMENTS AND CONTINGENCIES (CONTINUED) The Company is subject to federal, state and local environmental laws and regulations. These laws and regulations, which are constantly changing, can require expenditures for remediation and may in certain instances result in assessment of fines. The Company has established procedures for ongoing evaluation of its operations to identify potential environmental exposures and assure compliance with regulatory policies and procedures. The estimated costs associated with identified situations that require remedial action are accrued. However, certain of these costs are deferred as regulatory assets when recoverable through regulated rates. Ongoing expenditures for compliance with environmental laws and regulations, including investments in plant and facilities to meet environmental requirements, have not been material. Management believes that any such required expenditures will not be significantly different in either their nature or amount in the future and does not know of any environmental liabilities that will have a material effect on the Company's financial position or results of operations. V. SUBSEQUENT EVENTS (UNAUDITED) In February 2000, the Company acquired the Appalachian production assets of Statoil Energy Inc. (Statoil) for $630 million, subject to customary closing adjustments. Statoil's operations consist of approximately 1.2 trillion cubic feet of proven natural gas reserves and 6,500 natural gas wells in West Virginia, Kentucky, Virginia, Pennsylvania and Ohio. Statoil's operations will be integrated into the Company's Production segment. No goodwill was recorded in connection with the acquisition, which was accounted for under the purchase method of accounting. In March 2000, the Company agreed to merge its Equitable Production - Gulf business with Westport, Inc., an oil and natural gas exploration and production company based in Denver, Colorado, for a 49% interest in the combined entity. The combined company intends to repay approximately $50 million of Equitable Production - Gulf intercompany debt and replace it with third party debt. 55 56 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 W. INTERIM FINANCIAL INFORMATION (UNAUDITED) The following quarterly summary of operating results reflects variations due primarily to the seasonal nature of the Company's utility business and volatility of oil and natural gas commodity prices:
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- -------- ------------ ----------- (THOUSANDS EXCEPT PER SHARE AMOUNTS) 1999 Operating revenues.......................... $420,053 $189,631 $191,605 $261,449 Operating income............................ 56,224 20,369 17,309 48,853 Net income from continuing operations before extraordinary items....................... 29,739 7,238 5,732 26,421 Earnings per share from continuing operations before extraordinary items: Basic.................................. $ 0.84 $ 0.21 $ 0.17 $ 0.80 Assuming dilution...................... $ 0.84 $ 0.21 $ 0.17 $ 0.79 1998 Operating revenues.......................... $283,449 $180,764 $157,971 $248,444 Operating income (loss)..................... 48,321 12,173 11,400 (83,692) Net income (loss) from continuing operations before extraordinary items................ 24,652 2,275 2,035 (56,014) Earnings (loss) per share from continuing operations before extraordinary items: Basic.................................. $ 0.66 $ 0.06 $ 0.06 $ (1.53) Assuming dilution...................... $ 0.66 $ 0.06 $ 0.06 $ (1.53)
X. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) The supplementary information summarized below presents the results of natural gas and oil activities for the Equitable Production segment in accordance with SFAS No. 69, "Disclosures About Oil and Natural Gas Producing Activities." The information presented for 1998 and 1999 excludes data associated with natural gas reserves related to rate-regulated and other utility operations. In 1999, the exploration and production operations conducted by Equitrans were transferred from Equitable Utilities to Equitable Production. Accordingly, the 1999 oil and natural gas information presented below reflects this transfer. These reserves (proved developed) are less than 5% of total Company proved reserves for the years presented. 56 57 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 X. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED) PRODUCTION COSTS The following table presents the costs incurred relating to natural gas and oil production activities:
1999 1998 1997 -------- -------- -------- (THOUSANDS) At December 31: Capitalized costs................................ $947,803 $861,035 $779,936 Accumulated depreciation and depletion........... 410,921 355,535 293,594 -------- -------- -------- Net capitalized costs.............................. $536,882 $505,500 $486,342 ======== ======== ======== Costs incurred: Property acquisition: Proved properties............................. $ 23,165 $ 4,799 $ 68,334 Unproved properties........................... 722 18,069 15,813 Exploration........................................ 7,143 27,144 22,665 Development........................................ 59,647 76,762 40,982
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES The following table presents the results of operations related to natural gas and oil production, including the effect in 1998 of impairment of assets as described in Note C:
1999 1998 1997 -------- ------- ------- (THOUSANDS) Revenues: Affiliated....................................... $ 14,067 $39,553 $52,956 Nonaffiliated.................................... 158,369 99,437 97,493 Production costs................................... 26,206 30,390 31,777 Exploration expenses............................... 4,001 30,982 8,950 Depreciation and depletion......................... 52,009 49,348 41,153 Impairment of assets............................... 5,018 29,230 -- Income tax expense (benefit)....................... 32,911 (1,166) 26,303 -------- ------- ------- Results of operations from producing activities (excluding corporate overhead)................... $ 52,291 $ 206 $42,266 ======== ======= =======
RESERVE INFORMATION The information presented below represents estimates of proved natural gas and oil reserves prepared by Company engineers. Proved developed reserves represent only those reserves expected to be recovered from existing wells and support equipment. In 1999, the Company decreased its estimate of the annual production decline from 4% to 3%, to be more representative of the region. This revision increased 1999 proved developed natural gas and crude oil reserves by 85,574 million cubic feet equivalent. Also during 1999, the exploration and production operations conducted by Equitrans were transferred to Equitable Production and reflected in the reserve information for 1999 as other additions to proved reserves of 43,829 million cubic feet equivalent. In 1997, the Company increased its Appalachian reserve life from 35 to 50 years to more closely reflect actual production experience. This revision increased 1997 proved developed natural gas and crude oil reserves by 78,607 million cubic feet equivalent. Proved undeveloped reserves represent proved reserves expected to be recovered from new wells after substantial development costs are incurred. As of December 31, 1999 and 1998, 57 58 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 X. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED) all of the Company's proved reserves are in the United States. During 1997, the Company sold its Canadian properties, which accounted for less than 10% of the Company's proved reserves.
1999 1998 1997 --------- ------- -------- (MILLIONS OF CUBIC FEET) NATURAL GAS Proved developed and undeveloped reserves: Beginning of year......................................... 899,881 889,828 849,530 Revision of previous estimates............................ 134,576 6,502 80,264 Purchase of natural gas in place.......................... 46,124 8,474 62,485 Sale of natural gas in place.............................. -- -- (107,138) Extensions, discoveries and other additions............... 132,180 54,970 61,380 Production................................................ (66,328) (59,893) (56,693) --------- ------- -------- End of year............................................... 1,146,433 899,881 889,828 ========= ======= ======== Proved developed reserves: Beginning of year......................................... 780,817 769,312 732,158 End of year............................................... 965,969 780,817 769,312
1999 1998 1997 ------ ------ ------- (THOUSANDS OF BARRELS) OIL Proved developed and undeveloped reserves: Beginning of year......................................... 9,826 10,100 19,517 Revision of previous estimates............................ (23) (966) 849 Purchase of oil in place.................................. 44 5 2,592 Sale of oil in place...................................... -- -- (12,392) Extensions, discoveries and other additions............... 1,155 1,661 1,045 Production................................................ (1,070) (974) (1,511) ------ ------ ------- End of year............................................... 9,932 9,826 10,100 ====== ====== ======= Proved developed reserves: Beginning of year......................................... 8,331 8,941 18,482 End of year............................................... 7,996 8,331 8,941
STANDARD MEASURE OF DISCOUNTED FUTURE CASH FLOW
1999 1998 1997 ----------- ----------- ----------- (THOUSANDS) Future cash inflows.................................. $ 2,877,829 $1,870,002 $ 2,607,077 Future production costs.............................. (808,115) (606,777) (680,405) Future development costs............................. (139,626) (84,454) (80,965) ----------- ---------- ----------- Future net cash flow before income taxes............. 1,930,088 1,178,771 1,845,707 10% annual discount for estimated timing of cash flows.............................................. (1,098,185) (635,296) (1,027,826) ----------- ---------- ----------- Discounted future net cash flows before income taxes.............................................. 831,903 543,475 817,881 Future income tax expenses, discounted at 10% annually........................................... (251,467) (118,602) (276,887) ----------- ---------- ----------- Standardized measure of discounted future net cash flows.............................................. $ 580,436 $ 424,873 $ 540,994 =========== ========== ===========
58 59 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999 X. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED) Management cautions that the standard measure of discounted future cash flows should not be viewed as an indication of the fair market value of natural gas and oil producing properties, nor of the future cash flows expected to be generated therefrom. The information presented does not give recognition to future changes in estimated reserves, selling prices or costs and has been discounted at an arbitrary rate of 10%. Estimated future net cash flows from natural gas and oil reserves based on selling prices and costs at year-end price levels are as follows: Summary of changes in the standardized measure of discounted future net cash flows:
1999 1998 1997 --------- --------- --------- (THOUSANDS) Sales and transfers of natural gas and oil produced -- net........................................ $(146,230) $(108,600) $(118,672) Net changes in prices, production and development costs.................................................. 156,020 (343,061) (447,251) Extensions, discoveries, and improved recovery, less related costs.......................................... 140,402 67,986 58,205 Development costs incurred............................... 30,479 32,497 13,634 Purchase (sale) of minerals in place -- net.............. 26,152 6,439 (73,099) Revisions of previous quantity estimates................. 101,778 (260) 16,913 Accretion of discount.................................... 42,487 84,463 108,935 Net change in income taxes............................... (128,301) 158,285 143,429 Other.................................................... (67,224) (13,870) (45,814) --------- --------- --------- Net increase (decrease).................................. 155,563 (116,121) (343,720) Beginning of year........................................ 424,873 540,994 884,714 --------- --------- --------- End of year.............................................. $ 580,436 $ 424,873 $ 540,994 ========= ========= =========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. 59 60 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by Item 10 with respect to directors is incorporated herein by reference to the section describing "Election of Directors" in the Company's definitive proxy statement relating to the annual meeting of stockholders to be held on May 17, 2000, which will be filed with the Commission within 120 days after the close of the Company's fiscal year ended December 31, 1999. Information required by Item 10 with respect to compliance with Section 16(a) of the Exchange Act is incorporated by reference to the section describing "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive proxy statement relating to the annual meeting of stockholders to be held on May 17, 2000. Information required by Item 10 with respect to executive officers is included herein after Item 4 at the end of Part I under the heading "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION Information required by Item 11 is incorporated herein by reference to the sections describing "Executive Compensation," "Employment Contracts and Change-In-Control Arrangements" and "Pension Plan" in the Company's definitive proxy statement relating to the annual meeting of stockholders to be held on May 17, 2000. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by Item 12 is incorporated herein by reference to the section describing "Voting Securities and Record Date" in the Company's definitive proxy statement relating to the annual meeting of stockholders to be held on May 17, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 60 61 PART IV ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K (a) 1. Financial Statements The financial statements listed in the accompanying index to financial statements are filed as part of this annual report. 2. Financial Statement Schedule The financial statement schedule listed in the accompanying index to financial statements and financial schedule is filed as part of this annual report. 3. Exhibits The exhibits listed on the accompanying index to exhibits (pages 63 through 66) are filed as part of this annual report.
(b) Reports on Form 8-K filed during the quarter ended December 31, 1999. None EQUITABLE RESOURCES, INC. INDEX TO FINANCIAL STATEMENTS COVERED BY REPORT OF INDEPENDENT AUDITORS (ITEM 14 (a)) 1. The following consolidated financial statements of Equitable Resources, Inc. and Subsidiaries are included in Item 8: PAGE REFERENCE Statements of Consolidated Income for each of the three years in the period ended December 31, 1999 32 Statements of Consolidated Cash Flows for each of the three years in the period ended December 31, 1999 33 Consolidated Balance Sheets December 31, 1999 and 1998 34 - 35 Statements of Common Stockholders' Equity for each of the three years in the period ended December 31, 1999 36 Notes to Consolidated Financial Statements 37 - 59 2. Schedule for the Years Ended December 31, 1999, 1998 and 1997 included in Part IV: II -- Valuation and Qualifying Accounts and Reserves 62
All other schedules are omitted since the subject matter thereof is either not present or is not present in amounts sufficient to require submission of the schedules. 61 62 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE THREE YEARS ENDED DECEMBER 31, 1999
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- ----------- ---------------------------- ---------- ---------- ADDITIONS BALANCE AT CHARGED BALANCE BEGINNING TO COSTS AT END DESCRIPTION OF PERIOD AND EXPENSES ACQUISITIONS DEDUCTIONS OF PERIOD ----------- ----------- ------------ ------------ ---------- ---------- 1999 Accumulated Provisions for Doubtful Accounts............ $ 9,818 $11,917 $108(b) $ (8,819)(a) $13,024 1998 Accumulated Provisions for Doubtful Accounts............ $10,284 $15,634 $ 21(c) $ 16,121 (a) $ 9,818 1997 Accumulated Provisions for Doubtful Accounts............ $10,930 $16,386 $243(d) $ 17,275 (a) $10,284
Note: (a) Customer accounts written off, less recoveries. (b) Addition to the Provision for Doubtful Accounts relates to the acquisition of Carnegie Distribution. (c) Addition to the Provision for Doubtful Accounts relates to the acquisition of LMI and Scallop. (d) Addition to the Provision for Doubtful Accounts relates to the acquisition of NORESCO. 62 63 INDEX TO EXHIBITS
EXHIBITS DESCRIPTION METHOD OF FILING -------- --------------------------------------- --------------------------------------- 3.01 Restated Articles of Incorporation of Filed herewith as Exhibit 3.01 the Company dated May 18, 1999 3.02 Bylaws of the Company (amended through Filed as Exhibit 3.02 to Form 10-Q for April 28, 1999) the quarter ended March 31, 1999 4.01 (a) Indenture dated as of April 1, 1983 Filed as Exhibit 4.01 (Revised) to between the Company and Pittsburgh Post- Effective Amendment No. 1 to National Bank relating to Debt Registration Statement (Registration Securities No. 2-80575) 4.01 (b) Instrument appointing Bankers Trust Filed as Exhibit 4.01 (b) to Form 10-K Company as successor trustee to for the year ended December 31, 1998 Pittsburgh National Bank 4.01 (c) Resolutions adopted June 22, 1987 by Filed as Exhibit 4.01 (c) to Form 10-K the Finance Committee of the Board of for the year ended December 31, 1998 Directors of the Company establishing the terms of the 75,000 units (debentures with warrants) issued July 1, 1987 4.01 (d) Supplemental indenture dated March 15, Filed as Exhibit 4.01 (f) to Form 10-K 1991 with Bankers Trust Company for the year ended December 31, 1996 eliminating limitations on liens and additional funded debt 4.01 (e) Resolution adopted August 19, 1991 by Filed as Exhibit 4.01 (g) to Form 10-K the Ad Hoc Finance Committee of the for the year ended December 31, 1996 Board of Directors of the Company Addenda Nos. 1 through 27, establishing the terms and provisions of the Series A Medium-Term Notes 4.01 (f) Resolutions adopted July 6, 1992 and Refiled as Exhibit 4.01 (h) to Form February 19, 1993 by the Ad Hoc Finance 10-K for the year ended December 31, Committee of the Board of Directors of 1997 the Company and Addenda Nos. 1 through 8, establishing the terms and provisions of the Series B Medium-Term Notes 4.01 (g) Resolution adopted July 14, 1994 by the Filed as Exhibit 4.01 (i) to Form 10-K Ad Hoc Finance Committee of the Board for the year ended December 31, 1995 of Directors of the Company and Addenda Nos. 1 and 2, establishing the terms and provisions of the Series C Medium-Term Notes 4.01 (h) Resolution adopted January 18 and July Filed as Exhibit 4.01(j) to Form 10-K 18, 1996 by the Board of Directors of for the year ended December 31, 1996 the Company and Resolutions adopted July 18, 1996 by the Executive Committee of the Board of Directors of the Company, establishing the terms and provisions of the 7.75% Debentures issued July 29, 1996
Each management contract and compensatory arrangement in which any director or any named executive officer participates has been marked with an asterisk (*). 63 64 INDEX TO EXHIBITS
EXHIBITS DESCRIPTION METHOD OF FILING -------- --------------------------------------- --------------------------------------- 4.01 (i) Junior Subordinated Indenture Between Filed as Exhibit 4.1 to Form 10-Q for Equitable Resources, Inc. and Bankers the quarter ended June 30, 1998 Trust Company 4.01 (j) Amended and Restated Trust Agreement Filed as Exhibit 4.2 to Form 10-Q for Between Equitable Resources, Inc. and the quarter ended June 30, 1998 Bankers Trust Company 4.01 (k) Equitable Resources, Inc. 7.35% Junior Filed as Exhibit 4.3 to Form 10-Q for Subordinated Deferrable Interest the quarter ended June 30, 1998 Debentures Certificate 4.01 (l) Rights Agreement dated as of April 1, Filed as Exhibit 1 to Registration 1996 between the Company and Chemical Statement on Form 8-A filed April 16, Mellon Shareholder Services, L.L.C., 1996 setting forth the terms of the Company's Preferred Stock Purchase Rights Plan 10.01 Trust Agreement with Pittsburgh Refiled herewith as Exhibit 10.01 to National Bank to act as Trustee for Form 10-K pursuant to Item 10 (d) of Supplemental Pension Plan, Supplemental Regulation S-K Deferred Compensation Benefits, Retirement Program for Board of Directors and Supplemental Executive Retirement Plan * 10.02 Equitable Resources, Inc. Directors' Filed as Exhibit 10.4 to Form 10-Q for Deferred Compensation Plan the quarter ended September 30, 1999 * 10.03 1999 Equitable Resources, Inc. Filed as Exhibit 10.2 to Form 10-Q for Long-Term Incentive Plan (as amended the quarter ended June 30, 1999 May 26, 1999) * 10.04 1999 Equitable Resources, Inc. Filed herewith as Exhibit 10.04 Short-Term Incentive Plan * 10.05 1999 Equitable Resources, Inc. Non- Filed as Exhibit 10.1 to Form 10-Q for Employee Directors' Stock Incentive the quarter ended June 30, 1999 Plan (as amended May 26, 1999) * 10.06 Equitable Resources, Inc. 1994 Refiled herewith as Exhibit 10.06 Long-Term Incentive Plan pursuant to Item 10 (d) of Regulation S-K * 10.07 Equitable Resources, Inc. Deferred Filed herewith as Exhibit 10.07 Compensation Plan (Amended and Restated Effective October 27, 1999) * 10.08 Equitable Resources, Inc. Breakthrough Filed herewith as Exhibit 10.08 Long-Term Incentive Plan with certain executives of the Company (as amended through November 30, 1999) * 10.09 (a) Employment Agreement dated as of May 4, Filed as Exhibit 10.2 to Form 10-Q for 1998 with Murry S. Gerber the quarter ended June 30, 1998 * 10.09 (b) Amendment No. 1 to Employment Agreement Filed herewith as Exhibit 10.09 (b) with Murry S. Gerber
Each management contract and compensatory arrangement in which any director or any named executive officer participates has been marked with an asterisk (*). 64 65 INDEX TO EXHIBITS
EXHIBITS DESCRIPTION METHOD OF FILING -------- --------------------------------------- --------------------------------------- * 10.10 Change in Control Agreement dated Filed herewith as Exhibit 10.10 December 1, 1999 with Murry S. Gerber * 10.11 Supplemental Executive Retirement Filed as Exhibit 10.4 to Form 10-Q for Agreement dated as of May 4, 1998 with the quarter ended June 30, 1998 Murry S. Gerber * 10.12 Amended and Restated Post-Termination Filed herewith as Exhibit 10.12 Confidentiality and Non-Competition Agreement dated December 1, 1999 with Murry S. Gerber * 10.13 (a) Employment Agreement dated as of July Filed as Exhibit 10.1 to Form 10-Q for 1, 1998 with David L. Porges the quarter ended September 30, 1998 * 10.13 (b) Amendment No. 1 to Employment Agreement Filed herewith as Exhibit 10.13 (b) with David L. Porges * 10.14 Change of Control Agreement dated Filed herewith as Exhibit 10.14 December 1, 1999 with David L. Porges * 10.15 Amended and Restated Post-Termination Filed herewith as Exhibit 10.15 Confidentiality and Non-Competition Agreement dated December 1, 1999 with David L. Porges * 10.16 Change of Control Agreement dated Filed herewith as Exhibit 10.16 December 1, 1999 with Gregory R. Spencer * 10.17 Non-compete Agreement dated December 1, Filed herewith as Exhibit 10.17 1999 with Gregory R. Spencer * 10.18 Change of Control Agreement dated Filed herewith as Exhibit 10.18 December 1, 1999 with Johanna G. O'Loughlin * 10.19 Non-compete Agreement dated December 1, Filed herewith as Exhibit 10.19 1999 with Johanna G. O'Loughlin * 10.20 (a) Agreement dated May 29, 1996 with Paul Filed as Exhibit 10.04 (a) to Form 10-K Christiano for deferred payment of 1996 for the year ended December 31, 1996 director fees beginning May 29, 1996 * 10.20 (b) Agreement dated November 26, 1996 with Filed as Exhibit 10.04 (b) to Form 10-K Paul Christiano for deferred payment of for the year ended December 31, 1996 1997 director fees * 10.20 (c) Agreement dated December 1, 1997 with Filed as Exhibit 10.04 (c) to Form 10-K Paul Christiano for deferred payment of for the year ended December 31, 1997 1998 director fees * 10.20 (d) Agreement dated December 15, 1998 with Filed as Exhibit 10.19 (d) to Form 10-K Paul Christiano for deferred payment of for the year ended December 31, 1998 1999 director fees * 10.20 (e) Agreement dated November 29, 1999 with Filed herewith as Exhibit 10.20 (e) Paul Christiano for deferred payment of 2000 director fees
Each management contract and compensatory arrangement in which any director or any named executive officer participates has been marked with an asterisk (*). 65 66 INDEX TO EXHIBITS
EXHIBITS DESCRIPTION METHOD OF FILING -------- --------------------------------------- --------------------------------------- * 10.21 (a) Agreement dated May 24, 1996 with Filed as Exhibit 10.14 (a) to Form 10-K Phyllis A. Domm for deferred payment of for the year ended December 31, 1996 1996 director fees beginning May 24, 1996 * 10.21 (b) Agreement dated November 27, 1996 with Filed as Exhibit 10.14 (b) to Form 10-K Phyllis A. Domm for deferred payment of for the year ended December 31, 1996 1997 director fees * 10.21 (c) Agreement dated November 30, 1997 with Filed as Exhibit 10.14 (c) to Form 10-K Phyllis A. Domm for deferred payment of for the year ended December 31, 1997 1998 director fees * 10.21 (d) Agreement dated December 5, 1998 with Filed as Exhibit 10.20 (d) to Form 10-K Phyllis A. Domm for deferred payment of for the year ended December 31, 1998 1999 director fees * 10.21 (e) Agreement dated November 30, 1999 with Filed herewith as Exhibit 10.21 (e) Phyllis A. Domm for deferred payment of 2000 director fees * 10.22 (a) Agreement dated December 31, 1987 with Filed as Exhibit 10.21 (a) to Form 10-K Malcolm M. Prine for deferred payment for the year ended December 31, 1998 of 1988 director fees * 10.22 (b) Agreement dated December 30, 1988 with Filed as Exhibit 10.21 (b) to Form 10-K Malcolm M. Prine for deferred payment for the year ended December 31, 1998 of 1989 director fees * 10.23 Release Agreement dated December 8, Filed herewith as Exhibit 10.23 1999 with John C. Gongas, Jr. 10.24 Purchase Agreement by and among Filed as Exhibit 10.5 to Form 10-Q for Equitable Resources Energy Company, ET the quarter ended September 30, 1998 Bluegrass Company, EREC Nevada, Inc. and ERI Services, Inc. and AEP Resources, Inc. dated September 12, 1998 for the purchase of midstream assets 21 Schedule of Subsidiaries Filed herewith as Exhibit 21 23.01 Consent of Independent Auditors Filed herewith as Exhibit 23.01 27.01 (a) Financial Data Schedule for Year 1999 Filed electronically 27.01 (b) Restated Financial Data Schedule for Filed electronically Year 1998 27.01 (c) Restated Financial Data Schedule for Filed electronically Year 1997
- --------------- The Company agrees to furnish to the Commission, upon request, copies of instruments with respect to long-term debt which have not previously been filed. Each management contract and compensatory arrangement in which any director or any named executive officer participates has been marked with an asterisk (*). 66 67 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. EQUITABLE RESOURCES, INC. By: /s/ MURRY S. GERBER ------------------------------------- Murry S. Gerber President and Chief Executive Officer Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ MURRY S. GERBER President and Chief Executive Officer March 15, 2000 - ------------------------------------- and Director Murry S. Gerber (Principal Executive Officer) /s/ DAVID L. PORGES Executive Vice President and March 15, 2000 - ------------------------------------- Chief Financial Officer David L. Porges (Principal Financial Officer) /s/ JOHN A. BERGONZI Corporate Controller and March 15, 2000 - ------------------------------------- Assistant Treasurer John A. Bergonzi (Principal Accounting Officer) /s/ PAUL CHRISTIANO Director March 15, 2000 - ------------------------------------- Paul Christiano /s/ PHYLLIS A. DOMM Director March 15, 2000 - ------------------------------------- Phyllis A. Domm /s/ E. LAWRENCE KEYES, JR. Director March 15, 2000 - ------------------------------------- E. Lawrence Keyes, Jr. /s/ THOMAS A. MCCONOMY Director March 15, 2000 - ------------------------------------- Thomas A. McConomy /s/ DONALD I. MORITZ Director March 15, 2000 - ------------------------------------- Donald I. Moritz /s/ GUY W. NICHOLS Director March 15, 2000 - ------------------------------------- Guy W. Nichols /s/ MALCOLM M. PRINE Director March 15, 2000 - ------------------------------------- Malcolm M. Prine /s/ JAMES E. ROHR Director March 15, 2000 - ------------------------------------- James E. Rohr /s/ DAVID S. SHAPIRA Director March 15, 2000 - ------------------------------------- David S. Shapira /s/ J. MICHAEL TALBERT Director March 15, 2000 - ------------------------------------- J. Michael Talbert
67 EX-3.01 2 RESTATED ARTICLES OF EQUITABLE RESOURCES, INC. 1 Exhibit 3.01 RESTATED ARTICLES OF EQUITABLE RESOURCES, INC. (As Amended Through May 18, 1999) ------------------------------------------------ The following is a Composite Copy of the Articles of Equitable Resources, Inc., as restated effective August 7, 1981, and as amended effective June 23, 1982, January 13, 1984, October 1, 1984, June 12, 1987, May 27, 1993, May 8, 1996, and May 18, 1999. FIRST: The name of the Company is EQUITABLE RESOURCES, INC. SECOND: The location and post office address of its current registered office in the Commonwealth of Pennsylvania is One Oxford Centre, Suite 3300, 301 Grant Street, City of Pittsburgh, 15219, County of Allegheny. THIRD: The purposes for which the Company is incorporated under the Business Corporation Law of the Commonwealth of Pennsylvania are to engage in, and to do any lawful act concerning, any or all lawful business for which corporations may be incorporated under said Business Corporation Law, including but not limited to: A. the supply of heat, light and power to the public by any means; B. the production, purchase, generation, manufacture, transmission, transportation, storage, distribution and supplying of natural or artificial gas, steam or air conditioning, electricity, or any combination thereof to or for the public; and C. manufacturing, processing, owning, using and dealing in personal property of every class and description, engaging in research and development, the furnishing of services, and acquiring, owning, using and disposing of real property of every nature whatsoever. FOURTH: The term of the Company's existence shall be perpetual. FIFTH: The aggregate number of shares which the Company shall have authority to issue shall be: (a) 3,000,000 shares of Preferred Stock, without par value; and (b) 80,000,000 shares of Common Stock, without par value. The designations, preferences, qualifications, limitations, restrictions, and the special or relative rights in respect of the Preferred Stock and of the Common Stock of the Company, and a statement of the authority hereby vested in the Board of Directors of the Company to fix and determine the designations, preferences, qualifications, limitations, restrictions, and special or relative rights in respect of all series of the Preferred Stock shall be as follows: 1 2 DIVISION A THE PREFERRED STOCK 1.1 PREFERRED STOCK. The Preferred Stock may be divided into and issued in series. The Board of Directors is hereby expressly authorized, at any time or from time to time, to divide any or all of the shares of the Preferred Stock into series, and in the resolution or resolutions establishing a particular series, before issuance of any of the shares thereof, to fix and determine the designation and the relative rights and preferences of the series so established, to the fullest extent now or hereafter permitted by the laws of the Commonwealth of Pennsylvania, including, but not limited to, the variations between different series in the following respects: (a) the distinctive serial designation of such series; (b) the annual dividend rate for such series, and the date or dates from which dividends shall commence to accrue; (c) the redemption price or prices, if any, for shares of such series and the terms and conditions on which such shares may be redeemed; (d) the provisions for a sinking, purchase or similar fund, if any, for the redemption or purchase of shares of such series; (e) the preferential amount or amounts payable upon shares of such series in the event of the voluntary or involuntary liquidation of the Company; (f) the voting rights, if any, of shares of such series; (g) the terms and conditions, if any, upon which shares of such series may be converted and the class or classes or series of securities of the Company into which such shares may be converted; (h) the relative seniority, parity or junior rank of such series with respect to other series of Preferred Stock then or thereafter to be issued; and (i) such other terms, limitations and relative rights and preferences, if any, of shares of such series as the Board of Directors may, at the time of such resolutions, lawfully fix and determine under the laws of the Commonwealth of Pennsylvania. DIVISION B PROVISIONS APPLICABLE TO BOTH THE PREFERRED STOCK AND THE COMMON STOCK 2.1 VOTING RIGHTS. Except as provided in this Section 2.1, the holders of the Common Stock shall have exclusive voting rights for the election of Directors and for all other purposes and shall be entitled to one vote for each share held. The holders of the Preferred Stock shall have no voting rights except as may be provided with respect to any particular series of the Preferred Stock by the Board of Directors pursuant to Subdivision 1.1 of Division A hereof. On any matter on which the holders of the Preferred Stock shall be entitled to 2 3 vote, they shall be entitled to vote as established by the Board of Directors pursuant to Subdivision 1.1 of Division A hereof. In all elections for Directors, every stockholder entitled to vote shall have the right, in person or by proxy, to multiply the number of votes to which such stockholder may be entitled by the number of Directors for the election of whom he is entitled to vote at such meeting, and such stockholder may cast the whole number of such votes for one candidate or may distribute them among any two or more candidates. The candidates receiving the highest number of votes up to the number of Directors to be elected shall be elected. The foregoing provisions of this paragraph shall not be changed with respect to any class of stock unless the holders of record of not less than two-thirds of the number of shares of such class of stock then outstanding shall consent thereto in writing or by voting therefor in person or by proxy at the meeting of stockholders at which any such change is considered. 2.2 PRE-EMPTIVE RIGHTS. Upon any issue for money or other consideration of any stock of the Company that may be authorized from time to time, no holder of stock, irrespective of the kind of such stock, shall have any pre-emptive or other right to subscribe for, purchase, or receive any proportionate or other share of the stock so issued, but the Board of Directors may dispose of all or any portion of such stock as and when it may determine, free of any such rights, whether by offering the same to stockholders or by sale or other disposition as said Board may deem advisable; provided, however, that if the Board of Directors shall determine to offer any new or additional shares of Common Stock, or any security convertible into Common Stock, for money, other than (i) by a public offering of all of such shares or offering of all of such shares to or through underwriters or investment bankers who shall have agreed promptly to make a public offering of such shares, or (ii) pursuant to any employee compensation, incentive or other benefit program adopted by the Board of Directors, the same shall first be offered pro rata to the holders of the then outstanding shares of Common Stock of the Company at a price not less favorable than the price at which the Board of Directors issues and disposes of such stock or securities to other than such holders of Common Stock before deducting reasonable commissions or compensation that may be paid by the Company in connection with the sale of any such stock and securities; and provided, further, that the time within which such pre-emptive rights shall be exercised may be limited by the Board of Directors to such time as the said Board may deem proper, not less, however, than ten days after mailing of notice that such stock rights are available and may be exercised. The foregoing provisions of this Subdivision 2.2 shall not be changed unless the holders of record of not less than two-thirds of the number of shares of the Common Stock then outstanding shall consent thereto in writing or by voting therefor in person or by proxy at the meeting of stockholders at which any such change is considered. 2.3 AMENDMENTS TO BY-LAWS. The Board of Directors may make, amend and repeal the By-Laws with respect to those matters which are not, by statute, reserved exclusively to the shareholders, subject always to the power of the shareholders to change such action as provided herein. No By-Law may be made, amended or repealed by the shareholders unless such action is approved by the affirmative vote of the holders of not less than 80% of the voting power of the then outstanding shares of capital stock of the Company entitled to vote in an annual election of directors, voting together as a single class, unless such action has been previously approved by a two-thirds vote of the whole Board of Directors, in which event (unless otherwise expressly provided in the Articles or the By-Laws) the affirmative vote of not less than a majority of the votes which all shareholders are entitled to cast thereon shall be required. 3 4 2.4 AMENDMENTS TO ARTICLES. Subject to the voting rights given to any particular series of the Preferred Stock by the Board of Directors pursuant to Subdivision 1.1 of Division A hereof, and except as may be specifically provided to the contrary in any other provision in the Articles with respect to amendment or repeal of such provision, the affirmative vote of the holders of not less than 80% of the voting power of the then outstanding shares of capital stock of the Company entitled to vote in an annual election of directors, voting together as a single class, shall be required to amend the Articles of the Company or repeal any provision thereof, unless such action has been previously approved by a two-thirds vote of the whole Board of Directors, in which event (unless otherwise expressly provided in the Articles) the affirmative vote of not less than a majority of the votes which all shareholders are entitled to cast thereon shall be required. 2.5 GENERAL. The Company may issue and dispose of any of its authorized shares for such consideration as may be fixed by the Board of Directors subject to the laws then applicable and to the provisions of Subdivision 2.2 of this Division B. DIVISION C BOARD OF DIRECTORS; CLASSIFICATION; REMOVAL; VACANCIES 3.1 The business and affairs of the Company shall be managed by a Board of Directors comprised as follows: (a) The Board of Directors shall consist of not less than 5 nor more than 12 persons, the exact number to be fixed from time to time by the Board of Directors pursuant to a resolution adopted by a majority vote of the directors then in office. (b) Directors of the Company shall be classified with respect to the time for which they shall severally hold office by dividing them into three classes: Class 1; Class 2; and Class 3, as nearly equal in number as possible. At the special meeting of shareholders at which the amendment adding this Division C shall be adopted, the then current directors shall be assigned to the three classes in accordance with resolutions adopted by the Board of Directors. Class 1 directors shall not be elected at such special meeting but shall continue to hold office until the annual meeting of shareholders in 1984. Class 2 directors shall be elected by shareholders at such special meeting to extended terms of office, to serve until the annual meeting in 1985. Class 3 directors shall be elected by shareholders at such special meeting to extended terms of office, to serve until the annual meeting in 1986. Each class of directors to be elected at such special meeting shall be elected in a separate election. At each succeeding annual meeting of shareholders, the class of directors then being elected shall be elected to hold office for a term of three years. Each director shall hold office for the term for which elected and until his or her successor shall have been elected and qualified. (c) Any director, any class of directors or the entire Board of Directors may be removed from office by shareholder vote at any time, without assigning any cause, but only if shareholders entitled to cast at least 80% of the votes which all shareholders would be entitled to cast at an annual election of directors or of such class of directors shall vote in favor of such removal; PROVIDED, HOWEVER, that no individual director shall be removed without cause (unless the entire Board of Directors or any class of directors be removed) in case the votes cast against such removal would be sufficient, if voted cumulatively for such director, to elect him or her to the class of directors of which he or she is a member. 4 5 (d) Vacancies in the Board of Directors, including vacancies resulting from an increase in the number of directors, shall be filled only by a majority vote of the remaining directors then in office, though less than a quorum, except that vacancies resulting from removal from office by a vote of the shareholders may be filled by the shareholders at the same meeting at which such removal occurs. All directors elected to fill vacancies shall hold office for a term expiring at the annual meeting of shareholders at which the term of the class to which they have been elected expires. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (e) Whenever the holders of any class or series of preferred stock shall have the right, voting separately as a class, to elect one or more directors of the Company, none of the foregoing provisions of this Section 3.1 shall apply with respect to the director or directors elected by such holders of preferred stock. 3.2 Notwithstanding any other provisions of law, the Articles or the By-Laws of the Company, the affirmative vote of the holders of not less than 80% of the voting power of the then outstanding shares of capital stock of the Company entitled to vote in an annual election of directors, voting together as a single class, shall be required to amend, alter, change or repeal, or adopt any provision inconsistent with, this Division C, unless such action has been previously approved by a two-thirds vote of the whole Board of Directors. 3.3 No Director shall be personally liable for monetary damages as such (except to the extent otherwise provided by law) for any action taken, or any failure to take any action, unless such Director has breached or failed to perform the duties of his or her office under Title 42, Chapter 83, Subchapter F of the Pennsylvania Consolidated Statutes (or any successor statute relating to Directors' standard of care and justifiable reliance); and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness. If the Pennsylvania Consolidated Statutes are amended after May 22, 1987, the date this section received shareholder approval, to further eliminate or limit the personal liability of Directors, then a Director shall not be liable, in addition to the circumstances set forth in this section, to the fullest extent permitted by the Pennsylvania Consolidated Statutes, as so amended. The provisions of this section shall not apply to any actions filed prior to January 27, 1987 nor to any breach of performance of duty, or any failure of performance of duty, by any Director occurring prior to January 27, 1987. DIVISION D PROCEDURES RELATING TO CERTAIN BUSINESS COMBINATIONS 4.1 VOTES REQUIRED; EXCEPTIONS. (a) The affirmative vote of the holders of not less than 80% of the voting power of the then outstanding shares of capital stock of the Company entitled to vote in an annual election of directors (the "Voting Stock"), voting together as a single class, shall be required for the approval or authorization of any "Business Combination" (as hereinafter defined) involving a "Related Person" (as hereinafter defined); provided, however, that the 80% voting requirement shall not be applicable if: 5 6 (1) The "Continuing Directors" (as hereinafter defined) of the Company by a two-thirds vote have expressly approved such Business Combination either in advance of or subsequent to such Related Person's having become a Related Person; or (2) both the following conditions are satisfied: (A) the aggregate amount of the cash and the "Fair Market Value" (as hereinafter defined) of the property, securities and "Other Consideration" (as hereinafter defined) to be received per share by holders of capital stock of the Company in the Business Combination, other than the Related Person, is not less than the "Highest Equivalent Price" (as hereinafter defined) of such shares of capital stock; and (B) a proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934, as amended, whether or not the Company is then subject to such requirements, shall have been mailed to all shareholders of the Company. The proxy or information statement shall contain at the front thereof, in a prominent place, the position of the Continuing Directors as to the advisability (or inadvisability) of the Business Combination and, if deemed advisable by a majority of the Continuing Directors, the opinion of an investment banking firm selected by the Continuing Directors as to the fairness of the terms of the Business Combination, from the point of view of the holders of the outstanding shares of capital stock of the Company other than any Related Person. (b) Such 80% vote shall in any such instance be required notwithstanding the fact that no vote may be required or that a lesser percentage may be specified by law or in any agreement with any national securities exchange or otherwise. 4.2 DEFINITIONS. For purposes of this Division D: (a) A "Person" shall mean any individual, partnership, corporation or other entity. As used herein, the pronouns "which" and "it" in relation to Persons which are individuals shall be construed to mean "who" or "whom", "he" or "she", and "him" or "her", as appropriate. (b) The terms "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on November 10, 1983 (the term "registrant" in said Rule 12b-2 meaning in this case the Company). (c) The term "Beneficial Owner" (and variations thereof) shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on November 10, 1983; provided, however, that notwithstanding any provision of Rule 13d-3 to the contrary, an entity shall be deemed to be the Beneficial Owner of any share of capital stock of the Company that such entity has the right to acquire at any time pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. (d) The term "Voting Stock" shall have the meaning set forth at the beginning of Section 4.1(a) of this Division D. 6 7 (e) The term "Subsidiary" of any Person shall mean any corporation of which a majority of the capital stock entitled to vote for the election of directors is Beneficially Owned by such Person directly or indirectly though other Subsidiaries of such Person. (f) The term "Substantial Part" of the assets of any person shall mean more than 10% of the Fair Market Value, as determined by a two-thirds vote of the Continuing Directors, of the total consolidated assets of such Person and its Subsidiaries as of the end of its most recent fiscal year ended prior to the time the determination is being made. (g) The term "Other Consideration" shall include, without limitation, shares of Common Stock or other capital stock of the Company retained by the holders of such shares in the event of a Business Combination in which the Company is the surviving corporation. (h) The term "Continuing Director" shall mean a director of the Company who is unaffiliated with any Related Person and either (1) was a director of the Company immediately prior to the time the Related Person involved in a Business Combination became a Related Person or (2) is a successor to a Continuing Director and is recommended to succeed a continuing Director by a majority of the then Continuing Directors. Where this Division D contains provisions for a determination, recommendation or approval by the Continuing Directors, if there is at any particular relevant time no Continuing Director in office, then such provision shall be deemed to be satisfied if the Board, by a two-thirds vote of the whole Board of Directors, makes or gives such determination, recommendation or approval. (i) The term "Business Combination" shall mean (1) any merger, consolidation or share exchange of the Company or a Subsidiary of the Company with a Related Person, in each case without regard to which entity is the surviving entity; (2) any sale, lease, exchange, transfer or other disposition, including without limitation a mortgage or any other security device, of all or any Substantial Part of the assets of the Company (including without limitation any voting securities of a Subsidiary of the Company) or a Subsidiary of the Company to or with a Related Person (whether in one transaction or series of transactions), or of all or any Substantial Part of the assets of a Related Person to the Company or a Subsidiary of the Company; (3) the issuance, transfer or delivery of any securities of the Company or a Subsidiary of the Company by the Company or any of its Subsidiaries to a Related Person, or of any securities of a Related Person to the Company or a Subsidiary of the Company (other than an issuance or transfer of securities which is effected on a pro rata basis to all shareholders of the Company or of the Related Person, as the case may be); (4) any recapitalization, reorganization or reclassification of securities (including any reverse stock split) or other transaction that would have the effect, directly or indirectly, of increasing the voting power of a Related Person; (5) the adoption of any plan or proposal for the liquidation or dissolution of the Company proposed by or on behalf of a Related Person; or 7 8 (6) any agreement, plan, contract or other arrangement providing for any of the transactions described in this definition of Business Combination. (j) The term "Related Person" at any particular time shall mean any Person if such Person, its Affiliates, its Associates, and all Persons of which it is an Affiliate or Associate Beneficially Own in the aggregate 10% or more of the outstanding Voting Stock of the Company, and any Affiliate or Associate of any such Person, and any Person of which such Person is an Affiliate or Associate. With respect to any particular Business Combination, the term "Related Person" means the Related Person involved in such Business Combination, any Affiliate or Associate of such Related Person, and any Person of which such Related Person is an Affiliate or Associate. Where in this Division D any reference is made to a transaction involving, or ownership of securities by, a Related Person, it shall mean and include one or more transactions involving different Persons all included within the definition of "Related Person", or ownership of securities by any or all of such Persons. Each Person who is an Affiliate or Associate of a Related Person shall be deemed to have become a Related Person at the earliest time any of such Persons becomes a Related Person. (k) The term "highest Equivalent Price" with respect to shares of capital stock of the Company of any class or series shall mean the following: (1) with respect to shares of Common Stock, the highest price that can be determined to have been paid at any time by a Related Person for any shares of Common Stock; and (2) with respect to any class or series of shares of capital stock other than Common Stock, the higher of the following: (A) if any shares of such class or series are Beneficially Owned by a Related Person, the highest price that can be determined to have been paid at any time by a Related Person for such shares; or (B) the amount determined by the Continuing Directors, on whatever basis they believe is appropriate, to be the per share price equivalent of the highest price that can be determined to have been paid at any time by a Related Person for any shares of any other class or series of capital stock of the Company. In determining the Highest Equivalent Price, all purchases by a Related Person shall be taken into account regardless of whether the shares were purchased before or after the Related Person became a Related Person. Also, the Highest Equivalent Price shall include any brokerage commissions, transfer taxes, soliciting dealers' fees and other expenses paid by the Related Person with respect to the shares of capital stock of the Company acquired by the Related Person. In the case of any Business Combination with a Related Person, the Continuing Directors by a two-thirds vote shall determine the Highest Equivalent Price for each class and series of capital stock of the Company. (l) The term "Fair Market Value" shall mean (1) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the New York Stock Exchange's consolidated transaction reporting system, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. 8 9 Automated Quotation System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Continuing Directors; and (2) in the case of property other than stock or cash, the fair market value of such property on the date in question as determined by a two-thirds vote of the Continuing Directors. 4.3 MISCELLANEOUS. (a) The Continuing Directors, by a two-thirds vote, are authorized to determine for purposes of this Division D on the basis of information known to them after reasonable inquiry: (1) whether a Person is a Related Person, (2) the number of shares of Voting Stock Beneficially Owned by any Person, (3) whether a Person is an Affiliate or Associate of another, (4) whether certain assets constitute a Substantial Part of the assets of any Person, (5) the amounts of prices paid, market prices, and other factors relative to fixing the Highest Equivalent Price of shares of capital stock of the Company and (6) the Fair Market Value of property, securities and Other Consideration received in a Business Combination. Any such determination made in good faith shall be binding and conclusive on all parties. (b) Nothing contained in this Division D shall be construed to relieve any Related Person from any fiduciary obligation imposed by law. (c) The fact that any Business Combination complies with the conditions set forth in Subsection (a)(2) of Section 4.1 of this Division D shall not be construed to impose any fiduciary duty, obligation or responsibility on the Board of Directors, or any member thereof, to approve such Business Combination or recommend its adoption or approval to the shareholders of the Company, nor shall such compliance limit, prohibit or otherwise restrict in any manner the Board of Directors, or any member thereof, with respect to evaluations of or actions and responses taken with respect to such Business Combination. (d) Notwithstanding any other provisions of law, the Articles or the By-Laws of the Company, the affirmative vote of the holders of not less than 80% of the voting power of the Voting Stock of the Company, voting together as a single class, shall be required to amend, alter, change or repeal, or adopt any provision inconsistent with, this Division D. SIXTH: Henceforth, these Articles of the Company shall not include any prior documents. 9 10 RESOLUTION ADOPTED BY THE BOARD OF DIRECTORS OF EQUITABLE RESOURCES, INC. ON MARCH 21, 1996 ESTABLISHING THE SERIES ONE PREFERRED STOCK RESOLVED, That pursuant to the authority conferred upon the Board of Directors by Article Fifth, Division A, section 1.1 of the Restated Articles of Incorporation of the Company, as amended, there is hereby established a series of the Preferred Stock of the Company to consist initially of 500,000 shares with the designation and relative rights and preferences thereof to be as follows: DESIGNATION. The shares of such series shall be designated as "Series One Preferred Stock." Shares of this series shall be issued pursuant to the exercise of rights to purchase Series One Preferred Stock distributed to the holders of Common Stock, without par value, of the Company (the "Common Stock"). DIVIDENDS AND DISTRIBUTIONS. Subject to the rights and preferences of the holders of any shares of any series of Preferred Stock ranking senior as to dividends to this Series One Preferred Stock, as such may be established by the Board of Directors, the holders of shares of Series One Preferred Stock, in preference to the holders of Common Stock and shares of stock ranking junior as to dividends to the Series One Preferred Stock, shall be entitled to receive, when and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the 15th day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series One Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $29.50 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends plus 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock, or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), paid on the Common Stock at any time during the quarter year immediately preceding the quarter year ending on the day immediately preceding such Quarterly Dividend Payment Date. In the event the Company shall at any time after April 1, 1996 (the "Rights Distribution Date") during any quarter year immediately preceding the quarter year ending on the day immediately preceding a Quarterly Dividend Payment Date (i) declare any dividend on Common Stock payable in shares of Common Stock, or (ii) subdivide the outstanding Common Stock or combine the outstanding Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the amounts to which holders of shares of Series One Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying each such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 1 11 Dividends shall begin to accrue and be cumulative on outstanding shares of Series One Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series One Preferred Stock, unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series One Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series One Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series One Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. VOTING RIGHTS. Except as otherwise provided by law, holders of shares of Series One Preferred Stock shall have no voting rights. CERTAIN RESTRICTIONS. Whenever quarterly dividends or other dividends or distributions payable on the Series One Preferred Stock are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series One Preferred Stock outstanding shall have been paid in full, the Company shall not: (i) declare or pay dividends on, make any distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or as to assets) to the Series One Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or as to assets) with the Series One Preferred Stock, except dividends paid ratably on the Series One Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or as to assets) to the Series One Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Company ranking junior (either as to dividends or as to assets) to the Series One Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series One Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series One Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under this paragraph, purchase or otherwise acquire such shares at such time and in such manner. 2 12 REACQUIRED SHARES. Any shares of Series One Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. LIQUIDATION, DISSOLUTION OR WINDING UP. Subject to the rights and preferences of the holders of any shares of any series of Preferred Stock ranking senior as to assets to this Series One Preferred Stock, as such may be established by the Board of Directors, upon any involuntary or voluntary liquidation, dissolution or winding up of the Company, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or as to assets) to the Series One Preferred Stock unless, prior thereto, the holders of shares of Series One Preferred Stock shall have received an amount per share equal to the Per Share Series One Liquidation Preference. The Per Share Series One Liquidation Preference shall be equal to the sum of (x) $100.00 plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, plus (y) the Participation Preference. The "Participation Preference" is an amount per each share of Series One Preferred Stock outstanding equal to the product of (A) the Excess Distribution Amount, as hereinafter defined, times (B) a fraction whose numerator is 100 and whose denominator is the sum of (i) the product of 100 times the number of outstanding shares of Series One Preferred Stock, plus (ii) the product of 100 times a fraction whose numerator is the number of outstanding shares of Common Stock and whose denominator is the Adjustment Number; provided, however, if the foregoing computation results in a negative number, then the Participation Preference shall be 0. Following the payment of the full amount of the Series One Liquidation Preference, holders of shares of Common Stock shall receive the remaining assets to be distributed. The "Excess Distribution Amount" is an amount equal to the amount available for distribution to shareholders of the Company after payment of all debts and liabilities less the sum of (i) the liquidation preferences in respect of all shares of preferred stock of the Company other than the Series One Preferred Stock, (ii) the product of 100 times the number of outstanding shares of Series One Preferred Stock, and (iii) the product of the number of outstanding shares of Common Stock times a fraction whose numerator is 100 and whose denominator is the Adjustment Number. The Adjustment Number shall initially be 100 and shall be subject to adjustment as provided below. In the event the Company shall at any time after the Rights Distribution Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 3 13 CONSOLIDATION, MERGER, ETC. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series One Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Company shall at any time (i) declare any dividend on Common Stock payable in shares of Common Stock, or (ii) subdivide the outstanding Common Stock or combine the outstanding Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series One Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. REDEMPTION. The outstanding shares of Series One Preferred Stock may be redeemed at the option of the Board of Directors as a whole, but not in part, at ny time or from time to time, at a cash price per share equal to (i) the product of the Adjustment Number times the Average Market Value, as such term is hereinafter defined, of the Common Stock, plus (ii) all dividends which on the redemption date have accrued on the shares to be redeemed and have not been paid or declared and a sum sufficient for the payment thereof set apart, without interest; provided, however, that if and whenever any quarter-yearly dividend shall have accrued on the Series One Preferred Stock which has not been paid or declared and a sum sufficient for the payment thereof set apart, the Company may not purchase or otherwise acquire any shares of Series One Preferred Stock unless all shares of such stock at the time outstanding are so purchased or otherwise acquired. The "Average Market Value" is the average of the closing sale prices of the Common Stock during the 30-day period immediately preceding the date before the redemption date on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended, on which such stock is listed, or, if such stock is not listed on any such exchange, the average of the closing bid quotations with respect to a share of Common Stock during such 30-day period on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or, if no such quotations are available, the fair market value of the Common Stock as determined by the Board of Directors in good faith. FRACTIONAL SHARES. Series One Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, if applicable, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series One Preferred Stock. 4 EX-10.01 3 TRUST AGREEMENT 1 Exhibit 10.01 - -------------------------------------------------------------------------------- EQUITABLE RESOURCES, INC. TRUST AGREEMENT - -------------------------------------------------------------------------------- 2 EQUITABLE RESOURCES, INC. TRUST AGREEMENT THIS AGREEMENT made this 1st day of November, 1997 by and between EQUITABLE RESOURCES, INC. ("Company") and PNC BANK, NATIONAL ASSOCIATION ("Trustee"). WHEREAS, Company has adopted the nonqualified deferred compensation plan listed in Appendix A (the "Plan"); WHEREAS, Company has incurred or expects to incur liability under the terms of the Plan with respect to the individuals participating in the Plan (the "Participants"); WHEREAS, Company wishes to establish a trust (the "Trust") and to contribute to the Trust the assets that shall be held therein, subject to the claims of Company's creditors in the event of Company's insolvency, as herein defined, until paid to Participants and their beneficiaries in such manner and at such times as specified in the Plan; WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; and WHEREAS, it is the intention of Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plan. NOW THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows. SECTION 1. ESTABLISHMENT OF TRUST. (a) Company hereby deposits with Trustee in Trust an amount which shall become the principal of the Trust to be held, administered and disposed of by Trustee as provided in this Trust. The Trust hereby established shall be irrevocable upon acceptance of the initial contribution by the Trustee. 3 (b) The Trust is intended to be a grantor trust, of which Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. (c) The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of Company and shall be used exclusively for the uses and purposes of the Participants and general creditors as herein set forth. The Participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of the Participants and their beneficiaries against Company. Any assets held by the Trust will be subject to the claims of Company's general creditors under federal and state law in the event of insolvency, as defined in Section 3(a) herein. (d) Company shall be required to irrevocably deposit cash or other property to the Trust on a quarterly basis in an amount equal to the amount deferred by the Participants, plus the amount, if any, of additional amounts credited to the Participants pursuant to the terms of the Plan. In addition, in the event of a "change of control" of Company (as defined in Section 13(e) of this Trust), Company shall, as soon as possible, but in no event longer than 30 days following the change of control, make an irrevocable cash contribution in an amount equal to the amount deferred by the Participants as of the date of the change in control minus amounts previously contributed, plus the amounts, if any, of additional amounts credited to the Participants which have not yet been contributed pursuant to the terms of the Plan. SECTION 2. PAYMENTS TO THE PARTICIPANTS AND THEIR BENEFICIARIES. (a) Company shall deliver to Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Participant (and his or her beneficiaries), that provides a formula or other instructions acceptable to Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts. Except as otherwise provided herein, Trustee shall make payments to the Participants and their beneficiaries in accordance with such Payment Schedule. With respect to benefits attributable to 2 4 Participants and beneficiaries, Company shall be solely responsible for determining the amounts of income that are taxable and reportable, determining the nature and amounts of taxes to be withheld and for withholding, remitting and reporting all such income and taxes to the applicable government entities. Trustee shall have no duties with respect thereto. (b) The entitlement of a Participant or his or her beneficiaries to benefits under the Plan shall be determined by Company or such party as it shall designate under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan. Company shall notify the Trustee of such determination and shall direct commencement of payments of such benefits. (c) Company may make payment of benefits directly to the Participants or their beneficiaries as they become due under the terms of the Plan. Company shall notify Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to Participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plan, Company shall immediately make up the balance of each such payment as it falls due. Trustee shall notify Company when principal and earnings are not sufficient to make benefit payments. SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT. (a) Trustee shall cease payment of benefits to the Participants and their beneficiaries if the Company is Insolvent. Company shall be considered "Insolvent" for purposes of this Trust Agreement if (i) Company is unable to pay its debts as they become due, or (ii) Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) At all times during the continuance of this Trust, as provided in Section 1(d) hereof, the principal and income of the Trust shall be subject to claims of general creditors of Company under federal and state law as set forth below. (1) The Board of Directors and the Chief Executive Officer of Company shall have the duty to inform Trustee in writing of Company's Insolvency. If a person claiming to be a creditor of Company alleges in writing to Trustee that Company has become Insolvent, Trustee shall 3 5 determine whether Company is Insolvent and, pending such determination, Trustee shall discontinue payment of benefits to the Participants or their beneficiaries. (2) Unless Trustee has actual knowledge of Company's Insolvency, or has received notice from Company or a person claiming to be a creditor alleging that Company is Insolvent, Trustee shall have no duty to inquire whether Company is Insolvent. Trustee may in all events rely on such evidence concerning Company's solvency as may be furnished to Trustee and that provides Trustee with a reasonable basis for making a determination concerning Company's solvency. (3) If at any time Trustee has determined that Company is Insolvent, Trustee shall discontinue payments to the Participants or their beneficiaries and shall hold the assets of the Trust for the benefit of Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of the Participants or their beneficiaries to pursue their rights as general creditors of Company with respect to benefits due under the Plan or otherwise. (4) Trustee shall resume the payment of benefits to the Participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after Trustee has determined that Company is not Insolvent (or is no longer Insolvent) (c) Provided that there are sufficient assets, if Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to the Participants or their beneficiaries under the terms of the Plan as certified to the Trustee by the Company for the period of such discontinuance, less the aggregate amount of any payments made to the Participants or their beneficiaries by Company in lieu of the payments provided for hereunder during any such period of discontinuance. SECTION 4. PAYMENTS TO COMPANY. Except as provided in Section 3 hereof, Company shall have no right or power to direct Trustee to return to Company or to divert to others any of the Trust assets before all payment of benefits have been made to the Participants and their beneficiaries pursuant to the terms of the Plan. 4 6 SECTION 5. INVESTMENT AND ADMINISTRATIVE AUTHORITY. (a) The assets OF the Trust may be invested and reinvested in common and preferred stocks, shares, or certificates of participation issued by registered investment companies including registered investment companies for which the Trustee or an affiliate thereof receives compensation for providing custodial, transfer agency, investment advisory or other services, investment trusts, common or pooled investment funds, bonds, debentures, insurance and annuity contracts, limited partnership interests, obligations of governmental bodies, both domestic and foreign, notes, commercial paper, certificates of deposit, and other securities or evidences of indebtedness, secured or unsecured, including variable amount notes, convertible securities of all types and kinds, interest--bearing savings or deposit accounts with any federally insured bank or trust company (including Trustee), or any federally insured savings and loan association, and any other property permitted as trust investments under applicable law. The Company acknowledges that interests in registered investment companies are not bank deposits and are not incurred by, guaranteed by, obligations of, or otherwise supported by the United States of America, The Federal Deposit Insurance Corporation, PNC Bank, National Association, or any bank or government entity. Notwithstanding anything to the contrary, the Company may reserve to itself the right to direct the Trustee as to the acquisition, retention or disposition of all or any portion of the assets of the Trust. Upon receipt of a written notice from the Company advising the Trustee that the Company has reserved such authority, the Trustee shall, pursuant to such notice, invest all or any portion of the Trust assets designated in such notice only in accordance with the instructions of the Company. The Trustee shall be under no duty to question any instruction of the Company. Any such instruction may be of a continuing nature or otherwise and may be changed or revoked in writing by the Company at any time. In the absence of such a written direction, the Trustee shall have the full authority as to the acquisition, retention or disposition of the assets of the Trust. The Company may revoke or amend the investment powers that it reserves to itself provided such revocation or amendment is in writing and is consented to in advance by the Trustee. 5 7 (b) Trustee has the power to hold any or all securities or property in Trustee's name, as Trustee, or in the name of a nominee or nominee of an affiliate, and in accounts or deposits administered in any location by Trustee or any affiliate of Trustee. In the event the same are held in its own name or in the name of a nominee or nominees, suitable designation is to be made upon the books and records of Trustee that said securities or property are so held as part of any trusts hereunder. (c) In no event may Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by Company, other than a de minimis amount held in common investment vehicles in which Trustee invests. All rights associated with assets of the Trust shall be exercised by Trustee or the person designated by Trustee, and shall in no event be exercisable by or rest with the Participant. SECTION 6. DISPOSITION OF INCOME. During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. SECTION 7. ACCOUNTING BY TRUSTEE Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between Company and Trustee. Within 60 days following the close of each calendar year and within 60 days after the removal or resignation of Trustee, Trustee shall deliver to Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. The Company may approve the account either by written notice of approval delivered to the Trustee or by failure to object in writing to the Trustee within 90 days from the date on which the account was delivered to the Trustee. 6 8 Upon receipt of written approval of the account, or upon the expiration of the 90-day period without written objections, the account shall be approved, and the Trustee shall be released and discharged with respect to the account as if the account had been settled and allowed by a decree of a court of competent jurisdiction. Nothing herein contained, however, shall be deemed to preclude the Trustee of its right to have its account settled by a court of competent jurisdiction. SECTION 8. RESPONSIBILITY OF TRUSTEE. (a) Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by Company which is contemplated by, and in conformity with, the terms of the Plan or this Trust and is given in writing by Company, and provided further, that the Trustee shall incur no liability to any person for any action or failure to act taken pursuant to a determination of the existence or non-existence of an event of Insolvency pursuant to Section 3 hereunder. In the event of a dispute between Company and a party, Trustee may apply to a court of competent jurisdiction to resolve the dispute. (b) If the Trustee undertakes, defends or settles any litigation arising in connection with this Trust, Company agrees to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, reasonable attorneys' fees and expenses) relating thereto and to be primarily liable for such payments, except to the extent it is judicially determined that any loss or damage is directly attributable to the Trustee's (i) failure to exercise the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and like aims, (ii) negligence or willful misconduct or (iii) violation of applicable law. The Trustee shall provide the Company with advance written notice of any such litigation. If Company does not pay such cost, expenses and liabilities in a reasonably timely manner, Trustee may obtain payment from the Trust. (c) Trustee may consult with legal counsel (who may also be counsel for Company or the Trustee generally) with 7 9 respect to any of its duties or obligations hereunder at the Company's expense and shall have no liability for any action or failure to act in reasonable reliance upon advice of such counsel. (d) Trustee shall have, without exclusion, all powers conferred on Trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. (e) Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or to applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. (f) Trustee, its affiliates, their officers, directors, employees and agents, shall not be liable for any act or omission of Company, any investment manager (other than an investment manager affiliated with Trustee), or any officer, director, employee or agent of any of them (other than an officer, director, employee or agent of an investment manager affiliated with Trustee). SECTION 9. COMPENSATION AND EXPENSES OF TRUSTEE. Company shall pay all administrative and Trustee's fees and expenses as shall be agreed upon. If not so paid, the fees and expenses shall be paid from the Trust. SECTION 10. RESIGNATION AND REMOVAL OF TRUSTEE. (a) Trustee may resign at any time by written notice to Company, which shall be effective 60 days after receipt of such notice unless Company and Trustee agree otherwise. (b) Trustee may be removed by Company on 60 days notice or upon shorter notice accepted by Trustee. (c) Upon a Change of Control, as defined herein, Trustee may not be removed by Company for three years. 8 10 (d) If Trustee resigns within three years of a Change of Control, as defined herein, Trustee shall select a successor Trustee in accordance with the provisions of Section 11(b) hereof prior to the effective date of Trustee resignation or removal. (e) Upon resignation or removal of Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 60 days after receipt of notice of resignation, removal or transfer, unless Company extends the time limit. (f) If Trustee resigns or is removed, a successor shall be appointed in accordance with Section 11 hereof, by the effective date of resignation or removal under paragraph(s) (a) or (b) of this section. If no such appointment has been made, Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. SECTION 11. APPOINTMENT OF SUCCESSOR. (a) If Trustee resigns or is removed in accordance with Section 10(a) or (b) hereof, Company may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by Company or the successor Trustee to evidence the transfer. (b) If Trustee resigns pursuant to the provisions of Section 10(d) hereof and selects a successor Trustee, Trustee may appoint any third party such as a bank trust department or other party that may be granted corporate trustee powers under state law. The appointment of a successor Trustee shall be effective when accepted in writing by the new Trustee. In the event that the Trustee is required to appoint a successor trustee hereunder, the Company agrees that the Trustee shall be held harmless from all liability and expenses relating to such appointment, the indemnification provision in Section 13(d) specifically shall apply, and if a successor trustee requires indemnification or hold harmless protection, such 9 11 indemnification or protection will be provided by the Company or any successor thereto and not the Trustee. Nothing herein contained, however, shall be deemed to preclude the Trustee from applying to a court of competent jurisdiction for the appointment of a successor trustee. SECTION 12. AMENDMENT OR TERMINATION. (a) This Trust Agreement may be amended by a written instrument executed by Trustee and Company. Notwithstanding the foregoing, following a change of control of the Company, no amendment may be made by the Company which adversely affects the rights of Participants to benefits under the Plan unless the amendment is agreed to in writing by more than 75% of the Participants entitled to the payment of benefits under the Plan as of the date of the amendment. (b) The Trust shall not terminate until the date on which the Participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan. Upon termination of the Trust, any assets remaining in the Trust shall be returned to Company. (c) Upon written approval of more than 75% of the Participants entitled to the payment of benefits under the Plan, Company may terminate this Trust prior to the time all benefit payments under the Plan have been made. All assets in the Trust at termination shall be returned to Company. (d) Notwithstanding any other provision in this Trust Agreement, this Trust Agreement may not be amended within one year after the occurrence of a Change of Control. SECTION 13. MISCELLANEOUS. (a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) Benefits payable to Participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. (c) This Trust Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. 10 12 (d) The Trustee shall be indemnified and saved harmless by the Company from and against any and all liability to which the Trustee may be subjected in carrying out its duties under this Agreement (including any liability incurred as a result of compliance with instructions of the Company, its agents or employees), except to the extent it is judicially determined that any loss or damage is directly attributable to the Trustee's (i) failure to exercise the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and like aims, (ii) negligence or willful misconduct or (iii) violation of applicable law. The indemnification provided to the Trustee shall also apply to any liability arising from the actions or nonactions or any predecessor trustee or fiduciary or other fiduciaries of the Plan. (e) For purposes of this Trust, Change of Control shall mean any of the following events (each of such events being herein referred to as a "Change of Control"): (1) The sale or other disposition by the Company of all or substantially all of its assets to a single purchaser or to a group of purchasers, other than to a corporation with respect to which, following such sale or disposition, more than eighty percent (80%) of, respectively, the then outstanding shares of Company common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of the Board of Directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Company common stock and the combined voting power of the then outstanding voting securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding Company common stock and voting power immediately prior to such sale or disposition; (2) The acquisition in one or more transactions by any person or group, directly or indirectly, of beneficial ownership of twenty percent (20%) or more of the outstanding shares of the Company common stock or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of the Board of Directors; provided, however, that any acquisition by (1) the Company or any of its subsidiaries, or any employee benefit plan (or related 11 13 trust) sponsored or maintained by the Company or any of its subsidiaries or (2) any person that is eligible, pursuant to Rule 13d-1(b) under the Exchange Act (as such rule is in effect as of November 1, 1995), to file a statement on Schedule 13G with respect to its beneficial ownership of Company common stock and other voting securities whether or not such person shall have filed a statement on Schedule 13G, unless such person shall have filed a statement on Schedule 13D with respect to beneficial ownership of fifteen percent (15%) or more of the Company's voting securities, shall not constitute a Change of Control; (3) The Company's termination of its business and liquidation of its assets; (4) There is consummated a merger, consolidation, reorganization, share exchange, or similar transaction involving the Company, (including a triangular merger), in any case, unless immediately following such transaction: (i) all or substantially all of the persons who were the beneficial owners of the outstanding common stock and outstanding voting securities of the Company immediately prior to the transaction beneficially own, directly or indirectly, more than 60% of the outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction (including a corporation or other person which, as a result of such transaction, owns the Company or all or substantially all of the Company's assets through one or more subsidiaries (a "Parent Company")) in substantially the same proportion as their ownership of the common stock and other voting securities of the Company immediately prior to the consummation of the transaction, (ii) no person (other than the Company, any employee benefit plan sponsored or maintained by the Company or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause (i) above is satisfied in connection with the transaction, such Parent Company) beneficially owns, directly or indirectly, 20% or more of the outstanding shares of common stock or the combined voting power of the voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction and (iii) individuals who were members of the Company's Board of Directors immediately prior to the consummation of the transaction constitute at least a majority of the members of the board of directors resulting from such transaction (or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause (i) above is satisfied in connection with the transaction, such Parent Company); or 12 14 (5) The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the entire Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved by a vote of a least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved. SECTION 14. EFFECTIVE DATE. The effective date of this Trust Agreement shall be November 1, 1997. EQUITABLE RESOURCES, INC. Attest: /s/ David J. Smith By: /s/ Gregory R. Spencer --------------------------- -------------------------------------------- Name: Gregory R. Spencer ------------------------------------------ Title: Sr. V.P. & Chief Administrative Officer ----------------------------------------- PNC BANK, NATIONAL ASSOCIATION Attest: /s/ Valerie Washington By: /s/ Richard S. Larimer --------------------------- -------------------------------------------- Name: Richard S. Larimer ------------------------------------------ Title: Sr. Vice President -----------------------------------------
13 EX-10.04 4 SHORT-TERM BONUS PLAN 1 Exhibit 10.4 EQUITABLE RESOURCES, INC. SHORT-TERM BONUS PLAN EQUITABLE RESOURCES, INC. (the "Company") hereby establishes this EQUITABLE RESOURCES, INC. SHORT-TERM BONUS PLAN (the "Plan") as of this 23rd day of February, 1999, in accordance with the terms provided herein. WHEREAS, the Company has maintained various bonus programs for the benefit of its employees; and WHEREAS, the Company desires to consolidate the structure of the bonus programs to a single, focused initiative which describes the goals of the Company and the methodology for awarding bonus amounts under the programs; and WHEREAS, the terms of this Plan will replace and supersede the relevant terms of the various bonus programs that exist throughout the Company. NOW, THEREFORE, the Company hereby adopts the terms of the Plan as follows: SECTION 1. BONUS PROGRAM STRATEGY. The Company's main purposes in providing bonus programs are to maintain a competitive level of total cash compensation and to align the interests of the Company's employees with those of the Company's shareholders, customers, and with the strategic objectives of the Company. By placing a portion of employee compensation at risk, the Company can reward performance based on the overall performance of the Company, the business segment and the individual contribution of each employee. SECTION 2. EFFECTIVE DATE. The Effective Date of this Plan is January 1, 1999. The plan will remain in effect until formally amended or terminated in writing by the Company's Chief Executive Officer. SECTION 3. ELIGIBILITY. Specific eligibility requirements for each program under this Plan are proposed by the assigned Business Segment President or Company Officer and approved by the Corporate Chief Administrative Officer. Employees that are eligible to participate in a program are notified in writing of their participation and given a Plan document for their reference. SECTION 4. ADMINISTRATION OF THE PLAN. Any program that covers the officers of the Company shall be administered by the Company's Chief Administrative Officer, under the general direction of the Company's President and Chief Executive Officer. The Company's Director of Compensation and Benefits shall administer all other programs under the general direction of the Company's Chief Administrative Officer. 2 On an annual basis, the Compensation Committee of the Board of Directors must review and approve the Equitable Resources Corporate Short - Term Bonus Program, its participants, their bonus targets, the methodology for funding the bonus pool, and the projected payout under the program. They must also review and approve all bonus payouts under this program, as well as any proposed amendments throughout the plan year. Further, all other bonus programs and projected payout amounts by program must be reviewed by the Compensation Committee on an annual basis. SECTION 5. EFFECT ON INDIVIDUAL PROGRAMS. This Plan shall serve to provide specific direction to the following bonus programs (collectively referred to as the "Bonus Programs"): o Equitable Resources Corporate Short-Term Bonus Program o Equitable Utilities Short-Term Bonus Program o Equitable Production - East Short-Term Bonus Program o Equitable Production - Gulf Short-Term Bonus Program o Equitable Services Short-Term Bonus Program This list is exhaustive of bonus programs throughout the Company. All bonus programs not listed above are terminated effective December 31, 1998 unless otherwise approved in writing by the Company's Chief Executive Officer. SECTION 6. DEFINITIONS. The following provides the definition of financial and operational measures used in all Bonus Programs (a) Net Income After Tax. This measure shall be determined by the Chief Financial Officer of the Company. The formula for Net Income After Tax for the Corporate Short Term Bonus Program is as follows: TOTAL REVENUE OF THE COMPANY MINUS TOTAL EXPENSES OF THE COMPANY FOR THE PLAN YEAR. For purposes of this paragraph, Total Revenue shall mean revenue from continuing operations. Income from unusual items as determined by the Company's Chief Financial Officer will be excluded. Expenses shall include interest, taxes, corporate overhead and the accrual charge for the incentive program funding, all of which are also determined by the Chief Financial Officer of the Company. Expenses from unusual items as determined by the Company's Chief Financial Officer will also be excluded. The Chief Executive Officer is responsible for reviewing all unusual items and may recommend their inclusion from financial calculations to the Compensation Committee of the Board of Directors for final approval as he/she may determine to maintain the spirit of the Plan. 2 3 The formula for Net Income After Tax for all other Bonus Programs is total revenue of the business segment minus total expenses using the same methodology described above. An exception, however, is made when calculating the expenses associated with business segment interest and taxes. The process for calculating this exception is described below: In determining Business Segment Net Income, pro forma financials below the Business Segment Earnings Before Interest and Taxes ("EBIT") line will be used. For purposes of calculating Interest and Taxes, the Segment capital structure, tax rate, and interest rate will be fixed at the capital structure, tax rate and interest rate reflected in the respective Segment's final 1999 business plan. Interest will be determined by multiplying 1) the predetermined interest rate, 2) predetermined % debt in the capital structure and 3) the 12-month average actual total capital employed during the year. Taxes will be determined by multiplying the predetermined effective tax rate by the Segment's pre-tax income and then deducting a predetermined amount of investment tax credit amortization. This calculation will be done by the business segment presidents and submitted to the Company's Chief Financial Officer for review and approval. The Company's Chief Financial Officer will determine, for purposes of this Plan, the final business segment Net Income After Tax to be used in determining bonus awards. (b) Company return on total capital as compared to a selected peer group. The return on total capital shall be expressed in quartiles and shall be compared against the return on total capital of a peer group. The corporate peer group shall be selected by the President and Chief Executive Officer of the Company, and the comparison shall be made by the Chief Financial Officer of the Company. The corporate peer group for 1999 is as follows: Columbia Energy Group, Consolidated Natural Gas, Energen, KN Energy, MCN Energy Group, National Fuel Gas, Oneok, Questar, Sonat, and Southwestern. The source for return on total capital data for the peer group is published by Value Line. The corporate return on total capital shall be determined in accordance with the following formula: NET INCOME AFTER TAX + (INTEREST X (1 - EFFECTIVE TAX RATE)) ------------------------------------------------------------ (SHORT AND LONG TERM DEBT + PREFERRED STOCK + BOOK EQUITY) For purposes of this paragraph, all factors in the denominator of the calculation described above shall be calculated by determining each specific factor at the end of December of the previous year and each specific factor at the end of December in the Plan year. The actual number used is calculated by averaging the resulting two numbers for each factor. 3 4 (c) Production. For purposes of this Plan, Production is the operation of delivering crude gas from the bottom of the well bore to separators or field gas processing equipment. (d) Net Income Ratio. The Net Income Ratio is calculated by dividing the actual Net Income, determined as specified in paragraph (a) above, by the Net Income forecasted in the approved business plan. SECTION 7. DETERMINATION OF BONUS POOLS. All Bonus Programs shall hereafter provide bonus amounts that are funded based on bonus pools. The bonus pools shall be determined by a specific and defined financial measure. An additional, defined, operational measure may be added at the discretion of the Company's Chief Executive Officer. The following chart provides the specific financial and operational measures for each of the approved programs. - ------------------------------------------------------------------------------ Short - Term Bonus Program Financial Measure Operational Measure - ------------------------------------------------------------------------------ Equitable Resources Corporate Net Income After Tax Competitive Return on Total Capital - ------------------------------------------------------------------------------ Equitable Utilities Net Income After Tax Not Applicable - ------------------------------------------------------------------------------ Equitable Production - East Net Income After Tax Production Goals - ------------------------------------------------------------------------------ Equitable Production - Gulf Net Income After Tax Production Goals - ------------------------------------------------------------------------------ Equitable Services Net Income After Tax Not Applicable - ------------------------------------------------------------------------------ Each bonus pool is funded based on the criteria listed above. The funding of each program is included in the attachments to this document. The Compensation Committee of the Board of Directors reserves the right to adjust the funding of any pool created under this Plan by any amount up to twenty-five (25%) percent. This adjustment will be based on the impact of weather and gas, oil and liquids prices. This adjustment may be either positive or negative. SECTION 8. BONUS TARGETS. Each participant under the Plan shall be given a bonus target that shall be determined based on market competitive levels. Bonus targets for all Company Officers shall be determined at the beginning of each plan year and approved by the Compensation Committee of the Board of Directors. All other bonus targets shall be determined, in consultation with the appropriate business segment president or corporate officer at the beginning of each plan year by Compensation and Benefits, and approved by the Chief Administrative Officer. Actual bonus payments shall be based on overall bonus pool funding and, for designated participants with specified individual performance goals, on individual performance. 4 5 SECTION 9. PERFORMANCE GOALS. Each exempt level participant must have specific performance goals developed for his/her position for the subject bonus year. These performance goals must support the approved business plan and should identify how the participant will support the specific value drivers established by executive management. A copy of each participant's performance goals and objectives must be developed and on file with the appropriate business segment Human Resources Department by February 15 of the Plan year. For those participants with specified individual performance goals, any bonus payment will be determined based on an evaluation of that participant's actual performance relative to those goals. Performance can be rated as Outstanding, Successful or Unsatisfactory. The definition of each rating is as follows: Performance Level Performance Definition ----------------- ---------------------- Outstanding Performance consistently exceeds established expectations. Performance at this level creates new standards of performance. Successful Performance meets and often exceeds established performance expectations. Unsatisfactory Performance is not meeting expectations in one or more of the performance criteria listed above. Performance at this level is a serious problem and will result in no bonus payout. Based on the employee's performance relative to their objectives, individual bonus adjustments can be made by the business segment president or appropriate corporate officer ranging from no bonus to 150% of the bonus target. The Company's Chief Executive Officer must approve any recommendation to make an adjustment in excess of 150%. He/she has the final approval of all bonus adjustments and awards to participants under this Plan. 5 6 SECTION 10. DISTRIBUTING THE BONUS POOL. Bonuses are distributed based on bonus pool funding and individual performance. The distribution is a four-step process. (1) The bonus pool is funded as described in Section 7. If the bonus pool is not funded, the process to calculate bonus awards is terminated. (2) The performance of each employee is reviewed by the business segment president and the performance factor described in Section 9 is applied to the employee's original bonus target. (3) The bonus targets after performance adjustments for each employee are totaled. The percent of each employee's adjusted bonus target is calculated as a percent of the total bonus targets for all employees. (4) The percent assigned to each employee in step 3 is multiplied by the total pool generated, resulting in the employee's actual bonus award. SECTION 11. POOL DISTRIBUTION FOR SELECTED EMPLOYEES. The distribution of the pool for selected employees is calculated as follows: Employees that are direct reports to the Company's Chief Executive Officer and are Presidents of Equitable business segments will have eighty percent (80%) of their bonus tied to the performance of the Corporate bonus pool and twenty percent (20%) of their bonus tied to the performance of their specific business segment bonus pool. Employees that are direct reports to Business Segment Presidents will have twenty percent (20%) of their bonus target tied to the performance of the Corporate bonus pool and eighty percent (80%) of their bonus tied to the performance of the appropriate business segment bonus pool. In addition, employees that are direct reports to the Company's Chief Executive Officer will be required to defer at least twenty percent (20%) of their bonus into the Company's common stock fund in the Company's Deferred Compensation Plan. Employees that are direct reports to executives that report directly to the Company's Chief Executive Officer will be required to defer at least ten (10%) of their bonus into the Company's common stock fund in the Company's Deferred Compensation Plan. This deferral will vest equally over a two-year period beginning one year after the date of deferral. The employee will be asked to give specific distribution elections as provided under the Deferred Compensation Plan for all deferrals. Employees required to defer a percentage of their bonus will be given the opportunity to defer and invest in Company common stock an additional amount over the minimum required amount described above. All deferrals over the required minimum will be matched by the Company with .25 shares of stock contributed to the employee's account for each share of stock purchased by the deferral of bonus over the required minimum. These shares vest equally over a three-year period beginning one year after the date of deferral. The employee will be asked to give specific distribution elections as provided 6 7 under the Deferred Compensation Plan for all deferrals. There is no limit on the number of matching shares. All shares that are deferred and matched will have dividends applied and reinvested as appropriate throughout the year. Employees that resign from the Company forfeit all unvested shares. Shares described in this section will be used when determining an executive's overall status regarding meeting their specific stock ownership guidelines. For purposes of this section, executives are corporate officers that report directly to the President and Chief Executive Officer. SECTION 12. IMPACT ON BENEFIT PLAN. Payments under the Plan shall not be considered as earnings for purposes of the Company's qualified retirement plans or any such retirement or benefit plan unless specifically provided for and defined under the plan. SECTION 13. TAX CONSEQUENCES. It is intended that nothing in this Plan shall change the tax consequences of the Bonus Programs under Federal or State law and specifically shall not cause the participants in the Bonus Programs to be taxed currently under the Constructive Receipt or Economic Benefit Doctrines and as expressed in Sections 451 and 83 of the Internal Revenue Code of 1986, as amended. SECTION 14. CHANGE OF STATUS. The President and Chief Executive Officer may decide to include or exclude an employee from the Plan under this section at his/her complete and sole discretion. In making such decisions, he/she may consider any factors that he/she may consider relevant. The recommendation to include an employee in the plan must be done by the business segment president or appropriate corporate officer upon the occurrence of the event described below. The following guidelines are provided as general information regarding employee status changes: (a) New Hire, Transfer, Promotion. A newly hired employee or an employee promoted or transferred during the performance year to a position qualifying for participation MAY be recommended for a pro rata award based on the level of participation in his/her previous program and the percentage of the performance year the employee is in the participating position. This includes employees that leave positions that qualify for bonus payments in other Company business segments. These potential payments shall be considered when calculating the employee's bonus target under this Plan. (b) Demotion. No award shall be made to an employee who has been demoted during the performance year because of performance. If the demotion is due to an organizational change, a pro rata award MAY be made, provided the employee otherwise qualifies for an incentive payment. 7 8 (c) Termination. Any employee whose services are terminated during the performance year for reasons of misconduct, failure to perform, or other cause, shall not be considered for an award. If the termination is due to reasons such as reorganization, and not due to the fault of the employee, the employee MAY be considered for a pro rata award. (d) Resignation. An employee who resigns to accept employment elsewhere (including self-employment) before bonuses are paid shall not be considered for an award. If the resignation is due to other reasons (e.g., ill health, disability), the employee MAY be considered for a pro rata award. (e) Death, Disability, Retirement, Leave of Absence and Layoff. An employee whose status as an active employee is changed during the performance year for any reason other than the reasons cited above MAY be considered for a pro rata award. In the event of an employee's death, earned awards for previous plan years ended prior to the employee's death shall be paid to the employee's estate. SECTION 15. DISPUTE RESOLUTION. The following is the exclusive procedure to be followed by all participants in resolving disputes arising from payments made under this Plan. All disputes relative to a given plan year must be presented to the Chief Administrative Officer of the Company within thirty (30) days following the award date for that plan year, or the participant's right to dispute a payment will be irrevocably waived. Once the Chief Administrative Officer has been notified of a dispute, he/she will assemble a Compensation Review Committee (CRC) to review the issue. The CRC will consist of the following: the Chief Administrative Officer, the manager of the employee with the dispute, the business segment head, and a peer chosen by the employee with the dispute. The employee with the concern will be given an opportunity to present his/her issues to the CRC. A decision will be rendered by the CRC within ten (10) business days of the meeting. The Chief Administrative Officer will be responsible for preparing a written version of the decision. This decision may be appealed to the President and Chief Executive Officer of the Company. Appealed decisions will be reviewed by the President and Chief Executive Officer with information requested from appropriate parties as he/she may determine in his/her sole discretion. The decision made by the President and Chief Executive Officer regarding the matter is final and binding on all Plan participants. 8 9 SECTION 16. AMENDMENT OR TERMINATION OF THIS PLAN. The Company shall have the right to amend or terminate the Plan at any time by written action approved by the Company's President and Chief Executive Officer in his/her complete and sole discretion. The Company shall notify affected employees in writing of any amendment or Plan termination. IN WITNESS WHEREOF, the Company hereby adopts the Plan as of the date first written above, ATTEST: EQUITABLE RESOURCES, INC. /s/ Jean F. Marks By: /s/ Murry S. Gerber - ------------------------ -------------------------------------- Jean F. Marks Murry S. Gerber Title: President and Chief Executive Officer ------------------------------------- 9 10 Equitable Corporate Short - Term Bonus Program Funding Bonus Pool Funding Multiple - ----------------------------------------------------------------------- Competitive ROTC Performance - ----------------------------------------------------------------------- Net Income 4th Quartile 3rd Quartile 2nd Quartile 1st Quartile Ratio (1) - ----------------------------------------------------------------------- < 100% 0 0 0 0 - ----------------------------------------------------------------------- 100% .75 1.00 1.25 1.50 - ----------------------------------------------------------------------- 105% .83 1.25 1.50 1.75 - ----------------------------------------------------------------------- 110% .92 1.50 1.75 2.00 - ----------------------------------------------------------------------- 115% 1.00 1.75 2.00 2.25 - ----------------------------------------------------------------------- 120% 1.00 2.00 2.25 2.50 - ----------------------------------------------------------------------- 125% 1.00 2.25 2.50 2.75 - ----------------------------------------------------------------------- (1) Company Actual Net Income divided by Business Plan Net Income (2) For 1st, 2nd and 3rd quartile performance, the bonus pool multiple continues to increase by .25 times for each additional 5% of Net Income Ratio. 10 11 Equitable Utilities Short - Term Bonus Program Funding --------------------------------------------------- Net Income Ratio (1) Bonus Pool Funding Multiple (2) --------------------------------------------------- < 100% 0 --------------------------------------------------- 100% 1.00 --------------------------------------------------- 105% 1.25 --------------------------------------------------- 110% 1.50 --------------------------------------------------- 115% 1.75 --------------------------------------------------- 120% 2.00 --------------------------------------------------- 125% 2.25 --------------------------------------------------- (1) Business Segment Actual Net Income divided by Business Plan Net Income (2) The bonus pool multiple continues to increase by .25 times for each additional 5% of Net Income Ratio. 11 12 Equitable Production - East Short-Term Bonus Program Funding Bonus Pool Funding Multiple -------------------------------------------------------------- Production Net Income Ratio (1) 41.4bcf to < 43.5 bcf 43.5 bcf + (2) -------------------------------------------------------------- < 100% 0 0 -------------------------------------------------------------- 100% 1.00 1.50 -------------------------------------------------------------- 105% 1.16 1.75 -------------------------------------------------------------- 110% 1.33 2.00 -------------------------------------------------------------- 115% 1.50 2.25 -------------------------------------------------------------- 120% 1.50 2.50 -------------------------------------------------------------- 125% 1.50 2.75 -------------------------------------------------------------- (1) Business Segment Actual Net Income divided by Business Plan Net Income (2) For production performance above 43.5 bcf, the bonus pool multiple continues to increase by .25 times for each additional 5% of Net Income Ratio. 12 13 Equitable Production - Gulf Short - Term Bonus Program Funding Bonus Pool Funding Multiple --------------------------------------------- Production --------------------------------------------- Business Segment Net Income < 26.1 bcf 26.1 bcf + --------------------------------------------- $ 1 0 1.00 --------------------------------------------- $1,000,000 0 1.50 --------------------------------------------- $2,000,000 + 0 2.00 --------------------------------------------- Note: For production performance above 26.1 bcf, the bonus pool will be funded at the discretion of the President and Chief Executive Officer. 13 14 Equitable Services Short - Term Bonus Program Funding --------------------------------------------------- Net Income Ratio (1) Bonus Pool Funding Multiple --------------------------------------------------- < 100% 0 --------------------------------------------------- 100% 1.00 --------------------------------------------------- 122% 1.25 --------------------------------------------------- 144% 1.50 --------------------------------------------------- 166% 1.75 --------------------------------------------------- 188% 2.00 --------------------------------------------------- 210% 2.25 --------------------------------------------------- (1) Actual Net Income divided by Business Plan Net Income. 14 15 EQUITABLE RESOURCES, INC. SHORT-TERM BONUS PLAN AMENDMENT NO. 1 THIS AMENDMENT NO. 1 to the Equitable Resources Short-Term Bonus Plan (the "Plan") is hereby made this 27th day of October 1999, as provided below. WHEREAS, the Plan, as established by the Company effective February 23, 1999, provided for certain calculations to be made in connection with peer group comparisons; and WHEREAS, on October 27, 1999, the Compensation Committee of the Company's Board of Directors authorized amendment of the Plan to modify certain aspects of such calculations. NOW, THEREFORE, the Plan shall be amended, effective October 27, 1999, as follows: 1. The Plan be and hereby is amended by deleting the last two sentences of the first paragraph of Section 6(b) thereof and substituting the following in lieu thereof: The corporate peer group is as follows: Columbia Energy Group, Consolidated Natural Gas, Energen, KN Energy, MCN Energy Group, National Fuel Gas, Oneok, Questar, Sonat and Southwestern, to be adjusted by the Chief Financial Officer as he deems appropriate in the event of transactions involving any of the named peer group companies. 2. The Plan be and hereby is amended by deleting the second and third sentences of the second paragraph of Section 6(b) thereof (following the formula) and substituting the following lieu thereof: For purposes of this paragraph, all factors in the denominator of the calculation described above shall be calculated by determining each specific factor at the end of December of the previous year and at the end of each of the four quarters of the Plan year. The actual number used is calculated by averaging the resulting five numbers for each factor. 15 16 IN WITNESS WHEREOF, the Company has caused this Amendment No. 1 to be executed by its officers thereunto authorized as of the day and year first written above. EQUITABLE RESOURCES, INC. /s/ Gregory R. Spencer ------------------------------------ Gregory R. Spencer Senior Vice President and Chief Administrative Officer ATTEST: /s/ Jean F. Marks - -------------------------------------- Jean F. Marks 16 EX-10.06 5 LONG-TERM INCENTIVE PLAN 1 Exhibit 10.06 - -------------------------------------------------------------------------------- EQUITABLE RESOURCES 1994 LONG-TERM INCENTIVE PLAN (Adopted January 21, 1994) and PROSPECTUS (Dated May 27, 1999) - -------------------------------------------------------------------------------- 2 1994 EQUITABLE RESOURCES, INC. LONG-TERM INCENTIVE PLAN SECTION 1. PURPOSES 1.01 The purpose of the 1994 Equitable Resources, Inc. Long-Term Incentive Plan (the "Plan") is to enable Equitable Resources, Inc. (together with any successor thereto, the "Company") to focus key executives' efforts on performance which will increase the value of the Company for its shareholders. The Plan is intended to align the interests of key executives with those of the shareholders by encouraging share ownership. The Plan is also intended to help to attract and retain key executives. SECTION 2. DEFINITIONS; CONSTRUCTION 2.01 DEFINITIONS. In addition to the terms defined elsewhere in the Plan, the following terms as used in the Plan shall have the following meanings when used with initial capital letters: 2.01.1 "Award" means any Option, Stock Appreciation Right, Restricted Stock, Deferred Stock, Performance Award, Dividend Equivalent, or Other Stock-Based Award, or any other right or interest relating to Shares or cash granted under the Plan. 2.01.2 "Award Agreement" means any written agreement, contract or other instrument or document evidencing an Award. 2.01.3 "Board" means the Company's Board of Directors. 2.01.4 "Code" means the Internal Revenue Code of 1986, as amended from time to time, together with rules, regulations and interpretations promulgated thereunder. 2.01.5 "Committee" means the Compensation Committee or such other Committee of the Board as may be designated by the Board to administer the Plan, as referred to in Section 3.01 hereof; provided however, that the Committee shall qualify to administer the Plan as contemplated by Rule 16b-3(c)(2)(i) of the Exchange Act or any successor and by Section 162(m)(4)(C) of the Code or any successor. 2.01.6 "Common Stock" means shares of the common stock without par value, and such other securities of the Company as may be substituted for Shares pursuant to Section 8.01 hereof. 2.01.7 "Covered Employee" shall have the meaning provided in Section 162(m)(3) of the Code. 1 3 2.01.8 "Deferred Stock" means Shares, granted under Section 6.05 hereof, receipt of which is deferred for a specified deferral period. 2.01.9 "Dividend Equivalent" means a right, granted under Section 6.07 hereof, to receive interest or dividends, or interest or dividend equivalents. 2.01.10 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2.01.11 "Fair Market Value" of shares of any stock, including but not limited to Common Stock, or units of any other securities (herein "shares"), shall be the mean between the following prices, as applicable, for the date as of which Fair Market Value is to be determined as quoted in The Wall Street Journal (or in such other reliable publication as the Committee, in its discretion, may determine to rely upon): (a) if the shares are listed on the New York Stock Exchange, the highest and lowest sales prices per share as quoted in the NYSE-Composite Transactions listing for such date, (b) if the shares not listed on such exchange, the highest and lowest sales prices per share for such date on (or on any composite index including) the principal United States securities exchange registered under the Exchange Act on which the shares are listed, or (c) if the shares are not listed on any such exchange, the highest and lowest sales prices per share for such date on the National Association of Securities Dealers Automated Quotations System or any successor system then in use ("NASDAQ"). If there are no such sale price quotations for the date as of which Fair Market Value is to be determined but there are such sale price quotations within a reasonable period both before and after such date, then Fair Market Value shall be determined by taking a weighted average of the means between the highest and lowest sales prices per share as so quoted on the nearest date before and the nearest date after the date as of which Fair Market Value is to be determined. The average should be weighted inversely by the respective numbers of trading days between the selling dates and the date as of which Fair Market Value is to be determined. If there are no such sale price quotations on or within a reasonable period both before and after the date as of which Fair Market Value is to be determined, then Fair Market Value of the shares shall be the mean between the bona fide bid and asked prices per share as so quoted for such date on NASDAQ, or if none, the weighted average of the means between such bona fide bid and asked prices on the nearest trading date before and the nearest trading date after the date as of which Fair Market Value is to be determined, if both such dates are within a reasonable period. The average is to be determined in the manner described above in this Section 2.01.10. If the Fair Market Value of shares on the date as of which Fair Market Value is to be determined cannot be determined on the basis previously set forth in this Section 2.01.10, or if a determination is required as to the Fair Market Value on any 2 4 date of property other than shares, the Committee shall in good faith determine the Fair Market Value of such shares or other property on such date. Fair Market Value shall be determined without regard to any restriction other than a restriction which, by its terms, will never lapse. 2.01.12 "Incentive Stock Option" means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto and is designated as such in the Award Agreement relating thereto. 2.01.13 "Option" means a right, granted under Section 6.02 hereof, to purchase Shares at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a nonstatutory stock option, which is an Option not intended to be an Incentive Stock Option. 2.01.14 "Other Stock-Based Award" means an Award, granted under Section 6.08 hereof, that is denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Shares. 2.01.15 "Participant" means a key employee of the Company or any Subsidiary, including, but not limited to, Covered Employees, who is granted an Award under the Plan. 2.01.16 "Performance Award" means a right, granted under Section 6.06 hereof, to receive Awards based upon performance criteria specified by the Committee. 2.01.17 "Person" shall have the meaning assigned in the Exchange Act. 2.01.18 "Restricted Stock" means Shares, granted under Section 6.04 hereof, that are subject to certain restrictions. 2.01.19 "Rule 16b-3" means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor to such Rule promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act. 2.01.20 "Shares" means the common stock of the Company, without par value, and such other securities of the Company as may be substituted for Shares pursuant to Section 8.01 hereof. 2.01.21 "Stock Appreciation Right" means a right, granted under Section 6.03 hereof, to be paid an amount measured by the appreciation in the Fair Market Value of Shares from the date of grant to the date of exercise. 2.01.22 "Subsidiary" means any corporation in an unbroken chain of corporations beginning with the Company, if each of the corporations 3 5 other than the last corporation in the chain owns stock possessing at least 50% of the total combined voting power of all classes of stock in one of the other corporations in the chain. Definitions of the terms "Change of Control," "Change of Control Price," "Potential Change of Control," "Related Party," "Voting Securities or Security" and "Beneficial Ownership" are set forth in Section 9.03 hereof. 2.02 CONSTRUCTION. For purposes of the Plan, the following rules of construction shall apply: 2.02.1 The word "or" is disjunctive but not necessarily exclusive. 2.02.2 Words in the singular include the plural; words in the plural include the singular; words in the neuter gender include the masculine and feminine genders, and words in the masculine or feminine gender include the other and neuter genders. SECTION 3. ADMINISTRATION 3.01 The Plan shall be administered by the Committee. The Committee shall have full and final authority to take the following actions, in each case subject to and consistent with the provisions of the Plan: (i) to designate Participants; (ii) to determine the type or types of Awards to be granted to each Participant; (iii) to determine the number of Awards to be granted, the number of Shares or amount of cash or other property to which an Award will relate, the terms and conditions of any Award (including, but not limited to, any exercise price, grant price or purchase price, any limitation or restriction, any schedule for lapse of limitations, forfeiture restrictions or restrictions on exercisability or transferability, and accelerations or waivers thereof, based in each case on such considerations as the Committee shall determine), and all other matters to be determined in connection with an Award; (iv) to determine whether, to what extent and under what circumstances an Award may be settled in, or the exercise price of an Award may be paid in cash, Shares, other Awards or other property, or an Award may be accelerated, vested, canceled, forfeited, exchanged or surrendered; (v) to determine whether, to what extent and under what circumstances cash, Shares, other Awards, other property and other amounts payable with respect to an Award shall be deferred, whether 4 6 automatically or at the election of the Committee or at the election of the Participant; (vi) to interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; (vii) to prescribe the form of each Award Agreement, which need not be identical for each Participant; (viii) to adopt, amend, suspend, waive and rescind such rules and regulations as the Committee may deem necessary or advisable to administer the Plan; (ix) to correct any defect or supply any omission or reconcile any inconsistency, and to construe and interpret the Plan, the rules and regulations, any Award Agreement or other instrument entered into or Award made under the Plan; (x) to make all other decisions and determinations as may be required under the terms of the Plan or as the Committee may deem necessary or advisable for the administration of the Plan; (xi) to submit for shareholder approval or not as may be appropriate and to take such other actions and make such other decisions as may be required by the Revenue Reconciliation Act of 1993 with respect to the definition of performance-based compensation as it may from time to time be defined; and (xii) to make such filings and take such actions as may be required from time to time by appropriate state, regulatory and governmental agencies. Any action of the Committee with respect to the Plan shall be final, conclusive and binding on all Persons, including the Company, Subsidiaries, Participants, any Person claiming any rights under the Plan from or through any Participant, employees and shareholders. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. The Committee may delegate to officers or managers of the Company or any Subsidiary the authority, subject to such terms as the Committee shall determine, to perform administrative functions under the Plan and, with respect to Participants who are not subject to Section 16 of the Exchange Act, to take such actions and perform such functions under the Plan as the Committee may specify. Each member of the Committee shall be entitled to, in good faith, rely or act upon any report or other information furnished to him by an officer, manager or other employee of the Company or a Subsidiary, the Company's independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan. 5 7 SECTION 4. SHARES SUBJECT TO THE PLAN 4.01 The maximum number of shares of Common Stock in respect of which Awards may be granted under the Plan in any calendar year, subject to adjustment as provided in Section 8.01 of the Plan, shall be (a) in 1994 the sum of (1) one percent (1%) of the total number of issued and outstanding shares of Common Stock as of December 31, 1993 and (2) the number of shares of Common Stock which are reserved but not subject to grants under the Company's Key Employee Restricted Stock Option and Stock Appreciation Rights Incentive Compensation Plan as of the date this Plan is approved by the shareholders of the Company and (b) in each succeeding calendar year the sum of (1) one percent (1%) of the total number of issued and outstanding shares of Common Stock as of the close of the preceding calendar year, (2) the number of shares of Common Stock which were available for Awards under this Section 4.01 as of the close of the preceding calendar year and (3) any shares of Common Stock which are subject to an outstanding Award at the beginning of such year but which thereafter again become available for Awards under the Plan as provided in the fourth paragraph of this Section 4.01; provided, however, that in no event may: (i) the sum of (x) the number of Shares subject to all outstanding Awards under the Plan and (y) the number of Shares previously issued under the Plan at any time equal or exceed 5% of the total number of shares of Common Stock outstanding on the date of shareholder approval of the Plan; or (ii) the sum of (x) the number of Shares subject to all outstanding Options and Stock Appreciation Rights granted under the Plan and held by any single Participant and (y) the number of shares previously issued to such Participant upon exercise of Options and Stock Appreciation Rights granted under the Plan at any time exceed 25% of the sum of (A) the total number of Shares subject to all outstanding Awards under the Plan, (B) the total number of Shares previously issued under the Plan and (C) the total number of Shares then available for the grant of additional Awards under the Plan. Subject to subparagraphs (i) and (ii) above, but notwithstanding anything else contained above in this Section 4.01, in the event of a Change of Control, the maximum number of shares of Common Stock available for Awards under the Plan shall be 5% of the total number of shares of Common Stock issued and outstanding on the date of shareholder approval of the Plan, less (1) the number of Shares subject to outstanding Awards under the Plan and (2) the number of Shares previously issued under the Plan. For purposes of this Section 4.01, the number of Shares to which an Award relates shall be counted against the number of Shares reserved and available under the Plan at the time of grant of the Award, unless such number of Shares cannot be determined at that time, in which case the number of Shares actually distributed pursuant to the Award shall be counted against the number of Shares reserved and available under the Plan at the time of distribution; provided, 6 8 however, that Awards related to or retroactively added to, or granted in tandem with, substituted for or converted into, other Awards shall be counted or not counted against the number of Shares reserved and available under the Plan in accordance with procedures adopted by the Committee so as to ensure appropriate counting but avoid double counting. If any Shares to which an Award relates are forfeited, or payment is made to the Participant in the form of cash, cash equivalents or other property other than Shares, or the Award otherwise terminates without payment being made to the Participant in the form of Shares, any Shares counted against the number of Shares reserved and available under the Plan with respect to such Award shall, to the extent of any such forfeiture, alternative payment or termination, again be available for Awards under the Plan provided, however, forfeited Shares may not again be made available to the extent the Participant received dividends or other benefits of ownership (not including voting rights) prior to such forfeiture. The payment of the exercise price of an Award in Shares shall not increase the number of Shares available under the Plan. Any Shares distributed pursuant to an Award may consist, in whole or part, of authorized and unissued Shares or of treasury Shares, including Shares repurchased by the Company for purposes of the Plan. SECTION 5. ELIGIBILITY 5.01 Awards may be granted only to individuals who are key full-time employees (including, without limitation, employees who also are directors or officers and Covered Employees) of the Company or any Subsidiary; provided, however, that no Award shall be granted to any member of the Committee. SECTION 6. SPECIFIC TERMS OF AWARDS 6.01 GENERAL. Subject to the terms of the Plan and any applicable Award Agreement, Awards may be granted as set forth in this Section 6. In addition, the Committee may impose on any Award or the exercise thereof, at the date of grant or thereafter (subject to the terms of Section 10.01), such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine, including separate escrow provisions and terms requiring forfeiture of Awards in the event of termination of employment by the Participant. Except as provided in Section 7.01, or as required by applicable law, Awards may be granted for no consideration other than prior and/or future services. 6.02 OPTIONS. The Committee is authorized to grant Options to Participants on the following terms and conditions: (i) EXERCISE PRICE. The exercise price per Share of an Option shall be 100% of the Fair Market Value of a Share on the date of grant of such Option, except as otherwise provided in Section 7.01, and except that in the case of an Incentive Stock Option granted to an employee who, immediately prior to such grant, owns stock possessing more than 7 9 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary (a "Ten Percent Employee") such exercise price shall be 110% of the Fair Market Value of a Share on the date of grant. For purposes of the preceding sentence, an individual (A) shall be considered as owning not only shares of stock owned individually but also all shares of stock that are at the time owned, directly or indirectly, by or for the spouse, ancestors, lineal descendants and brothers and sisters (whether by the whole or half blood) of such individual and (B) shall be considered as owning proportionately any shares owned, directly or indirectly, by or for any corporation, partnership, estate or trust in which such individual is a shareholder, partner or beneficiary. (ii) OPTION TERM. The term of each Option shall be determined by the Committee, except that no Incentive Stock Option shall be exercisable after the expiration of ten years from the date of grant, and no Incentive Stock Option granted to a Ten Percent Employee shall be exercisable after the expiration of five years from the date of grant. (iii) TIMES AND METHODS OF EXERCISE. The Committee shall determine the time or times at which an Option may be exercised in whole or in part, the methods by which such exercise price may be paid or deemed to be paid, and the form of such payment, including, without limitation, cash, Shares, other outstanding Awards or other property (including notes or other contractual obligations of Participants to make payment on a deferred basis, to the extent permitted by law) or any combination thereof, having a Fair Market Value on the date of exercise equal to the exercise price, provided, however, that (1) in the case of a Participant who is at the time of exercise subject to Section 16 of the Exchange Act, any portion of the exercise price representing a fraction of a Share shall in any event be paid in cash or in property other than any equity security (as defined by the Exchange Act) of the Company and (2) except as otherwise determined by the Committee, in its discretion, at the time the Option is granted, no shares which have been held for less than six months may be delivered in payment of the exercise price of an Option. Delivery of Shares in payment of the exercise price of an Option, if authorized by the Committee, may be accomplished through the effective transfer to the Company of Shares held by a broker or other agent. Unless otherwise determined by the Committee, the Company will also cooperate with any person exercising an Option who participates in a cashless exercise program of a broker or other agent under which all or part of the Shares received upon exercise of the Option are sold through the broker or other agent, or under which the broker or other agent makes a loan to such person, for the purpose of paying the exercise price of an Option. Notwithstanding the preceding sentence, unless the Committee, in its discretion, shall otherwise determine, the exercise of the Option shall not be deemed to occur, 8 10 and no Shares will be issued by the Company upon exercise of an Option, until the Company has received payment in full of the exercise price. Notwithstanding any other provision contained in the Plan or in any Award Agreement, but subject to the possible exercise of the Committee's discretion contemplated in the last sentence of this Section 6.02(iii), the aggregate Fair Market Value, determined as of the date of grant, of the Shares with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year under all plans of the corporation employing such employee, any parent or subsidiary corporation of such corporation and any predecessor corporation of any such corporation shall not exceed $100,000. If the date on which one or more of such Incentive Stock Options could first be exercised would be accelerated pursuant to any provision of the Plan or any Award Agreement, and the acceleration of such exercise date would result in a violation of the restriction set forth in the preceding sentence, then, notwithstanding any such provision, but subject to the provisions of the next succeeding sentence, the exercise dates of such Incentive Stock Options shall be accelerated only to the date or dates, if any, that do not result in a violation of such restriction and, in such event, the exercise dates of the Incentive Stock Options with the lowest option prices shall be accelerated to the earliest such dates. The Committee may, in its discretion, authorize the acceleration of the exercise date of one or more Incentive Stock Options even if such acceleration would violate the $100,000 restriction set forth in the first sentence of this paragraph and even if such Incentive Stock Options are thereby converted in whole or in part to nonstatutory stock options. 6.03 STOCK APPRECIATION RIGHTS. The Committee is authorized to grant Stock Appreciation Rights to Participants on the following terms and conditions: (i) RIGHT TO PAYMENT. A Stock Appreciation Right shall confer on the Participant to whom it is granted a right to receive, upon exercise thereof, the excess of (a) the Fair Market Value of a Share on the date of exercise or, if the Committee shall so determine in the case of any such right other than one related to any Incentive Stock Option, at any time during a specified period before or after the date of exercise, over (b) the grant price of the Stock Appreciation Right as determined by the Committee as of the date of grant of the Stock Appreciation Right, which, except as provided in Section 7.01, shall be equal to the Fair Market Value of a Share on the date of grant. (ii) OTHER TERMS. The term, methods of exercise, methods of settlement and any other terms and conditions of any Stock Appreciation Right shall be determined by the Committee. 6.04 RESTRICTED STOCK. The Committee is authorized to grant Restricted Stock to Participants on the following terms and conditions: (i) ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends thereon), which 9 11 restrictions may lapse separately or in combination at such times, under such circumstances, in such installments or otherwise, as the Committee shall determine at the time of grant or thereafter. (ii) FORFEITURE. Except as otherwise determined by the Committee at the time of grant or thereafter, upon termination of employment (as determined under criteria established by the Committee) during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited and reacquired by the Company; provided, however, that the Committee may provide, by rule or regulation or in any Award Agreement, that restrictions on Restricted Stock shall be waived in whole or in part in the event of terminations resulting from specified causes, and the Committee may in other cases waive in whole or in part restrictions on Restricted Stock. (iii) CERTIFICATES FOR SHARES. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee shall determine, including, without limitation, issuance of certificates representing Shares. Certificates representing Shares of Restricted Stock shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Stock. 6.05 DEFERRED STOCK. The Committee is authorized to grant Deferred Stock to Participants on the following terms and conditions: (i) ISSUANCE AND LIMITATIONS. Delivery of Shares shall occur upon expiration of the deferral period specified for the Award of Deferred Stock by the Committee. In addition, an Award of Deferred Stock shall be subject to such limitations as the Committee may impose, which limitations may lapse at the expiration of the deferral period or at other specified times, separately or in combination, in installments or otherwise as the Committee shall determine at the time of grant or thereafter. A Participant awarded Deferred Stock shall have no voting rights and shall have no rights to receive dividends in respect of Deferred Stock, unless and only to the extent that the Committee shall award Dividend Equivalents in respect of such Deferred Stock. (ii) FORFEITURE. Except as otherwise determined by the Committee upon termination of employment (as determined under criteria established by the Committee) during the applicable deferral period, Deferred Stock that is at that time subject to deferral (other than a deferral at the election of the Participant) shall be forfeited; provided, however, that the Committee may provide, by rule or regulation or in any Award Agreement, that forfeiture of Deferred Stock shall be waived in whole or in part in the event of terminations resulting from specified causes, and the Committee may in other cases waive in whole or in part the forfeiture of Deferred Stock. 10 12 6.06 PERFORMANCE AWARDS. The Committee is authorized to grant Performance Awards to Participants on the following terms and conditions: (i) RIGHT TO PAYMENT. A Performance Award shall confer upon the Participant rights, valued as determined by the Committee, and payable to, or exercisable by, the Participant to whom the Performance Award is granted, in whole or in part, as the Committee shall establish. The performance criteria and all other terms and conditions of the Performance Award shall be determined by the Committee upon the grant of each Performance Award or thereafter. (ii) OTHER TERMS. A Performance Award may be denominated or payable in cash, deferred cash, Shares, other Awards or other property, and other terms and conditions of Performance Awards shall be as determined by the Committee. 6.07 DIVIDEND EQUIVALENTS. The Committee is authorized to grant Dividend Equivalents to Participants. Dividend Equivalents shall confer upon the Participant rights to receive, currently or on a deferred basis, interest or dividends, or interest or dividend equivalents, with respect to a number of Shares, or otherwise, as determined by the Committee. The Committee may provide that Dividend Equivalents shall be paid or distributed when accrued or shall be deemed to have been reinvested in additional Shares or additional Awards or otherwise reinvested. 6.08 OTHER STOCK-BASED AWARDS. The Committee is authorized, subject to limitations under applicable law, to grant to Participants such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Shares, as deemed by the Committee to be consistent with the purposes of the Plan and, with respect to Participants who are subject to Section 16 of the Exchange Act, to comply with Rule 16b-3 and applicable law including, without limitation, purchase rights, Shares awarded which are not subject to any restrictions or conditions, convertible securities, exchangeable securities or other rights convertible or exchangeable into Shares, as the Committee in its discretion may determine. In the discretion of the Committee, such Other Stock-Based Awards, including Shares, or other types of Awards authorized under the Plan, may be used in connection with, or to satisfy obligations of the Company or a Subsidiary under, other compensation or incentive plans, programs or arrangements of the Company or any Subsidiary for eligible Participants, including without limitation the Short-Term Incentive Compensation Plan, the Supplemental Executive Retirement Plan (SERP) and executive contracts. The Committee shall determine the terms and conditions of Other Stock-Based Awards. Except as provided in Section 7.01, Shares or securities delivered pursuant to a purchase right granted under this Section 6.08 shall be purchased for such consideration, paid for by such methods and in such forms, including, without limitation, cash, Shares, outstanding Awards or other property or any hereof, as the Committee shall determine, but the value of such consideration shall 11 13 not be less than the Fair Market Value of such Shares or other securities on the date of grant of such purchase right. Delivery of Shares or other securities in payment of a purchase right, if authorized by the Committee, may be accomplished through the effective transfer to the Company of Shares or other securities held by a broker or other agent. Unless otherwise determined by the Committee, the Company will also cooperate with any person exercising a purchase right who participates in a cashless exercise program of a broker or other agent under which all or part of the Shares or securities received upon exercise of a purchase right are sold through the broker or other agent, or under which the broker or other agent makes a loan to such person, for the purpose of paying the exercise price of a purchase right. Notwithstanding the preceding sentence, unless the Committee, in its discretion, shall otherwise determine, the exercise of the purchase right shall not be deemed to occur, and no Shares or other securities will be issued by the Company upon exercise of a purchase right, until the Company has received payment in full of the exercise price. 6.09 EXCHANGE PROVISIONS. The Committee may at any time offer to exchange or buy out any previously granted Award for a payment in cash, Shares, another Award or other property, based on such terms and conditions as the Committee shall determine and communicate to the Participant at the time that such offer is made. SECTION 7. GENERAL TERMS OF AWARDS 7.01 STAND-ALONE, TANDEM AND SUBSTITUTE AWARDS. Awards granted under the Plan may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for, any other Award granted under the Plan or any award granted under the Management Incentive Compensation Plan, or any other plan, program or arrangement of the Company or any Subsidiary (subject to the terms of Section 10.01) or any business entity acquired or to be acquired by the Company or a Subsidiary. If an Award is granted in substitution for another Award or award, the Committee shall require the surrender of such other Award or award in consideration for the grant of the new Award. Awards granted in addition to or in tandem with other Awards or awards may be granted either at the same time as or at a different time from the grant of such other Awards or awards, except that Awards may be granted in tandem with an Incentive Stock Option only at the time the Incentive Stock Option is granted. The exercise price of any Option, the grant price of any Stock Appreciation Right or the purchase price of any other Award conferring a right to purchase Shares: (i) granted in substitution for an outstanding Award or award shall be not less than the Fair Market Value of Shares at the date such substitute Award is granted; provided, however, that (1) except in the case of (a) an Incentive Stock Option or (b) an Option or Stock Appreciation Right granted to a Covered Employee, the exercise, grant or purchase price per share of the substituted Award may be reduced to reflect the Fair Market Value of the Award or award required to be surrendered by the Participant as a condition to receipt of such substitute Award, and (2) in the case of any Participant, the Committee may, in lieu of such price reduction, make an additional Award or payment to the 12 14 Participant reflecting the Fair Market Value of the Award or award required to be surrendered; or (ii) retroactively granted in tandem with an outstanding Award or award shall be not less than the lesser of the Fair Market Value of Shares at the date of grant of the later Award or the Fair Market Value of Shares at the date of grant of the earlier Award. 7.02 CERTAIN RESTRICTIONS UNDER RULE 16b-3. Upon the effectiveness of any amendment to Rule 16b-3, this Plan and any Award Agreement for an outstanding Award held by a Participant then subject to Section 16 of the Exchange Act shall be deemed to be amended, without further action on the part of the Committee, the Board or the Participant, to the extent necessary for Awards under the Plan or such Award Agreement to qualify for the exemption provided by Rule 16b-3, as so amended, except to the extent any such amendment requires shareholder approval. 7.02.1 SIX-MONTH LIMITATIONS ON SALES AND EXERCISES. Any equity security (as defined by the Exchange Act), other than a derivative security, granted or awarded pursuant to the Plan to a Participant who is at the time of grant or award subject to Section 16 of the Exchange Act must be held by the Participant for at least six months after grant (or, if later, after the date of shareholder approval of the Plan), except in the case of death. If a derivative security is granted or awarded to a Participant who is at the time of grant or award subject to Section 16 of the Exchange Act, (1) the Participant may not dispose of the derivative security (other than through exercise or conversion or upon death) or of any equity security acquired upon its exercise or conversion (other than upon death) until six months have elapsed from the date of grant or award of the derivative security (or, if later, from the date of shareholder approval of the Plan) and (2) except with respect to an Option, the derivative security may not be exercised or converted within such six-month period (other than upon death) unless such exercise would not cause the grant or award of the derivative security to cease to be exempt under Rule 16b-3. The limitations in this Section 7.02.1 shall not apply to the extent such limitations are not at the time required for the grant of the Award to continue to qualify for the exemption provided by Rule 16b-3. Certificates issued for Shares subject to limitations under this Section 7.02.1 may be made subject to stop-transfer orders, legended and/or made subject to a custodial arrangement as provided in Section 7.07. 7.02.2 NONTRANSFERABILITY. Awards which constitute derivative securities shall not be transferable by a Participant except by will or the laws of descent and distribution and shall be exercisable during a Participant's lifetime only by such Participant; provided, however, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant, and to receive any distribution with respect to any Award (other than an Incentive Stock Option), 13 15 upon the death of the Participant; and provided, further, that the Committee may determine that these restrictions on transferability shall not apply to Awards (other than an Incentive Stock Option) granted to any Participant who, at the time of the initial grant and the transfer, is not subject to Section 16 of the Exchange Act or shall not apply to Awards (other than an Incentive Stock Option) granted to a Participant subject to Section 16 to the extent such restrictions are not at the time required for the Plan to continue to meet the requirements of Rule 16b-3. 7.02.3 DECISIONS REQUIRED TO BE MADE BY THE COMMITTEE. Other provisions of the Plan and any Award Agreement notwithstanding, if any decision regarding an Award or the exercise of any right by a Participant, at any time such Participant is subject to Section 16 of the Exchange Act, is required to be made or approved by the Committee in order that the Plan will continue to meet the requirements of Rule 16b-3 or in order that a transaction by such Participant will be exempt under Rule 16b-3, then the Committee shall retain full and exclusive power and authority to make such decision or to approve or disapprove any such decision by the Participant. 7.03 TERM OF AWARDS. The term of each Award shall be for such period as may be determined by the Committee; provided, however, that in no event shall the term of any Incentive Stock Option, or a Stock Appreciation Right granted in tandem therewith, exceed a period of ten years from the date of its grant. 7.04 FORM OF PAYMENT OF AWARDS. Subject to the terms of the Plan and any applicable Award Agreement, payments or substitutions to be made by the Company upon the grant, exercise or other payment or distribution of an Award may be made in such forms as the Committee shall determine at the time of grant or thereafter (subject to the terms of Section 10.01), including, without limitation, cash, Shares, other Awards or other property or any combination thereof, and may be made in a single payment or substitution, in installments or on a deferred basis, in each case in accordance with rules and procedures established, or as otherwise determined, by the Committee. Such rules and procedures or determinations may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents in respect of installment or deferred payments. 7.05 LIMITS ON TRANSFER OF AWARDS; BENEFICIARIES. No right or interest of a Participant in any Award shall be pledged, encumbered or hypothecated to or in favor of any Person other than the Company, or shall be subject to any lien, obligation or liability of such Participant to any Person other than the Company or a Subsidiary. Unless otherwise determined by the Committee (subject to the requirements of Section 7.02.2), no Award and no rights or interests therein shall be assignable or transferable by a Participant otherwise than by will or the laws of descent and distribution except to the Company or a Subsidiary under the terms of the Plan; provided, however, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries 14 16 to exercise the rights of the Participant, and to receive any distribution with respect to any Award, upon the death of the Participant. A beneficiary, guardian, legal representative or other Person claiming any rights under the Plan from or through any Participant shall be subject to all the terms and conditions of the Plan and any Award Agreement applicable to such Participant as well as any additional restrictions or limitations deemed necessary or appropriate by the Committee. 7.06 REGISTRATION AND LISTING COMPLIANCE. No Award shall be paid and no Shares or other securities shall be distributed with respect to any Award in a transaction subject to the registration requirements of the Securities Act of 1933, as amended, or any state securities law or subject to a listing requirement under any listing agreement between the Company and any national securities exchange, and no Award shall confer upon any Participant rights to such payment or distribution until such laws and contractual obligations of the Company have been complied with in all material respects. Except to the extent required by the terms of an Award Agreement or another contract between the Company and the Participant, neither the grant of any Award nor anything else contained herein shall obligate the Company to take any action to comply with any requirements of any such securities laws or contractual obligations relating to the registration (or exemption therefrom) or listing of any Shares or other securities, whether or not necessary in order to permit any such payment or distribution. 7.07 STOCK CERTIFICATES. All certificates for Shares delivered under the terms of the Plan shall be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under federal or state securities laws, rules and regulations thereunder, and the rules of any national securities exchange or automated quotation system on which Shares are listed or quoted. The Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions or any other restrictions or limitations that may be applicable to Shares. In addition, during any period in which Awards or Shares are subject to restrictions or limitations under the terms of the Plan or any Award Agreement, or during any period during which delivery or receipt of an Award or Shares has been deferred by the Committee or a Participant, the Committee may require any Participant to enter into an agreement providing that certificates representing Shares issuable or issued pursuant to an Award shall remain in the physical custody of the Company or such other Person as the Committee may designate. SECTION 8. ADJUSTMENT PROVISIONS 8.01 In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, exchange of Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of Participants' rights under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and kind of Shares which may thereafter be 15 17 issued in connection with Awards; (ii) the number and kind of Shares issued or issuable in respect of outstanding Awards; and (iii) the exercise price, grant price or purchase price relating to any Award or, if deemed appropriate, make provision for a cash payment with respect to any outstanding Award; provided, however, in each case, that (1) with respect to Incentive Stock Options, no such adjustment shall be authorized to the extent that such authority would cause the Plan to violate Section 422(b)(1) of the Code or any successor provision thereto and (2) with respect to Options and Stock Appreciation Rights held by a Covered Employee, no such adjustment shall be authorized to the extent that such authority would cause such Awards to fail to qualify as "performance-based compensation" under Section 162(m)(4)(C) of the Code. In addition, the Committee is authorized to make adjustments in the terms and conditions of, and the criteria of, Awards in recognition of unusual or nonrecurring events (including, without limitation, events described in the preceding sentence) affecting the Company or the financial statements of the Company, or in response to changes in applicable laws, regulations or accounting principles; provided, however, that (1) with respect to Incentive Stock Options, no such adjustment shall be authorized to the extent that such authority would cause the Plan to violate Section 422(b)(1) of the Code or any successor provision thereto and (2) with respect to Options and Stock Appreciation Rights held by a Covered Employee, no such adjustment shall be authorized to the extent that such authority would cause such Awards to fail to qualify as "performance-based compensation" under Section 162(m)(4)(C) of the Code. SECTION 9. CHANGE OF CONTROL PROVISIONS 9.01 ACCELERATION OF EXERCISABILITY AND LAPSE OF RESTRICTIONS; AUTOMATIC CASH-OUT OF AWARDS. In the event of a Change of Control, the following acceleration and cash-out provisions shall apply unless otherwise provided by the Committee at the time of the Award grant: (i) All outstanding Awards pursuant to which the Participant may have rights, the exercise of which is restricted or limited, shall become fully exercisable, except as may be otherwise provided in Section 7.02.1; unless the right to lapse of restrictions or limitations is waived or deferred by a Participant prior to such lapse, all restrictions or limitations (including risks of forfeiture and deferrals) on outstanding Awards subject to restrictions or limitations under the Plan shall lapse, except as may be otherwise provided in Section 7.02.1; and all performance criteria and other conditions to payment of Awards under which payments of cash, Shares or other property are subject to conditions shall be deemed to be achieved or fulfilled and shall be waived by the Company, except as may be otherwise (required to comply with Rule 16b-3. (ii) All outstanding Awards not subject to limitations under Section 7.02.1 shall be automatically surrendered, and the Participants shall receive, in full satisfaction therefor, cash payments equal to the value of such outstanding Awards calculated on the basis of the Change of Control 16 18 Price of any Shares or the Fair Market Value of any property other than Shares relating to such Award; provided, however, that (a) in the case of a nonstatutory stock option, or a Stock Appreciation Right granted in tandem therewith, the cash payment shall be equal to the Change of Control Price of the Shares subject to the Option reduced by the exercise price thereof, (b) in the case of an Incentive Stock Option, or a Stock Appreciation Right granted in tandem therewith, the cash payment shall be equal to the Fair Market Value of the Shares subject to the Option on the date on which the Change of Control occurred reduced by the exercise price thereof, (c) in the case of a Stock Appreciation Right not granted in tandem with another award, the cash payment shall be equal to the Change of Control Price of the Shares subject to the Stock Appreciation Right reduced by the grant price thereof, and (d) in the case of any other purchase right, the cash payment shall be reduced by the Fair Market Value of the consideration otherwise required to exercise such purchase right. In the event that an Award is granted in tandem with another Award such that the Participant's right to payment for such Award is an alternative to payment of another Award, the Participant shall surrender all alternative Awards and receive payment for the Award which produces the highest payment to the Participant. In no event will an Award be automatically surrendered or a Participant have the right to receive cash under this Section 9.02(ii) with respect to an Award (1) if the Participant is subject to Section 16 of the Exchange Act (or was subject to Section 16 of the Exchange Act at the date of grant of the Award) and at least six months shall not have elapsed from the date on which the Participant was granted the Award (or, if later, from the date of shareholder approval of the Plan) before the date of the Change of Control (unless this restriction is not at such time required under Rule 16b-3(c)(1) or Rule 16b-3(e)) or (2) if the Participant is subject to Section 16 of the Exchange Act and had the power to control the occurrence or timing of the Change of Control such that the surrender and right to receive cash under this Section 9.01(ii) would fail to be exempt pursuant to Rule 16b-3(e). (iii) In the event that any Award is subject to limitations under Section 7.02.1 at the time of a Change of Control, then, solely for the purpose of determining the rights of the Participant under Section 9.02(ii) with respect to such Award, a Change of Control shall be deemed to occur at the close of business on the first business day following the date on which the limitations on such Award under Section 7.02.1 have expired; provided, however, that this Section 9.01 (iii) shall not apply if its application would cause the surrender of the Award and the receipt of cash under Section 9.01 (ii) to fail to be exempt pursuant to Rule 16b-3(e). (iv) In the discretion of the Committee, the Committee may permit any Participant not subject to Section 16 of the Exchange Act on the date of a Change of Control to elect, in such manner and at such time or 17 19 times or within such periods as the Committee may determine (whether before or after a Change of Control), and subject to such other terms, conditions or restrictions, if any, as the Committee may determine to impose, not to surrender for cash pursuant to Section 9.02(ii) all or any portion of any Award or Awards held by the Participant. 9.02 CREATION AND FUNDING OF TRUST. Upon the occurrence of a Potential Change of Control, the Company shall deposit with the trustee of a trust for the benefit of Participants monies or other property having a Fair Market Value at least equal to the value of the cash, Shares and other property to be paid or distributed in connection with Awards outstanding at that date. The trust shall be a grantor trust which shall preserve the "unfunded" status of Awards under the Plan. Subsequent to a Potential Change of Control which is no longer continuing and prior to a Change of Control and termination of the trust, upon the request of the Company the trustee shall deliver the monies or other property held in the trust to the Company. In the discretion of the Committee, monies or other property may also be deposited in the trust created under this Section 9.02 for the benefit of participants in any other compensation or benefit plan, program, contract or arrangement of the Company or any Subsidiary. 9.03 DEFINITION OF CERTAIN TERMS. For purposes of this Section 9, the following definitions, in addition to those set forth in Section 2.01, shall apply: 9.03.1 "Change of Control" means and shall be deemed to have occurred if (i) any Person, other than the Company or a Related Party, purchases or otherwise acquires, under a tender offer or otherwise, Beneficial Ownership of any Voting Securities which, when combined with other Voting Securities then Beneficially Owned by such Person, represent twenty percent (20%) or more of the total voting power of all the then outstanding Voting Securities; or (ii) the individuals (a) who as of the effective date of the Plan constitute the Board or (b) who thereafter are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two-thirds of the directors then still in office who either were directors as of the effective date of the Plan or whose election or nomination for election was previously so approved (the "Continuing Directors"), cease for any reason to constitute a majority of the members of the Board; or (iii) the Company is a party to a merger, consolidation, share exchange, recapitalization or reorganization of the Company or an acquisition of securities or assets by the Company, other than any such transaction (a) which would result in the Voting Securities outstanding immediately prior thereto continuing to represent either by remaining outstanding or by being converted into voting securities of the surviving or acquiring entity, at least fifty percent (50%) of the total voting power represented by the voting securities of such surviving or acquiring entity outstanding immediately after such transaction and (b) in or as a result of which the voting rights of each Voting Security relative to the voting rights of all other Voting Securities are not altered other than 18 20 through the exercise of dissenters' rights; or (iv) the shareholders of the Company approve a plan of complete liquidation of the Company; or (v) the Company shall sell or otherwise dispose of, other than to a Related Party, in a single or a series of related transactions otherwise than in the ordinary course of business, assets of the Company and/or stock or assets of any Subsidiary, having a book value equal to 50% or more of the consolidated total assets of the Company, in each case measured as the date of the most recent quarterly or annual balance sheet of the Company required to be included or incorporated by reference in any proxy or information statement of the Company furnished to the shareholders of the Company in connection with such transaction, or if no such proxy or information statement is furnished to shareholders or no such balance sheet is required to be included or incorporated by reference therein, as of the date of the most recent quarterly or annual balance sheet of the Company required to be filed with the Securities and Exchange Commission prior to the date of any such transaction; 9.03.2 "Change of Control Price" means, with respect to a Share, the higher of (i) the highest reported sales price of Shares on the New York Stock Exchange's consolidated transaction reporting system (or if the Common Stock is not then listed on such Exchange, on or on any composite index including the principal United States securities exchange on which the Common Stock is then listed, or if none, on NASDAQ or any similar system then in use, and in the absence of any such reported sales prices, the highest publicly reported bid price for Shares) during the 30 calendar days preceding the date of a Change of Control or (ii) the highest price paid or offered in a transaction which either (a) results in a Change of Control or (b) would be consummated but for another transaction which results in a Change of Control and, if it were consummated, would result in a Change of Control. With respect to clause (ii) in the preceding sentence, the "price paid or offered" will be equal to the sum of (a) the face amount of any portion of the consideration consisting of cash or cash equivalents and (b) the fair market value of any portion of the consideration consisting of real or personal property other than cash or cash equivalents, as established by an independent appraiser selected by the Committee. 9.03.3 "Potential Change of Control" means and shall be deemed to have arisen if (i) the Company enters into an agreement, the consummation of which would result in the occurrence of the Change of Control; or (ii) any Person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change of Control; or (iii) any Person, other than a Related Party, files with the Securities and Exchange Commission a Schedule 13D pursuant to Rule 13d-1 under the Exchange Act with respect to Voting Securities; or (iv) any Person, other than the Company or a Related Party, files with the Federal Trade Commission a notification and report form pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with respect to any Voting Securities or any assets of the Company or a Subsidiary; or (v) 19 21 the Board or a committee thereof adopts a resolution to the effect that, for purposes of the Plan, a Potential Change of Control has arisen. A Potential Change of Control will be deemed to continue (a) with respect to an agreement within the purview of clause (i) of the preceding sentence, until the agreement is canceled or terminated; or (b) with respect to an announcement within the purview of clause (ii) of the preceding sentence, until the Person making the announcement publicly abandons the stated intention or fails to act on such intention for a period of 12 calendar months; or (c) with respect to the filing of a Schedule 13D within the purview of clause (iii) of the preceding sentence, until the Person involved publicly announces that its ownership or acquisition of the Voting Securities is for investment purposes only and not for the purpose of seeking a Change of Control or such Person disposes of all Voting Securities exceeding 5% of the outstanding shares of any class; or (d) with respect to the filing of a notification and report form within the purview of clause (iv) of the preceding sentence with respect to Voting Securities or assets, until the Person publicly abandons the transaction which was the subject of such filing or fails to act thereon for a period of 12 calendar months or, in the case of a filing with respect to Voting Securities, until the Person involved (1) publicly announces that its ownership or acquisition of the Voting Securities is for investment purposes only and not for the purpose of seeking a Change of Control or (2) following completion of such transaction disposes of all Voting Securities exceeding 5% of the outstanding shares of any class; or (e) until a Change of Control has occurred if the majority of the Continuing Directors, on reasonable belief after due investigation, adopts a resolution that either (1) the Potential Change of Control has ceased to exist or (2) the Potential Change of Control is believed to be not reasonably likely to result in a Change of Control. 9.03.4 "Related Party" means (i) a Subsidiary; or (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary; or (iii) a Company owned directly or indirectly by the shareholders of the Company in substantially the same proportion as their ownership of Voting Securities. 9.03.5 "Voting Securities or Security" means any securities of the Company which carry the right to vote generally in the election of directors. 9.03.6 "Beneficial Ownership" shall be determined in accordance with Regulation 13D-G under the Exchange Act, as in effect on the effective date of the Plan. SECTION 10. AMENDMENTS TO AND TERMINATION OF THE PLAN 10.01 The Board may amend, alter, suspend, discontinue or terminate the Plan without the consent of shareholders or Participants, except that, without the approval of the shareholders of the Company, no amendment, alteration, suspension, discontinuation or termination shall be made if shareholder approval is required by 20 22 any federal or state law or regulation, or if the Board in its discretion determines that obtaining such shareholder approval is for any reason advisable; provided, however, that except as provided in Section 7.02, without the consent of the Participant, no amendment, alteration, suspension, discontinuation or termination of the Plan may materially and adversely affect the rights of such Participant under any Award theretofore granted to him. The Committee may waive any conditions or rights under, amend any terms of, or amend, alter, suspend, discontinue or terminate, any Award theretofore granted, prospectively or retrospectively; provided, however, that except as provided in Section 7.02, without the consent of a Participant, no amendment, alteration, suspension, discontinuation or termination of any Award may materially and adversely affect the rights of such Participant under any Award theretofore granted to him. SECTION 11. GENERAL PROVISIONS 11.01 NO RIGHT TO AWARDS; NO SHAREHOLDER RIGHTS. No Participant or employee shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Participants and employees, except as provided in any other compensation arrangement. No Award shall confer on any Participant any of the rights of a shareholder of the Company unless and until Shares are in fact issued to such Participant in connection with such Award. 11.02 WITHHOLDING. To the extent required by applicable Federal, state, local or foreign law, the Participant or his successor shall make arrangements satisfactory to the Company, in its discretion, for the satisfaction of any withholding tax obligations that arise in connection with an Award. The Company shall not be required to issue any Shares or make any cash or other payment under the Plan until such obligations are satisfied. The Company is authorized to withhold from any Award granted or any payment due under the Plan, including from a distribution of Shares, amounts of withholding taxes due with respect to an Award, its exercise or any payment thereunder, and to take such other action as the Committee may deem necessary or advisable to enable the Company and Participants to satisfy obligations for the payment of such taxes. This authority shall include authority to withhold or receive Shares, Awards or other property and to make cash payments in respect thereof in satisfaction of such tax obligations. 11.03 NO RIGHT TO EMPLOYMENT. Nothing contained in the Plan or any Award Agreement shall confer, and no grant of an Award shall be construed as conferring, upon any Participant any right to continue in the employ of the Company or to interfere in any way with the right of the Company to terminate his employment at any time or increase or decrease his compensation from the rate in existence at the time of granting of an Award, except as provided in any Award Agreement or other compensation arrangement. 11.04 UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained 21 23 in the Plan or any Award shall give any such Participant any rights that are greater than those of a general unsecured creditor of the Company; provided, however, that, in addition to the requirements of Section 9.02, the Committee may authorize the creation of trusts or make other arrangements to meet the Company's obligations under the Plan to deliver cash, Shares or other property pursuant to any Award, which trusts or other arrangements shall be consistent with the "unfunded" status of the Plan unless the Committee otherwise determines. 11.05 NO LIMIT ON OTHER COMPENSATORY ARRANGEMENTS. Nothing contained in the Plan shall prevent the Company from adopting other or additional compensation arrangements (which may include, without limitation, employment agreements with executives and arrangements which relate to Awards under the Plan), and such arrangements may be either generally applicable or applicable only in specific cases. Notwithstanding anything in the Plan to the contrary (other than the provisions of Section 7.02), the terms of each Award shall be construed so as to be consistent with such other arrangements in effect at the time of the Award. 11.06 NO FRACTIONAL SHARES. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award. The Committee shall determine whether cash, other Awards or other property shall be issued or paid in lieu of fractional Shares or whether such fractional Shares or any rights thereto shall be forfeited or otherwise eliminated. 11.07 GOVERNING LAW. The validity, interpretation, construction and effect of the Plan and any rules and regulations relating to the Plan shall be governed by the laws of the Commonwealth of Pennsylvania (without regard to the conflicts of laws thereof), and applicable Federal law. 11.08 SEVERABILITY. If any provision of the Plan or any Award is or becomes or is deemed invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or Award, it shall be deleted and the remainder of the Plan or Award shall remain in full force and effect; provided, however, that, unless otherwise determined by the Committee, the provision shall not be construed or deemed amended or deleted with respect to any Participant whose rights and obligations under the Plan are not subject to the law of such jurisdiction or the law deemed applicable by the Committee. SECTION 12. EFFECTIVE DATE AND TERM OF THE PLAN 12.01 The effective date and date of adoption of the Plan shall be January 21, 1994, the date of adoption of the Plan by the Board, provided that such adoption of the Plan is approved by the affirmative vote of a majority of the shares of Common Stock present in person or represented by proxy and entitled to vote at a duly held meeting of shareholders of the Company held on or prior to December 31, 1994. Notwithstanding anything else contained in the Plan or in any Award Agreement, no Option, Stock Appreciation Right or other purchase right granted under the Plan 22 24 may be exercised, and no Shares may be distributed pursuant to any Award granted under the Plan, prior to such shareholder approval or prior to any required approval or consent from those governmental agencies having jurisdiction in these matters. In the event such shareholder or regulatory approval is not obtained, all Awards granted under the Plan shall automatically be deemed void and of no effect. No Award may be granted under the Plan subsequent to May 27, 1999. 23 25 ---------------------------------------------------------------------- PROSPECTUS ---------------------------------------------------------------------- 26 May 27, 1999 This document constitutes part of a prospectus covering securities that have been registered under the Securities Act of 1933. 1994 EQUITABLE RESOURCES, INC. LONG-TERM INCENTIVE PLAN 1. GENERAL INFORMATION This Plan covers shares of the common stock of Equitable Resources, Inc. (together with any successor, the "Company") which may be issued pursuant to awards of restricted stock, deferred stock and other stock-based awards; the grant and exercise of stock options and stock appreciation rights; and the grant of dividend equivalents and performance awards, under the 1994 Equitable Resources, Inc. Long-Term Incentive Plan (the "Plan"). The Plan was adopted by the Board of Directors of the Company on January 21, 1994 and was approved by a vote of the shareholders of the Company on May 27, 1994. The purpose of the Plan is to enable the Company to focus key executives' efforts on performance which will increase the value of the Company for its shareholders. The Plan is intended to align the interests of key executives with those of the shareholders by encouraging share ownership. The Plan is also intended to attract and retain key executives. Additional information about the Plan and its administration may be obtained by calling Johanna G. O'Loughlin, Vice President, General Counsel and Corporate Secretary at (412) 553-7760. Alternatively, Ms. O'Loughlin can be contacted by writing to Equitable Resources, Inc., One Oxford Centre, Suite 3300, Pittsburgh, Pennsylvania 15219, Attention: Johanna G. O'Loughlin, Vice President, General Counsel and Corporate Secretary. The Company's latest annual report on Form 10-K, all other reports filed by the Company since December 31, 1993 pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, and the description of the Company's common stock in 1 27 Registration Statement No. 33-49905 are incorporated by reference into this prospectus. All such documents are available without charge, upon oral or written request, at the telephone number and address stated above. 2. ELIGIBILITY, GRANT AND TERMS Under the Plan, key employees of the Company or any of its subsidiaries are selected by the Compensation Committee of the Board of Directors (the "Committee") to receive stock-based and other types of awards. The types of awards which may be granted include stock options, stock appreciation rights, restricted stock, deferred stock, stock, non-stock performance awards, dividend equivalents, and other stock-based awards. Following is a summary of these awards: a. STOCK OPTIONS - The exercise price of each share of an option will be 100 percent of the mean of the high and low New York Stock Exchange trading prices for the common stock on the date of grant. The period during which each option may be exercised will be determined by the Committee. Options may be exercised upon such terms and by such methods as may be designated by the Committee, including payment by cash or common stock. Unless permitted by the Committee, no shares of common stock held for less than six (6) months may be used to pay for the exercise of an option. Certain options may be designated by the Compensation Committee as Incentive Stock Options. The fair market value of Incentive Stock Options exercisable by a Participant in any calendar year may not exceed $100,000 (based on fair market value on the date of grant). b. STOCK APPRECIATION RIGHTS - Stock Appreciation Rights ("SAR") give a Participant the right to receive upon exercise of the SAR the difference between the fair market value of the number of shares covered by the SAR on the date of exercise and the grant price of the SAR. The grant price of the SAR is normally the fair market value of the shares on the date of grant. Stock Appreciation Rights will have such other terms as may be determined by the Committee. 2 28 c. RESTRICTED STOCK - A key employee receiving a grant of restricted stock will not be required to make any payment to the Company for such stock. Restricted stock will be subject to forfeiture for such periods, and upon such terms, as the Committee may determine. Except as otherwise provided by the Committee, termination of employment during the applicable restriction period will result in a forfeiture of the restricted shares. d. DEFERRED STOCK - Deferred stock provides for the delivery of shares upon expiration of a deferral period specified by the Committee. A Participant awarded deferred stock shall have no voting rights or rights to receive dividends (unless the Committee awards dividend equivalents in respect of such stock). Except as provided by the Committee, a termination of employment during the applicable deferral period will result in forfeiture of the right to receive the shares. e. PERFORMANCE AWARDS - The Compensation Committee may grant Participants the right to receive cash, stock or other property based upon the achievement of performance criteria specified by the Committee. f. DIVIDEND EQUIVALENTS - The Committee may grant Participants the right to receive, on a current or deferred basis, interest or dividends, or interest or dividend equivalents, relating to a specified number of shares of stock or otherwise. g. OTHER STOCK-BASED AWARDS - The Committee may grant Participants other types of awards based on the issuance of stock to Participants. Options may be exercised during a Participant's lifetime only by the Participant or his legal representative and options or other awards may not be transferred to any other party. However, the Committee may permit the Participant to designate a beneficiary to exercise any rights of a Participant and to receive any distribution upon the Participant's death (other than an Incentive Stock Option). No interest in any option or restricted stock 3 29 may be pledged or encumbered by any Participant except in favor of the Company or shall otherwise by subject to any lien or liability. No awards under this Plan shall be made after May 27, 1999. The maximum aggregate number of shares of common stock that may be issued under the Plan is equal to five (5) percent of the number of the outstanding shares of the Company's common stock on the date of shareholder approval of the Plan (May 27, 1994). The number of shares which may be issued under the Plan and under existing options, along with the exercise price of such options, is subject to adjustment by the Committee in certain circumstances, including stock splits, dividends, recapitalizations and major corporate changes. 3. AMENDMENT OF PLAN The Board of Directors may amend, discontinue or terminate the Plan at any time without shareholder approval except to the extent that Federal or state law or regulation so requires or that the Board determines that shareholder approval is advisable. Without the consent of the Participant, no such action shall adversely affect the rights of any Participant in any award previously granted to him. 4. ADMINISTRATION The Plan is administered by the Compensation Committee of the Board of Directors. The Committee shall have full and final authority to interpret and administer the Plan; to adopt, amend and rescind regulations to administer the Plan; to designate Participants; to determine the types, number and terms of awards granted under the Plan; and to make all decisions that the Committee deems necessary or advisable in the administration of the Plan. 5. SALES OF RESTRICTED OR OPTION STOCK Because officers may be deemed "affiliates" of the Company as that term is defined in the regulations adopted pursuant to the Securities Act of 1933, the most prudent course for them is to resell restricted shares or shares obtained upon the exercise of options only in accordance with the provisions of Rule 144 (excluding the one year holding period) of the Securities Act of 1933. Officers should notify the Corporate Secretary when selling such shares so that the Form 144 filing requirements will be met. 4 30 No sale of the Company's common stock should be made by officers within six (6) months before or after any open market purchase of the Company's common stock. Otherwise, any profit gained from such a sale would have to be disgorged to the Company in accordance with the provisions of Section 16(b) of the Securities Exchange Act of 1934. No officer of the Company or other employee determined by the Company to be subject to Section 16 of the Securities Exchange Act of 1934 may sell stock received through the exercise of a stock option until six (6) months have elapsed from the date of the grant of the option. In addition, no such person may sell any stock granted through any other award until six (6) months have elapsed from the date of grant. 6. CHANGE OF CONTROL Upon the occurrence of certain specified events, all outstanding awards shall become fully exercisable and all outstanding awards shall be surrendered to the Company in exchange for a cash payment in accordance with a formula specified under the Plan. The specified events are: the acquisition of 20 percent of the voting power in Equitable's stock by any unaffiliated party; the existence of any Equitable Board of Directors less than 51 percent of whom were Equitable Directors on January 21, 1994 or successors elected by at least two-thirds of such Directors or by such elected successors; a merger or reorganization of the Company or other transaction under which Equitable shareholders would own less than 50 percent of a stock of the surviving corporation; the shareholders approve a complete liquidation of the Company; or the sale or disposal to an unrelated party other than in the ordinary course of the business, of at least 50 percent of the book value of the Company. 7. APPLICABILITY OF ERISA PROVISIONS The Plan is not a "qualified pension, profit-sharing or stock bonus plan" within the meaning of Section 401(a) of the Internal Revenue Code and is not subject to any provisions of the Employment Retirement Income Security Act of 1974 ("ERISA"). 8. FEDERAL INCOME TAX CONSEQUENCES Participants should consult their personal tax advisers with specific reference to their own tax situation and potential changes in the applicable law as to all Federal, state, 5 31 local, foreign and other tax matters in connection with the grant, exercise, cancellation or expiration of a stock option or the grant of restricted stock under the Plan and the disposition of shares of Equitable common stock acquired under the Plan. The following is only a summary of some of the principal Federal income tax considerations under present law: a. GRANT OF STOCK OPTIONS - A Participant does not realize any taxable income upon the grant of a stock option. b. EXERCISE OF STOCK OPTIONS - In general, a Participant to whom shares of common stock are issued upon exercise of a nonstatutory stock option recognizes taxable income for Federal income tax purposes in an amount equal to the difference between the fair market value of the common stock at the time the stock is exercised and the option price paid for the common stock. In addition, no taxable income is recognized during any six-month period in which any profit from the sale of shares is subject to disgorgement under Section 16(b) of the Securities Exchange Act of 1934. If the option price is paid in whole or in part in shares of common stock, no income, gain or loss is recognized to the Participant on the receipt of shares equal in value on the date of exercise to the shares delivered in payment of the option price. The fair market value of the remainder of the shares received upon exercise of the Stock Option (the "Additional Shares"), less the amount of cash, if any, paid upon exercise, is included in the optionee's taxable income when reportable under the preceding paragraph. If the option price is paid in cash, the Participant's tax basis in the shares of common stock received is the option price plus the amount included in the Participant's taxable income. If the option price is paid in whole or in part in shares of common stock, shares of common stock received upon exercise equal in value to the shares of common stock delivered in payment of the option price have the same 6 32 tax basis as the shares delivered. The tax basis of the Additional Shares is the amount of cash, if any, paid upon exercise of the Stock Option plus the amount included in the Participant's taxable income. The Company or one of its subsidiaries is entitled to a Federal income tax deduction in an amount equal to the taxable income recognized by the Participant in each instance described above. In general, a Participant will not recognize taxable income at the time an incentive stock option is exercised except that the excess of the fair market value of the common stock acquired upon exercise of an incentive stock option over the exercise price is potentially subject to the alternative minimum tax. If the Participant holds the shares acquired pursuant to an incentive stock option for at least two years from the date of grant and for at least one year from the date of exercise, the Participant's gain will be taxed as a long-term capital gain. The amount of the gain shall be equal to the difference between the exercise price and the sales price. In that case, the Company is not entitled to a tax deduction. If the Participant disposes of the stock before the end of these holding periods, he will recognize ordinary income upon sale of the stock and the Company will be entitled to a corresponding tax deduction. c. RESTRICTED STOCK - Absent making an election under Section 83(b) of the Internal Revenue Code within thirty (30) days of the grant, in general, a Participant who receives a grant of restricted stock does not recognize taxable income for federal income tax purposes until the shares are released from escrow. At that time, the tax is based on the then current market value of the stock. If a Participant makes a Section 83(b) election, the market value of the restricted stock at the time it is granted (i.e., the mean of the high and low trading prices) is included in the Participant's taxable income in the year of such grant. 7 33 d. DIVIDENDS ON ESCROWED SHARES - Cash dividends paid to an optionee with respect to the shares of Equitable common stock subject to escrow, prior to the lapse of the escrow, constitute taxable income when paid. e. SALE OF EQUITABLE COMMON STOCK - The difference between the amount realized on any sale of the common stock and the optionee's tax basis in the shares sold is taxable income of the optionee. The taxable income will be subject to a tax at capital gains rates, generally not in excess of 20 percent if held for twelve months or more. f. EXCESS PARACHUTE PAYMENTS - In certain circumstances the exercise of an option upon a "Change in Control", as defined in the Plan, may result in (1) a 20 percent Federal excise tax to the Participant on certain payments of stock resulting from the exercise of such options and (2) the loss of a compensation deduction which would otherwise be allowable to the Company or one of its subsidiaries. 8 EX-10.07 6 DEFERRED COMPENSATION PLAN 1 Exhibit 10.07 EQUITABLE RESOURCES, INC. DEFERRED COMPENSATION PLAN AMENDED AND RESTATED EFFECTIVE OCTOBER 27, 1999 2 EQUITABLE RESOURCES, INC. DEFERRED COMPENSATION PLAN Table of Contents ARTICLE I......................................................................5 1.1 STATEMENT OF PURPOSE..................................................5 ARTICLE II.....................................................................6 DEFINITIONS....................................................................6 2.1 ACCOUNT............................................................6 2.2 BASE SALARY........................................................6 2.3 BENEFICIARY........................................................6 2.4 BOARD..............................................................6 2.5 BONUS..............................................................6 2.6 CHANGE IN CONTROL..................................................6 2.7 CODE...............................................................7 2.8 COMMITTEE..........................................................7 2.9 COMPANY............................................................7 2.10 COMPENSATION.......................................................7 2.11 CREDITED SERVICE...................................................7 2.12 DEFERRAL ACCOUNT...................................................8 2.13 DEFERRAL AMOUNT....................................................8 2.14 DEFERRAL BENEFIT...................................................8 2.15 DEFERRAL ELECTION..................................................8 2.16 DISABILITY.........................................................8 2.17 EARLY RETIREMENT...................................................8 2.18 ELIGIBLE EMPLOYEE..................................................8 2.19 EMPLOYER...........................................................8 2.20 HARDSHIP WITHDRAWAL................................................8 2.21 INVESTMENT RETURN RATE.............................................8 2.22 MATCHING ACCOUNT...................................................9 2.23 MATCHING AMOUNT....................................................9 2.24 PARTICIPANT........................................................9 2.25 PARTICIPATION AGREEMENT............................................9 2.26 PLAN...............................................................9 2.27 PLAN YEAR..........................................................9 2.28 REGULAR DEFERRAL AMOUNT............................................9 2.29 REGULAR MATCHING AMOUNT............................................9 2.30 RETIREMENT.........................................................9 2.31 SELECTED AFFILIATE................................................10 2.32 SPECIAL BONUS DEFERRAL AMOUNT.....................................10 2.33 SPECIAL BONUS MATCHING AMOUNT.....................................10 2.34 VALUATION DATE....................................................10 ARTICLE III...................................................................11 ELIGIBILITY AND PARTICIPATION.................................................11 3.1 ELIGIBILITY.......................................................11 3.2 PARTICIPATION.....................................................11 3.3 CHANGE IN PARTICIPATION STATUS....................................11 3.4 INELIGIBLE PARTICIPANT............................................11 -2- 3 ARTICLE IV....................................................................12 DEFERRAL OF COMPENSATION......................................................12 4.1 DEFERRAL AMOUNTS...................................................12 4.2 MATCHING AMOUNTS...................................................12 4.3 CREDITING OF DEFERRAL AMOUNTS AND MATCHING AMOUNTS.................13 ARTICLE V.....................................................................14 BENEFIT ACCOUNTS..............................................................14 5.1 VALUATION OF ACCOUNT...............................................14 5.2 CREDITING OF INVESTMENT RETURN.....................................14 5.3 STATEMENT OF ACCOUNTS..............................................14 5.4 VESTING OF AMOUNTS.................................................14 5.5 INVESTMENT OF REGULAR DEFERRAL AMOUNTS.............................15 5.6 INVESTMENT OF SPECIAL BONUS DEFERRAL AMOUNTS AND MATCHING AMOUNTS..15 ARTICLE VI....................................................................16 PAYMENT OF BENEFITS...........................................................16 6.1 PAYMENT OF DEFERRAL BENEFIT UPON DEATH, DISABILITY OR RETIREMENT...16 6.2 PAYMENT OF DEFERRAL BENEFIT UPON TERMINATION.......................16 6.3 PAYMENTS TO BENEFICIARIES..........................................16 6.4 IN-SERVICE DISTRIBUTION............................................16 6.5 HARDSHIP WITHDRAWAL................................................16 6.6 FORM OF PAYMENT....................................................17 6.7 COMMENCEMENT OF PAYMENTS...........................................17 6.8 SMALL BENEFIT......................................................17 ARTICLE VII...................................................................18 BENEFICIARY DESIGNATION.......................................................18 7.1 BENEFICIARY DESIGNATION............................................18 7.2 CHANGE OF BENEFICIARY DESIGNATION..................................18 7.3 NO DESIGNATION.....................................................18 7.4 EFFECT OF PAYMENT..................................................18 ARTICLE VIII..................................................................19 ADMINISTRATION................................................................19 8.1 COMMITTEE..........................................................19 8.2 AGENTS.............................................................19 8.3 BINDING EFFECT OF DECISIONS........................................19 8.4 INDEMNIFICATION OF COMMITTEE.......................................19 ARTICLE IX....................................................................20 AMENDMENT AND TERMINATION OF PLAN.............................................20 9.1 AMENDMENT..........................................................20 9.2 TERMINATION........................................................20 -3- 4 ARTICLE X.....................................................................21 MISCELLANEOUS.................................................................21 10.1 FUNDING.........................................................21 10.2 NONASSIGNABILITY................................................21 10.3 LEGAL FEES AND EXPENSES.........................................21 10.4 CAPTIONS........................................................22 10.5 GOVERNING LAW...................................................22 10.6 SUCCESSORS......................................................22 10.7 RIGHT TO CONTINUED SERVICE......................................22 EXHIBIT A.....................................................................23 EXHIBIT B.....................................................................24 EXHIBIT C.....................................................................25 -4- 5 ARTICLE I 1.1 STATEMENT OF PURPOSE This is the Equitable Resources, Inc. Deferred Compensation Plan (the "Plan") made in the form of this Plan and in related agreements between the Employer and certain management or highly compensated employees. The purpose of the Plan is to provide management and highly compensated employees of the Employer with the option to defer the receipt of portions of their compensation payable for services rendered to the Employer. It is intended that the Plan will assist in attracting and retaining qualified individuals to serve as officers and managers of the Employer. The Plan originally was effective as of January 1, 1996, and subsequently was amended and restated effective as of October 27, 1999. -5- 6 ARTICLE II DEFINITIONS ----------- When used in this Plan and initially capitalized, the following words and phrases shall have the meanings indicated: 2.1 ACCOUNT. "Account" means the sum of a Participant' s Deferral Account and Matching Account. 2.2 BASE SALARY. "Base Salary" means a Participant's base earnings paid by the Employer to a Participant without regard to any increases or decreases in base earnings as a result of an election to defer base earnings under this Plan or (ii) an election between benefits or cash provided under a Plan of an Employer maintained pursuant to Section 125 or 401(k) of the Code, and as limited in Exhibit B attached hereto. 2.3 BENEFICIARY. "Beneficiary" means the person or persons designated or deemed to be designated by the Participant pursuant to Article VII to receive benefits payable under the Plan in the event of the Participant's death. 2.4 BOARD. "Board" means the Board of Directors of the Company. 2.5 BONUS. "Bonus" means a Participant's bonus or sales commission paid by the Employer to a Participant under the plans listed in Exhibit B attached hereto and to the degree limited in Exhibit B, as applicable, without regard to any decreases as a result of an election to defer all or any portion of a bonus under this Plan or (ii) an election between benefits or cash provided under a plan of the Employer maintained pursuant to Section 401(k) of the Code. 2.6 CHANGE IN CONTROL. "Change in Control" means any of the following events: (a) The sale or other disposition by the Company of all or substantially all of its assets to a single purchaser or to a group of purchasers, other than to a corporation with respect to which, following such sale or disposition, more than eighty percent (80%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of the Board of Directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Company common stock and the combined voting power of the then outstanding voting securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding Company common stock and voting power immediately prior to such sale or disposition. -6- 7 (b) The acquisition in one or more transactions by any person or group, directly or indirectly, of beneficial ownership of twenty percent (20%) or more of the outstanding shares of Company common stock or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of the Board; provided, however, that any acquisition by (x) the Company or any of its subsidiaries, or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (y) any person that is eligible, pursuant to Rule 13d-1(b) under the Exchange Act (as such rule is in effect as of November 1, 1995) to file a statement on Schedule 13G with respect to its beneficial ownership of Company common stock and other voting securities whether or not such person shall have filed a statement on Schedule 13G, unless such person shall have filed a statement on Schedule 13D with respect to beneficial ownership of fifteen percent (15%) or more of the Company's voting securities, shall not constitute a Change of Control; (c) The Company's termination of its business and liquidation of its assets; (d) The reorganization, merger or consolidation of the Company into or with another person or entity, by which reorganization, merger or consolidation the persons who hold one hundred percent (100%) of the voting securities of the Company prior to such reorganization, merger or consolidation receive or continue to hold less than sixty percent (60%) of the outstanding voting shares of the new or continuing corporation; or (e) If, during any two-year period, less than a majority of the members of the Board are persons who were either (i) nominated or recommended for election by at least two-thirds vote of the persons who were members of the Board or Nominating Committee of the Board at the beginning of the period, or (ii) elected by at least two-thirds vote of the persons who were members of the Board at the beginning of the period. 2.7 CODE. "Code" means the Internal Revenue Code of 1986, as amended. 2.8 COMMITTEE. "Committee " has the meaning set forth in Section 8.1. 2.9 COMPANY. "Company" means Equitable Resources, Inc. and any successor thereto. 2.10 COMPENSATION. "Compensation" means the Base Salary and Bonus payable with respect to an Eligible Employee for each plan year. 2.11 CREDITED SERVICE. "Credited Service" means the sum of all periods of a Participant's employment by the Company or a Selected Affiliate for which service credit is given under the Equitable Resources Pension Plan. -7- 8 2.12 DEFERRAL ACCOUNT. "Deferral Account" means the account maintained on the books of the Employer for the purpose of accounting for the amount of Compensation that each Participant elects to defer under the Plan and for the amount of investment return credited thereto for each Participant pursuant to Article V. 2.13 DEFERRAL AMOUNT. "Deferral Amount" means the Regular Deferral Amounts and Special Bonus Deferral Amounts deferred by a Participant under Section 4.1. 2.14 DEFERRAL BENEFIT. "Deferral Benefit" means the benefit payable to a Participant or his or her Beneficiary pursuant to Article VI. 2.15 DEFERRAL ELECTION. "Deferral Election" means the written election made by a Participant to defer Compensation pursuant to Article IV. 2.16 DISABILITY. "Disability" means a Participant's Disability as defined under the Company's Long Term Disability Plan or its successors. 2.17 EARLY RETIREMENT. "Early Retirement" will be granted by the Committee at its sole discretion. 2.18 ELIGIBLE EMPLOYEE. "Eligible Employee" means a highly compensated or management employee of the Employer who is designated by the Committee, by name or group or description, in accordance with Section 3.1 as, eligible to participate in the Plan. 2.19 EMPLOYER. "Employer" means, with respect to a Participant, the Company or the Selected Affiliate which pays such Participant's Compensation. 2.20 HARDSHIP WITHDRAWAL. "Hardship Withdrawal" has the meaning set forth in Section 6.5. 2.21 INVESTMENT RETURN RATE. "Investment Return Rate" means: (a) In the case of an investment named in Exhibit C of a fixed income nature, the interest deemed to be credited as determined in accordance with the procedures applicable to the same investment option provided under the Equitable Resources, Inc. Employee Savings Plan, originally adopted September 1, 1985, as amended ("EQUITABLE 401(k) PLAN"); -8- 9 (b) In the case of an investment named in Exhibit C of an equity investment nature, the increase or decrease in deemed value and dividends deemed to be credited as determined in accordance with the procedures applicable to the same investment option provided under the Equitable 401(k) Plan; or (c) In the case of the Equitable Resources Common Stock Fund, the increase or decrease in the deemed value, and the reinvestment in the Equitable Resources Common Stock Fund of any dividends deemed to be credited, as determined in accordance with the procedures applicable to investments in the Equitable Resources Common Stock Fund under the Equitable 401(k) Plan. 2.22 MATCHING ACCOUNT. "Matching Account" means the account maintained on the books of the Employer for the purpose of accounting for the Matching Amount and for the amount of investment return credited thereto for each Participant pursuant to Article V. 2.23 MATCHING AMOUNT. "Matching Amount" means the Regular Matching Amounts and Special Bonus Matching Amounts credited to a Participant's Matching Account under Section 4.2. 2.24 PARTICIPANT. "Participant" means any Eligible Employee who elects to participate by filing a Participation Agreement or who is automatically enrolled with respect to a Minimum Bonus Deferral Amount as provided in Section 3.2. 2.25 PARTICIPATION AGREEMENT. "Participation Agreement" means the agreement filed by a Participant, in the form prescribed by the Committee, pursuant to Section 3.2. 2.26 PLAN. "Plan" means the Equitable Resources, Inc. Deferred Compensation Plan, as amended from time to time. 2.27 PLAN YEAR. "Plan Year" means a twelve-month period commencing January 1 and ending the following December 31. 2.28 REGULAR DEFERRAL AMOUNT. "Regular Deferral Amount" means the amount of Compensation deferred by a Participant under Section 4.1(a). 2.29 REGULAR MATCHING AMOUNT. "Regular Matching Amount" means the amount credited to a Participant's Company Matching Account under Section 4.2(a). 2.30 RETIREMENT. "Retirement" means the termination of a Participant who has reached age 65. -9- 10 2.31 SELECTED AFFILIATE. "Selected Affiliate" means (1) any company in an unbroken chain of companies beginning with the Company if each of the companies other than the last company in the chain owns or controls, directly or indirectly, stock possessing not less than 50 percent of the total combined voting power of all classes of stock in one of the other companies, or (2) any partnership or joint venture in which one or more of such companies is a partner or venturer, each of which shall be selected by the Committee. 2.32 SPECIAL BONUS DEFERRAL AMOUNT. "Special Bonus Deferral Amount" means the sum of the Minimum Bonus Deferral Amounts and the Discretionary Bonus Deferral Amounts deferred by certain direct and indirect reports to the Chief Executive Officer of the Company ("CEO") described in Section 4.1(b). "MINIMUM BONUS DEFERRAL AMOUNT" shall refer to the 20% and 10%, as applicable, bonus deferrals described in Section 4.1(b) which must be made by such direct and indirect reports to the CEO. "DISCRETIONARY BONUS DEFERRAL AMOUNTS" shall refer to any additional bonus deferrals made by such direct and indirect reports to the CEO in excess of the Minimum Bonus Deferral Amount. 2.33 SPECIAL BONUS MATCHING AMOUNT. "Special Bonus Matching Amount" means the amount credited to a Participant's Matching Account under Section 4.2(b). 2.34 VALUATION DATE. "Valuation Date" means a date on which the amount of a Participant's Account is valued as provided in Article V. The Valuation Date shall be the last day of each calendar quarter and any other date determined by the Committee. -10- 11 ARTICLE III ELIGIBILITY AND PARTICIPATION ----------------------------- 3.1 ELIGIBILITY. Eligibility to participate in the Plan is limited to Eligible Employees. From time to time, and subject to Section 3.4, the Committee shall prepare, and attach to the Plan as Exhibit A, a complete list of the Eligible Employees, by individual name or by reference to an identifiable group of persons or by descriptions of the components of compensation of an individual which would qualify individuals who are eligible to participate, and all of whom shall be a select group of management or highly compensated employees. 3.2 PARTICIPATION. (a) Regular Deferrals. Except as otherwise provided in (b), participation in the Plan shall be limited to Eligible Employees who elect to participate in the Plan by filing a Participation Agreement with the Committee. An Eligible Employee shall commence participation in the Plan upon the first day of his or her first payroll period following the receipt of his or her Participation Agreement by the Committee. (b) Minimum Bonus Deferral Amounts. Notwithstanding (a), an Eligible Employee who is required to defer a Minimum Bonus Deferral Amount into the Plan under Section 4.1(b) shall automatically become a Participant in the Plan regardless of whether the Participant files a Participation Agreement. 3.3 CHANGE IN PARTICIPATION STATUS. (a) Regular Deferral Amounts. Except as otherwise provided in Section 3.2(b) and (b), below, a Participant may elect to terminate his or her participation in the Plan at any time by filing a written notice thereof with the Committee. A termination of participation with respect to Regular Deferral Amounts will become effective as of the beginning of the next payroll period in the month following receipt of the termination election by the Committee and in accordance with the Committee's prevailing administrative procedures. (b) Special Bonus Deferral Amounts. A termination of participation with respect to Discretionary Bonus Deferral Amounts will become effective as of the start of the next Bonus measurement period. A Participant shall not be permitted to terminate the deferral of Minimum Bonus Deferral Amounts. (c) Amounts credited to such Participant's Account with respect to periods prior to the effective date of a termination described in (a) or (b) shall continue to be payable pursuant to, receive investment credit on, and otherwise be governed by, the terms of the Plan. 3.4 INELIGIBLE PARTICIPANT. Notwithstanding any other provisions of this Plan to the contrary, if the Committee determines that any Participant may not qualify as a "management or highly compensated employee" within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or regulations thereunder, the Committee may determine, in its sole discretion, that such Participant shall cease to be eligible to participate in this Plan. Upon such determination, the Employer shall distribute (in cash and/or in kind, as applicable) to the Participant an amount equal to the vested amount credited to his Account as soon as administratively practicable. Upon such payment, no benefit shall thereafter be payable under this Plan either to the Participant or any Beneficiary, and all of the Participant's elections as to the time and manner of payment of his Account will be deemed to be canceled. -11- 12 ARTICLE IV DEFERRAL OF COMPENSATION ------------------------ 4.1 DEFERRAL AMOUNTS. (a) Regular Deferral Amount. Subject to paragraph (b), below, with respect to each Plan Year, a Participant may elect to defer a specified percentage of his or her Compensation as provided in Exhibit B. A Participant may change the percentage of his or her Compensation to be deferred by filing a new Regular Deferral Election with the Committee. Any such change shall be effective as of the first day of the Plan Year immediately following the Plan Year in which such Deferral Election is filed with the Committee. (b) Special Bonus Deferral Amount. Notwithstanding paragraph (a), above, a Participant who reports directly to the Company's Chief Executive Officer is required to defer at least twenty percent (20%) of his or her Bonus and a Participant who reports directly to an executive who reports directly to the Company's Chief Executive Officer is required to defer at least ten percent (10%) of his or her Bonus, into the Plan (the "Minimum Bonus Deferral Amount"). (c) A Participant may change the percentage of his or her Compensation to be deferred by filing a new Deferral Election with the Committee. Notwithstanding anything in the preceding sentence to the contrary, a Participant required to make a Minimum Bonus Deferral Amount shall not be permitted to elect to make a change in a Special Bonus Deferral Election below the Minimum Bonus Deferral Amount. Any permitted changes in deferral elections shall be effective as of the first day of the Plan Year immediately following the Plan Year in which such Deferral Election is filed with the Committee. 4.2 MATCHING AMOUNTS. (a) Regular Matching Amount. Subject to paragraph (b), below, if the Committee authorizes a Regular Matching Amount with respect to, and preceding, any Plan Year(s), the Employer shall provide Regular Matching Amounts under this Plan with respect to each Participant who is eligible to be allocated matching contributions under the Savings Plan. The total Regular Matching Amounts under this Plan on behalf of a Participant for each Plan Year shall not exceed the difference between the matching percentage of the Compensation deferred by a Participant under this Plan and of the Participant's pre-tax elective deferrals for the Plan Year under the Savings Plan, less (ii) the Employer matching contributions allocated to the Participant under the Savings Plan for such Plan Year. (b) Special Bonus Matching Amount. Notwithstanding paragraph (a), above, a Participant who is required to defer a Minimum Bonus Deferral Amount under Section 4.1(b) and who elects to defer a Discretionary Bonus Deferral Amount shall be credited with a Special Bonus Matching Amount equal to twenty-five one hundredths (.25) of one (1) share of the Common Stock of the Company for every one (1) share of the Common Stock of the Company deemed to be purchased under the Plan pursuant to Section 5.6 with the Discretionary Bonus Deferral Amount. There shall be no limit on a Participant's Special Bonus Matching Amount. Only Participants subject to the requirement to defer a Minimum Bonus Deferral Amount shall be eligible to defer a Discretionary Bonus Deferral Amount. (c) Minimum Bonus Deferral Amounts shall not be credited with any matching contributions under the Plan. -12- 13 4.3 CREDITING OF DEFERRAL AMOUNTS AND MATCHING AMOUNTS. Participant's Deferral Amounts shall be credited by the Employer to the Participant's Deferral Account periodically, the frequency of which will be determined by the Committee. To the extent that the Employer is required to withhold any taxes or other amounts from a Participant's Deferral Amounts pursuant to any state, federal or local law, such amounts shall be withheld only from the Participant's Deferral Amounts before such amounts are credited. The Matching Amounts under the Plan for each Participant shall be credited by the Employer to the Participant's Matching Account periodically, the frequency of which will be determined by the Committee. -13- 14 ARTICLE V BENEFIT ACCOUNTS ---------------- 5.1 VALUATION OF ACCOUNT. As of each Valuation Date, a Participant's Account shall consist of the balance of the Participant's Account as of the immediately preceding Valuation Date, plus the Participant's Deferral Amounts and Matching Amounts credited pursuant to Sections 4.1 and 4.2 since the immediately preceding Valuation Date, plus or minus investment gain or loss credited as of such Valuation Date pursuant to Section 5.2, minus the aggregate amount of distributions, if any, made from such Account since the immediately preceding Valuation Date. 5.2 CREDITING OF INVESTMENT RETURN. As of each Valuation Date, each Participant's Deferral Account and Matching Account shall be increased or decreased by the amount of investment gain or loss earned since the immediately preceding Valuation Date. Investment return shall be credited at the Investment Return Rate as of such Valuation Date based on the average balance of the Participant's Deferral Account and Matching Account, respectively, since the immediately preceding Valuation Date, but after such Accounts have been adjusted for any contributions or distributions to be credited or deducted for such period. Investment return for the period prior to the first Valuation Date applicable to a Deferral Account or a Matching Account shall be deemed earned ratably over such period. Until a Participant or his or her Beneficiary receives his or her entire Account, the unpaid balance thereof shall earn an investment return as provided in this Section 5.2. 5.3 STATEMENT OF ACCOUNTS. The Committee shall provide to each Participant, within 30 days after the close of each calendar quarter, a statement setting forth the balance of such Participant's Account as of the last day of the preceding calendar quarter and showing all adjustments made thereto during such calendar quarter. 5.4 VESTING OF AMOUNTS. Except as provided in Sections 10.1 and 10.2, a Participant shall be 100% vested in the amounts credited to his or her Account in the event of a Change in Control. Prior to a Change in Control, amounts credited to a Participant's Deferral Account or Matching Account shall vest in accordance with the following paragraphs of this Section 5.4. (a) Regular Deferral Amounts. A Participant shall be 100% vested in the Regular Deferral Amounts credited to his or her Deferral Account at all times. (b) Special Bonus Deferral Amounts. The Special Bonus Deferral Amounts credited to a Participant's Deferral Account with respect to each Plan Year shall vest in increments of fifty percent (50%); with the first 50% vesting upon the completion of the first year of Credited Service following the Plan Year to which the Special Bonus Deferral Amount relates and the remaining 50% vesting upon the completion of the second year of Credited Service following such Plan Year. Any nonvested portion of a Participant's Special Bonus Deferral Amount shall be forfeited if the Participant voluntarily resigns from the Company. Nonvested portions of a Participant's Bonus Deferral Amount shall be paid to the Participant if the Participant is involuntarily terminated by the Company. (c) Regular Matching Amounts. A Participant's Regular Matching Amounts shall vest in accordance with the vesting schedule for Company Contributions under the Equitable 401(k) Plan. -14- 15 (d) Special Bonus Matching Amounts. The Special Bonus Matching Amounts credited to a Participant's Matching Account with respect to each Plan Year shall vest in increments of thirty-three and one-third percent (33.3%); with the first 33.3% vesting upon the completion of the first year of Credited Service following the Plan Year to which the Special Bonus Matching Amount relates and the two remaining portions vesting upon the completion of the second and third years, respectively, of Credited Service following the Plan Year to which the Special Bonus Matching Amount relates. Any nonvested portion of a Participant's Special Bonus Matching Amount shall be forfeited if the Participant terminates employment with the Company for any reason. (e) Application of Forfeitures. Forfeitures under the Plan shall be for the benefit of the Company and shall not be credited to other Participants. 5.5 INVESTMENT OF REGULAR DEFERRAL AMOUNTS. A Participant may direct that the portion of his or her Deferral Account attributable to Regular Deferral Amounts under Section 4.1(a) be deemed to be invested in one or more of the investment options listed in Exhibit C, in increments of ten percent (10%) of the value of his or her Regular Deferral Amount (a "New Money Election"). A Participant also may direct once every month that Regular Deferral Amounts previously credited to his or her Deferral Account and deemed to be invested in one or more of the investment options listed in Exhibit C, be transferred in increments of ten percent (10%) of the value of his or her Regular Deferral Amount between and among the then available investment options listed in Exhibit C (a "Reallocation Election"); provided that a Participant may not reallocate Regular Deferral Amounts previously credited to his or her Deferral Account and deemed to be invested in the Equitable Resources Common Stock Fund. A New Money Election or a Reallocation Election must be filed with the Committee in accordance with uniform rules established by the Committee. A Reallocation Election shall not change a Participant's existing New Money election. The effective date of any New Money Election or Reallocation Election shall be the date on which such election is received by the Committee in accordance with uniform rules established by the Committee. The Company reserves the right to refuse to honor any Participant direction related to investments or withdrawals, including transfers among investment options, where necessary or desirable to assure compliance with applicable law including U.S. and other securities laws. However, the Company does not assume any responsibility for compliance by officers or others with any such laws, and any failure by the Company to delay or dishonor any such direction shall not be deemed to increase the Company's legal exposure to the Participant or third parties. 5.6 INVESTMENT OF SPECIAL BONUS DEFERRAL AMOUNTS AND MATCHING AMOUNTS. Notwithstanding anything in Section 5.5 to the contrary, a Participant's Special Bonus Deferral Amounts under Section 4.1(b) and all amounts credited to a Participant's Matching Account under Section 4.2 shall be deemed to be invested in the Equitable Resources Common Stock Fund. A Participant shall have no right to direct the investment of his Special Bonus Deferral Amounts and the amounts to be credited to his Matching Account. -15- 16 ARTICLE VI PAYMENT OF BENEFITS ------------------- 6.1 PAYMENT OF DEFERRAL BENEFIT UPON DEATH, DISABILITY OR RETIREMENT. Upon the death, Disability, Early Retirement, or Retirement of a Participant, the Employer shall pay to the Participant or his Beneficiary a Deferral Benefit equal to the balance of his or her vested Account determined pursuant to Article V, less any amounts previously distributed, based on his written election pursuant to Section 6.6. 6.2 PAYMENT OF DEFERRAL BENEFIT UPON TERMINATION. Upon the termination of service of the Participant as an employee of the Employer and all Selected Affiliates for reasons other than death, Disability, or Retirement, the Employer shall pay to the Participant a Deferral Benefit in a lump sum equal to the balance of his or her vested Account determined pursuant to Article V, less any amounts previously distributed, as soon as administratively practical. 6.3 PAYMENTS TO BENEFICIARIES. In the event of the Participant's death prior to his or her receipt of all elected annual installments, his or her Beneficiary will receive the remaining annual installments at such times as such installments would have become distributable to the Participant. 6.4 IN-SERVICE DISTRIBUTION. A Participant may elect to receive an in-service distribution of a portion or all of his or her vested Deferral Account only, beginning at any time not less than one year after the end of the Plan Year in which such Compensation was deferred. A Participant's election for an in-service distribution shall be filed annually in writing with the Committee at the same time his or her Deferral Election is made. The Participant may elect to receive such in-service distribution in a lump sum only, the amount of which will be the lesser of the distribution election for that year or the Deferral Account balance attributable to that year's deferral. Any benefits paid to the Participant as an in-service distribution shall reduce the amount of Deferral Benefit otherwise payable to the Participant under the Plan. 6.5 HARDSHIP WITHDRAWAL. In the event that the Committee, upon the written request of a Participant, determines, in its sole discretion, that the Participant has suffered an unforeseeable financial emergency, the Company shall pay to the Participant, as soon as practicable following such determination, an amount necessary to meet the emergency (the "Hardship Withdrawal"), but not exceeding the aggregate balance of such Participant's vested Deferral Account as of the date of such payment. For purposes of this Section 6.5, an "unforeseeable financial emergency" shall mean an event that the Committee determines to give rise to an unexpected need for cash arising from an illness, casualty loss, sudden financial reversal or other such unforeseeable occurrence. The amount of a Hardship Withdrawal may not exceed the amount the Committee reasonably determines to be necessary to meet such emergency needs (including taxes incurred by reason of a taxable distribution). The amount of the Deferral Benefit otherwise payable under the Plan to such Participant shall be adjusted to reflect the early payment of the Hardship Withdrawal. -16- 17 6.6 FORM OF PAYMENT. The Deferral Benefit payable pursuant to Section 6.1 shall be paid in one of the following forms, as elected by the Participant in his or her Participation Agreement on file as of one (1) year and one (1) day prior to the date of termination or death: (a) Annual payments of a fixed amount which shall amortize the vested Account balance as of the payment commencement date over a period not to exceed ten (10) years (together, in the case of each annual payment, with interest thereon credited after the payment commencement date pursuant to Section 5.2). (b) A lump sum. In the event a Participant fails to make a distribution election, his or her vested Account balance shall be distributed in a lump sum. Notwithstanding the foregoing, that portion of a Participant's Account attributable to Special Bonus Deferral Amounts and all Matching Amounts shall be paid in Common Stock of the Company, with any fractional shares paid in cash in a lump sum. 6.7 COMMENCEMENT OF PAYMENTS. Commencement of payments under Section 6.1 of the Plan shall begin within 60 days following receipt of written notice by the Committee of an event which entitles a Participant (or a Beneficiary) to payments under the Plan. 6.8 SMALL BENEFIT. In the event the Committee determines that the balance of a Participant's vested Account is less than $3,500 at the time of commencement of payments, or the portion of the balance of the Participant's vested Account payable to any Beneficiary is less than $3,500 at the time of commencement of payments, the Committee may inform the Employer and the Employer, in its discretion, may choose to pay the benefit in the form of a lump sum payment, notwithstanding any provision of the Plan or a Participant election to the contrary. Such lump sum payment shall be equal to the balance of the Participants vested Account or the portion thereof payable to a Beneficiary. -17- 18 ARTICLE VII BENEFICIARY DESIGNATION ----------------------- 7.1 BENEFICIARY DESIGNATION. Each Participant shall have the sole right, at any time, to designate any person or persons as his Beneficiary to whom payment under the Plan shall be made in the event of his or her death prior to complete distribution to the Participant of his or her Account. Any Beneficiary designation shall be made in a written instrument provided by the Committee. All Beneficiary designations must be filed with the Committee and shall be effective only when received in writing by the Committee. In the event that a Beneficiary form has not been filed, the Beneficiary to whom payment has been designated under the Savings Plan shall be used. 7.2 CHANGE OF BENEFICIARY DESIGNATION. Any Beneficiary designation may be changed by a Participant by the filing of a new Beneficiary designation, which will cancel all Beneficiary designations previously filed. The designation of a Beneficiary may be made or changed at any time without the consent of any person. 7.3 NO DESIGNATION. If a Participant fails to designate a Beneficiary as provided above, or if all designated Beneficiaries predecease the Participant, then the Participant's designated Beneficiary shall be deemed to be the Participant's estate. 7.4 EFFECT OF PAYMENT. Payment to a Participant's Beneficiary (or, upon the death of a primary Beneficiary, to the contingent Beneficiary or, if none, to the Participant's estate) shall completely discharge the Employer's obligations under the Plan. -18- 19 ARTICLE VIII ADMINISTRATION -------------- 8.1 COMMITTEE. The administrative committee for the Plan (the "Committee") shall be those members of the Employee Pension Committee as long as there are at least three such members. If there are not at least three such non-participating persons on the Committee, the Chief Executive Officer of the Company shall appoint other Company officers to serve on the Committee. The Committee shall have complete discretion to i) supervise the administration and operation of the Plan, ii) adopt rules and procedures governing the Plan from time to time and iii) shall have authority to give interpretive rulings with respect to the Plan. 8.2 AGENTS. The Committee may appoint an individual, who may be an employee of the Company, to be the Committee's agent with respect to the day-to-day administration of the Plan. In addition, the Committee may, from time to time, employ other agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with counsel who may be counsel to the Company. 8.3 BINDING EFFECT OF DECISIONS. Any decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan shall be final and binding upon all persons having any interest in the Plan. 8.4 INDEMNIFICATION OF COMMITTEE. The Company shall indemnify and hold harmless the members of the Committee and their duly appointed agents under Section 8.2 against any and all claims, loss, damage, expense or liability arising from any action or failure to act with respect to the Plan, except in the case of gross negligence or willful misconduct by any such member or agent of the Committee. -19- 20 ARTICLE IX AMENDMENT AND TERMINATION OF PLAN --------------------------------- 9.1 AMENDMENT. The Company, on behalf of itself and of each Selected Affiliate may at any time amend, suspend or reinstate any or all of the provisions of the Plan, except that no such amendment, suspension or reinstatement may adversely affect any Participant's Account, as it existed as of the day before the effective date of such amendment, suspension or reinstatement, without such Participant's prior written consent. Written notice of any amendment or other action with respect to the Plan shall be given to each Participant. 9.2 TERMINATION. The Company, on behalf of itself and of each Selected Affiliate, in its sole discretion, may terminate this Plan at any time and for any reason whatsoever. Upon termination of the Plan, Participants shall be 100% vested in all amounts credited to their Accounts. On and after Plan termination, the Committee shall take those actions necessary to administer any Accounts existing prior to the effective date of such termination; provided, however, that a termination of the Plan shall not adversely affect the value of a Participants Account, the crediting of investment return under Section 5.2 or the timing or method of distribution of a Participant' s Account, without the Participant's prior written consent. -20- 21 ARTICLE X MISCELLANEOUS ------------- 10.1 FUNDING. Participants, their Beneficiaries, and their heirs, successors and assigns, shall have no secured interest or claim in any property or assets of the Employer. The Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Employer to pay money in the future. Notwithstanding the foregoing, in the event of a Change in Control, the Company shall create an irrevocable trust, or before such time the Company may create an irrevocable or revocable trust, to hold funds to be used in payment of the obligations of Employers under the Plan. In the event of a Change in Control or prior thereto, the Employers shall fund such trust in an amount equal to not less than the total value of the Participants' Accounts under the Plan as of the Valuation Date immediately preceding the Change in Control, provided that any funds contained therein shall remain liable for the claims of the respective Employer's general creditors. 10.2 NONASSIGNABILITY. No right or interest under the Plan of a Participant or his or her Beneficiary (or any person claiming through or under any of them) shall be assignable or transferable in any manner or be subject to alienation, anticipation, sale, pledge, encumbrance or other legal process or in any manner be liable for or subject to the debts or liabilities of any such Participant or Beneficiary. If any Participant or Beneficiary shall attempt to or shall transfer, assign, alienate, anticipate, sell, pledge or otherwise encumber his or her benefits hereunder or any part thereof, or if by reason of his or her bankruptcy or other event happening at any time such benefits would devolve upon anyone else or would not be enjoyed by him or her, then the Committee, in its discretion, may terminate his or her interest in any such benefit (including the Deferral Account) to the extent the Committee considers necessary or advisable to prevent or limit the effects of such occurrence. Termination shall be effected by filing a written "termination declaration" with the Clerk of the Company and making reasonable efforts to deliver a copy to the Participant or Beneficiary whose interest is adversely affected (the "Terminated Participant"). As long as the Terminated Participant is alive, any benefits affected by the termination shall be retained by the Employer and, in the Committee's sole and absolute judgment, may be paid to or expended for the benefit of the Terminated Participant, his or her spouse, his or her children or any other person or persons in fact dependent upon him or her in such a manner as the Committee shall deem proper. Upon the death of the Terminated Participant, all benefits withheld from him or her and not paid to others in accordance with the preceding sentence shall be disposed of according to the provisions of the Plan that would apply if he or she died prior to the time that all benefits to which he or she was entitled were paid to him or her. 10.3 LEGAL FEES AND EXPENSES. It is the intent of the Company and each Selected Affiliate that no Eligible Employee or former Eligible Employee be required to incur the expenses associated with the enforcement of his or her rights under this Plan by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to an Eligible Employee hereunder. Accordingly, if after a Change in Control it should appear that the Employer has failed to comply with any of its obligations under this Plan or in the event that the Employer or any other person takes any action to declare this Plan void or unenforceable, or institutes any litigation designed to deny, or to recover from, the Eligible Employee the benefits intended to be provided to such Eligible Employee hereunder, the Employer irrevocably authorizes such Eligible Employee from time to time to retain counsel of his or her choice, at the -21- 22 expense of the Employer as hereafter provided, to represent such Eligible Employee in connection with the initiation or defense of any litigation or other legal action, whether by or against the Employer or any director, officer, stockholder or other person affiliated with the Employer in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Employer and such counsel, the Employer irrevocably consents to such Eligible Employee's entering into an attorney-client relationship with such counsel, and in that connection the Employer and such Eligible Employee agree that a confidential relationship shall exist between such Eligible Employee and such counsel, The Employer shall pay and be solely responsible for any and all attorneys' and related fees and expenses incurred by such Eligible Employee as a result of the Employer's failure to perform under this Plan or any provision thereof; or as a result of the Employer or any person contesting the validity or enforceability of this Plan or any provision thereof. 10.4 CAPTIONS. The captions contained herein are for convenience only and shall not control or affect the meaning or construction hereof. 10.5 GOVERNING LAW. The provisions of the Plan shall be construed and interpreted according to the laws of the Commonwealth of Pennsylvania. 10.6 SUCCESSORS. The provisions of the Plan shall bind and inure to the benefit of the Company, its Selected Affiliates, and their respective successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise, acquire all or substantially all of the business and assets of the Company or a Selected Affiliate and successors of any such Company or other business entity. 10.7 RIGHT TO CONTINUED SERVICE. Nothing contained herein shall be construed to confer upon any Eligible Employee the right to continue to serve as an Eligible Employee of the Employer or in any other capacity. EXECUTED THIS 1ST DAY OF JANUARY, 1996. EQUITABLE-RESOURCES INC. BY: GREGORY R. SPENCER TITLE VICE PRESIDENT HUMAN RESOURCES AND ADMINISTRATION -22- 23 EXHIBIT A --------- RE: SECTION 3.1 - DESCRIPTION OF ELIGIBLE EMPLOYEES - ---------------------------------------------------- Date: January 1, 1996. THE COMMITTEE HAS DETERMINED THAT THE FOLLOWING NAMED INDIVIDUALS OR GROUPS OF PERSONS OR DESCRIPTIONS OF THE COMPONENTS OF COMPENSATION OF AN INDIVIDUAL WHICH WOULD QUALIFY INDIVIDUALS WHICH ARE ELIGIBLE TO PARTICIPATE IN THE PLAN AS ELIGIBLE EMPLOYEES: Employees classified in Company salary grade 19 and above -23- 24 EXHIBIT B --------- RE: SECTION 4.1 - AMOUNT OF DEFERRAL - ------------------------------------- Dated: January 1, 1996 AS OF THE DATE ABOVE, AND EFFECTIVE UNTIL THIS EXHIBIT IS MODIFIED BY THE COMMITTEE, THE TABLE BELOW INDICATES THE TYPES OF COMPENSATION WHICH ARE ELIGIBLE FOR INCOME DEFERRAL AT THE ASSIGNED PERCENTAGES AS NOTED: TYPE OF COMPENSATION MAXIMUM PERCENTAGE OTHER LIMITATIONS THAT CAN BE DEFERRED Base Salary N/A Any amount over IRS limit - -------------------------------------------------------------------------------- Bonus 100% In increments of 10% or the entire amount of the Bonus awarded in excess of a stated dollar amount. - -------------------------------------------------------------------------------- -24- 25 EXHIBIT C --------- RE: SECTION 2.21 - INVESTMENT RETURN RATE - ------------------------------------------ The investment account equivalents to be used in determining the Investment Rate of Return shall be those investment options provided under the Equitable Resources, Inc. Employee Savings Plan ("Equitable 401(k) Plan") during any period of reference. EX-10.08 7 LONG-TERM INCENTIVE PLAN 1 Exhibit 10.08 EQUITABLE RESOURCES, INC. BREAKTHROUGH LONG TERM INCENTIVE PLAN EQUITABLE RESOURCES, INC. (the "Company") hereby establishes the Equitable Resources, Inc. Breakthrough Long Term Incentive Plan (the "Plan") for the benefit of certain executives of the Company effective as of the 16th day of July, 1998. WHEREAS, the Company maintains certain incentive award plans, including the Equitable Resources Inc. 1994 Long Term Incentive Plan, pursuant to which stock-based incentive awards are granted to selected executive employees; and WHEREAS, in order to further align the interests of the persons primarily responsible for the success of the Company with the interest of the shareholders, the Company desires to provide additional long term incentive benefits through the Plan. NOW THEREFORE, the Company hereby provides for additional incentive benefits for certain executive employees of the Company on the following terms and conditions: SECTION 1. ELIGIBILITY. The Chief Executive Officer of the Company (the "CEO") shall, in his sole discretion, select the executive employees of the Company who shall be eligible to participate in the Plan. The CEO's selections will become participants in the Plan (the "Participants") only upon approval by the Compensation Committee of the Board of Directors of the Company (the "Compensation Committee"). SECTION 2. INCENTIVE AWARDS. Each Participant shall be awarded a number of units (the "Award") (subject to the conditions provided herein) which shall be determined by dividing four times his or her current annual base salary as of the effective date of the Plan by $28.50, which is the average of the high and low stock prices of Company common stock on July 16, 1998 (the "Award Date") as reported on the New York Stock Exchange Composite Transactions System in the Wall Street Journal ("NYSE"). The value of each unit shall equal the closing price of the Company's common stock on the NYSE for that day. A Participant's base salary shall be determined by the Compensation Committee, but shall in any event exclude bonuses, commissions, car allowances, Company reimbursements, relocation payments, and any gain from the exercise of stock options or the grant of stock to Participants. The Award shall be made to the Participant on the Award Date but will be held by the Company subject to the terms and conditions described below. A Participant shall have 2 no current right to exchange the Award for cash, stock or any other benefit and shall be a mere unsecured creditor of the Company with respect to future rights to benefits. SECTION 3. PERFORMANCE CONDITION OF THE AWARD. The Award shall have value only if the closing price of the Company's common stock on the NYSE equals or exceeds fifty-dollars ($50.00) per share on twenty or more consecutive trading days ("Performance Condition"), in which event, subject to the terms of the Plan, a Participant shall be entitled to receive an amount of cash equal to the value of the Award. SECTION 4. FORFEITURE OF THE AWARD. (a) The number of units constituting a Participant's Award shall be reduced by 50% if the Performance Condition is not satisfied on or before December 31, 2001. If the Performance Condition is not satisfied on or before December 31, 2002, the Participant's Award shall be forfeited. (b) A Participant's Award shall be forfeited if, prior to the satisfaction of the Performance Condition, the Participant's employment with the Company terminates for any reason other than the following: (i) the Company terminates the employment of the Participant for reasons other than for Cause (as defined in Section 10 below) prior to a Change in Control; (ii) the Participant's death; or (iii) the Participant terminates his or her employment with the Company for Good Reason (as defined in Section 10 below) at any time within twenty-four months following a Change in Control of the Company (as defined in Section 9 below). (c) If a Participant's employment with the Company terminates for a reason described in paragraphs (i) or (ii) of Section 4(b) above, then the number of units constituting the Participant's Award shall be reduced as follows: (i) If the Participant's employment with the Company terminates on or before March 31, 1999, then 100% of the Participant's Award shall be forfeited. (ii) If the Participant's employment with the Company terminates after March 31, 1999 and on or before March 31, 2000, then the number of units constituting the Participant's Award shall be reduced by 50%. 2 3 (iii) If the Participant's employment with the Company terminates after March 31, 2000, then the number of units constituting the Participant's Award shall be reduced by 25%. (d) If a Participant's employment with the Company terminates for a reason described in Section 4(b)(iii) above, then the number of units constituting the Participant's Award shall not be reduced. SECTION 5. DIVIDENDS. Each unit will be credited with dividends which are paid on the Company's common stock in the form of additional units. These additional units shall be subject to the same conditions and restrictions as provided in this Plan. SECTION 6. DISTRIBUTION. Upon notification from the Company of participation in the Plan, each Participant must make a written election as to the time and form in which his or her Award will be paid as provided in this Section 6. This election must be made on or before September 1, 1998. (a) A Participant may elect to have the payment of his or her Award commence either upon termination of employment with the Company or upon a specified date in the future. The Participant's election as to when the Award will be paid shall be irrevocable. (b) A Participant may elect to have his or her Award paid in either a lump-sum cash payment or annual installment cash payments over one, five or ten year periods. A Participant may also change his or her original election as to the method of payment by making a subsequent written election with the Company, except that such election shall not be effective until the one-year anniversary after the election is made. Consequently, if the Participant makes a subsequent election and becomes entitled to payment of the Award before the expiration of the one-year period, the original election shall apply. (c) If a Participant elects to receive payment of his or her Award, or any portion thereof, at any time after the satisfaction of the Performance Condition, then the units constituting the Award shall be credited to and maintained in accordance with the terms of the Company's Deferred Compensation Plan as then in effect. (d) If a Participant elects to receive the payment of his or her Award at a specified date and on such date, he or she is still employed by the Company, then the Award shall be paid to the Participant only to the extent that the deductibility of such payment to the Company is not limited by reason of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). In the event that the payment of all or a part of the Award exceeds the Code Section 162(m) limit, the amount in excess of the limit shall automatically be deferred to the next subsequent year in which it can be paid to the Participant without exceeding the Code Section 162(m) limit. (e) A Participant's Award under this Plan shall actually be paid to the Participant within 30 days or as soon as practicable thereafter following the benefit commencement 3 4 date as described in paragraph (a) above. The Participant shall receive all benefits in cash payments and shall have no right to receive a distribution of Company stock. (f) In the event of the Participant's death, the Participant's beneficiary (as listed on the most recent election form which is delivered to the Company) shall receive an immediate lump-sum cash payment without regard to the Participant's elections as to the time and form of payment as described in paragraphs (a) and (b) above. SECTION 7. TAX CONSEQUENCES TO PARTICIPANTS. It is intended that: (i) until the Performance Condition is satisfied, a Participant's right to an Award under this Plan shall be subject to a substantial risk of forfeiture in accordance with Code Sections 83(a) and 3121(v)(2); (ii) the Award shall be subject to employment taxes upon the satisfaction of the Performance Condition; and (iii) until the Award is actually paid to the Participant, the Participant shall have merely an unfunded, unsecured promise to be paid the benefit, and such unfunded promise shall not consist of a transfer of "property" within the meaning of Code Section 83. It is further intended that, because a Participant may only change the method of payment of the Award at a time when he or she cannot actually or constructively receive the Award, and such election will not become effective for a one-year period after it is made, the Participant will not be in actual or constructive receipt of the Award within the meaning of Code Section 451 until it is actually received. SECTION 8. NONASSIGNMENT. A Participant shall not be permitted to assign, alienate or otherwise transfer his Award and any attempt to do so shall be void. SECTION 9. CHANGE IN CONTROL. (a) Upon a Change in Control (as defined in paragraph (b) below), the Company must transfer an amount of cash to the grantor trust which is created by the attached Trust Plan for the benefit of the Participants (the "Rabbi Trust"). The amount that must be transferred to the Rabbi Trust shall equal the value of all of the Awards made pursuant to the Plan (which have not been forfeited pursuant to Section 4 hereof as of the date of the Change in Control) assuming the Performance Condition is satisfied as of the date of the Change of Control. The Rabbi Trust shall provide that following a Change in Control of the Company, the amount transferred to the Rabbi Trust may not be returned to the Company (subject to its use for creditors in the event of bankruptcy or insolvency); provided, however, that (i) the value of any award forfeited pursuant to Section 4 hereof subsequent to a Change in Control shall be returned to the Company; and (ii) all amounts in the Rabbi Trust shall be returned to the Company if the Performance Condition is not satisfied as of December 31, 2002. In such event the Rabbi Trust shall provide that the transferred amount shall be returned to the Company. (b) A Change in Control of the Company shall mean any of the following events: 4 5 (i) The sale or other disposition by the Company of all or substantially all of its assets to a single purchaser or to a group of purchasers, other than to a corporation with respect to which, following such sale or disposition, more than eighty percent of, respectively, the then outstanding shares of Company common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of the Board of Directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively of the outstanding Company common stock and the combined voting power of the then outstanding voting securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding Company common stock and voting power immediately prior to such sale or disposition; (ii) The acquisition in one or more transactions by any person or group, directly or indirectly, of beneficial ownership of twenty percent or more of the outstanding shares of Company common stock or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of the Board of Directors; provided, however, that any acquisition by (x) the Company or any of its subsidiaries, or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (y) any person that is eligible, pursuant to Rule 13d-1(b) under the Exchange Act (as such rule is in effect as of November 1, 1995) to file a statement on Schedule 13G with respect to its beneficial ownership of Company common stock and other voting securities, whether or not such person shall have filed a statement on Schedule 13G, unless such person shall have filed a statement on Schedule 13D with respect to beneficial ownership of fifteen percent or more of the Company's voting securities, shall not constitute a Change in Control; (iii) The Company's termination of its business and liquidation of its assets; (iv) There is consummated a merger, consolidation, reorganization, share exchange, or similar transaction involving the Company, (including a triangular merger), in any case, unless immediately following such transaction: (x) all or substantially all of the persons who were the beneficial owners of the outstanding common stock and outstanding voting securities of the Company immediately prior to the transaction beneficially own, directly or indirectly, more than 60% of the outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction (including a corporation or other person which as a result of such transaction owns the 5 6 Company or all or substantially all of the Company's assets through one or more subsidiaries (a "Parent Company")) in substantially the same proportion as their ownership of the common stock and other voting securities of the Company immediately prior to the consummation of the transaction, (y) no person (other than the Company, any employee benefit plan sponsored or maintained by the Company or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause (x) above is satisfied in connection with the transaction, such Parent Company) beneficially owns, directly or indirectly, 20% or more of the outstanding shares of common stock or the combined voting power of the voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction and (z) individuals who were members of the Company's Board of Directors immediately prior to the consummation of the transaction constitute at least a majority of the members of the board of directors resulting from such transaction (or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause (x) above is satisfied in connection with the transaction, such Parent Company); or (v) The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the entire Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved. SECTION 10. GOOD REASON FOR TERMINATION. For purposes of the Forfeiture Provision of Section 4, a Participant shall have terminated employment with the Company for "Good Reason" if any one of the following applies: (a) The removal of the Participant from the position he held immediately prior to the Change in Control (other than by reason of death, disability or Cause); (b) The assignment to the Participant of any duties inconsistent with those performed by the Participant immediately prior to the Change in Control or a substantial alteration in the nature or status of the Participant's responsibilities which renders the Participant's position to be of less dignity, responsibility or scope; (c) A reduction by the Company in the Participant's level of overall compensation (including annual incentive opportunity at target award levels) as in effect on the effective 6 7 date of this Plan or as the same may be increased from time to time except for proportional across-the-board reductions similarly affecting all executives of the Company and all executives of any person in control of the Company, provided, however, that the exception for across-the-board reductions shall not apply in the event the Participant's annual base salary is reduced by an amount equal to ten percent or more of the Participant's annual base salary as of the end of the calendar year immediately preceding the year in which the Change in Control occurs, without the Participant's consent; (d) The failure to grant the Participant an annual salary increase reasonably necessary to maintain such salary as reasonably comparable to salaries of senior executives holding positions equivalent to the Participant's in the industry in which the Company's then principal business activity is conducted; (e) The Company requiring the Participant to be based anywhere other than the Company's principal executive offices in the city in which the Participant is principally located immediately prior to the Change in Control, except for required travel on the Company's business to an extent substantially consistent with the Participant's present business travel obligations; or (f) Any material reduction by the Company of the benefits enjoyed by the Participant under any of the Company's pension, retirement, profit sharing, savings, life insurance, medical, health and accident, disability or other employee benefit plans, programs or arrangements; the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Participant of any material fringe benefits or perquisites; or the failure by the Company to provide the Participant with the number of paid vacation days to which he is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy, provided that this paragraph (f) shall not apply to any proportional across-the-board reduction or action similarly affecting all executives of the Company and all executives of any person in control of the Company. SECTION 11. TERMINATION OF PARTICIPANT FOR CAUSE. For purposes of the Forfeiture Provision of Section 4, a Participant shall have a termination of employment from the Company for "Cause" upon: (a) The willful and continued failure by the Participant to substantially perform his duties with the Company (other than (i) any such failure resulting from the Participant's disability, or (ii) any such actual or anticipated failure resulting from the Participant's termination of his employment for Good Reason), after a written demand for substantial performance is delivered to the Participant by the CEO of the Company which specifically identifies the manner in which the CEO believes that the Participant has not substantially performed his duties and which failure has not been cured within thirty days after such written demand; or 7 8 (b) The willful and continued engaging by the Participant in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of this Section 11, no act, or failure to act on the Participant's part shall be considered "willful" unless done, or omitted to be done, by the Participant in bad faith and without reasonable belief that such action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Participant shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for that purpose (after reasonable notice to the Participant and an opportunity for the Participant, together with his counsel, to be heard before the Board of Directors) finding that in the good faith opinion of the Board of Directors the Participant is guilty of the conduct set forth above and specifying the particulars thereof in detail. SECTION 12. SUCCESSORS; CHANGES IN STOCK. The obligation of the Company under the Plan shall be binding upon the successors and assigns of the Company. In the event of a stock split, stock dividend or other recapitalization of the Company affecting the Company's common stock, then the number of units constituting a Participant's Award and the Performance Condition shall be appropriately and equitably adjusted. In the event that the Company's common stock is exchanged for or converted solely into the common stock of another Company, then the value of the units constituting the Award shall equal the closing price of such common stock on the principal market on which such common stock is traded and the Award shall continue to be subject to the terms of the Plan. In the event that the Company's common stock is exchanged for or converted into the right to receive cash or other property [including debt securities and/or other securities (other than solely common stock)], then the Performance Condition shall be deemed to have been satisfied if the fair market value of such cash and/or property equals or exceeds $50.00 per share of the Company's common stock. SECTION 13. DISPUTE RESOLUTION. The Participant may make a claim to the Compensation Committee with regard to a payment of benefits provided herein. If the Compensation Committee receives a claim in writing, the Compensation Committee must advise the Participant of its decision on the claim in writing in a reasonable period of time after receipt of the claim, (not to exceed 120 days). The notice shall set forth the following information: (a) The specific basis for its decision; (b) Specific reference to pertinent Plan provisions on which the decision is based; (c) A description of any additional material or information necessary for the Participant to perfect a claim and an explanation of why such material or information is necessary; and (d) An explanation of the Plan's claim review procedure. 8 9 If the Participant does not receive a notice of decision within 120 days after receipt of the claim, the claim will be deemed to have been denied. The Participant may request a review of a decision (or deemed denial) by filing with the Compensation Committee a written request for such review. The request must be filed within 60 days after the notice of decision is received, or within 60 days after the denial is deemed to have occurred. The Participant may review pertinent documents and submit issues and comments in writing within the same 60 day period. If a request for review is filed, such review shall be made by the Compensation Committee within 120 days after receipt of such request. Upon completion of the review, the Participant shall be given written notice of the decision resulting from such review, which notice shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based. In the event that the Participant continues to disagree with the decision of the Compensation Committee, the Participant may seek to resolve the dispute by referring the matter to an impartial arbitrator who shall be selected from a list of names provided by the Federal Mediation and Conciliation Service in Washington DC, provided that the costs for such proceeding shall be borne by the party determined by the arbitrator. SECTION 14. IMPACT ON BENEFIT PLANS. Payments made under this Plan will not be considered as earnings for purposes of the Deferred Compensation Plan. SECTION 15. NO CONTRACT OF EMPLOYMENT. This Plan shall not be construed as a contract of employment for the Participant during the term of this Plan. SECTION 16. APPLICABLE LAW. This Plan shall be governed by and construed under the laws of the Commonwealth of Pennsylvania without regard to its conflict of law provisions. SECTION 17. SEVERABILITY. In the event that any one or more of the provisions of this Plan shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 18. HEADINGS. The descriptive headings of the Sections of this Plan are inserted for convenience of reference only and shall not constitute a part of this Plan. SECTION 19. AMENDMENT AND TERMINATION. This Plan may be amended by the Company, in its sole discretion at any time by a written action authorized by its Board of Directors except that no amendment shall adversely affect a Participant's rights to his Award after the Award Date and no amendment can be made following a Change in Control as defined in Section 9. This Plan shall terminate upon the earlier of the satisfaction of the Performance Condition or December 31, 2002. The Compensation Committee shall be responsible for administering the Plan. 9 10 IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its officers thereunto duly authorized as of the day and year first written above. ATTEST: EQUITABLE RESOURCES, INC. /s/ Audrey C. Moeller /s/ Murry S. Gerber - -------------------------------- ---------------------------------- Audrey C. Moeller Murry S. Gerber 10 11 EQUITABLE RESOURCES, INC. BREAKTHROUGH LONG TERM INCENTIVE PLAN AMENDMENT NO. 1 THIS AMENDMENT NO. 1 to the Breakthrough Long Term Incentive Plan (the "Plan") is hereby made this 30th day of November 1999, as provided below. WHEREAS, The Plan, as approved by the Board of Directors at its meeting on July 16, 1998, was intended, among other things, to protect against forfeiture of a Participant's account in the event of involuntary termination of employment without Cause following a Change of Control (as defined in the Plan); and WHEREAS, on November 30, 1999, the Compensation Committee of the Company's Board of Directors authorized amendment of the Plan to include such a provision. NOW, THEREFORE, the Plan shall be amended, effective November 30, 1999 as follows: 1. Section 4(b)(iii) of the Plan be and hereby is amended by deleting the section and substituting the following therefor: "the Company terminates the employment of the Participant for reasons other than for Cause (as defined in Section 10 below) or the Participant terminates his or her employment with the Company for Good Reason (as defined in Section 10 below) at any time within twenty-four months following a Change in Control of the Company (as defined in Section 9 below)." 2. In all other respects the Plan shall remain unchanged. IN WITNESS WHEREOF, the Company has caused this Amendment No. 1 to be executed by its officers thereunto authorized as of the day and year first written above. EQUITABLE RESOURCES, INC. /s/ Gregory R. Spencer ------------------------------------ Gregory R. Spencer Senior Vice President and Chief Administrative Officer ATTEST: /s/ Jean F. Marks - ------------------------------------- Jean F. Marks 11 EX-10.09 8 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT 1 Exhibit 10.09 (b) AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 to Employment Agreement ("Amendment No. 1"), dated as of December 1, 1999, amends that certain Employment Agreement (the "Employment Agreement") dated May 4, 1998, by and between Equitable Resources, Inc., a Pennsylvania corporation (the "Company"), and Murry S. Gerber, an individual (the "Executive"); WITNESSETH: WHEREAS, in connection with the Executive's employment pursuant to the Employment Agreement, the Company and Executive entered into a Change of Control Agreement dated May 4, 1998 ("Change of Control Agreement") and a Post-Termination Confidentiality and Non-Competition Agreement dated May 4, 1998 ("Non-Competition Agreement"), copies of which are attached to the Employment Agreement as Appendix A and Appendix B, respectively; and WHEREAS, the Company and the Executive desire to enter into a new Change of Control Agreement, substantially in the form attached hereto as Exhibit A (the "New Change of Control Agreement") and an amended Non-Competition Agreement, substantially in the form attached hereto as Exhibit B (the "Amended Non-Competition Agreement"); and WHEREAS, in order to coordinate the terms of the Employment Agreement with the execution of the New Change of Control Agreement and the Amended Non-Competition Agreement, the Company and the Executive desire to enter into this Amendment No. 1; NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, the Company and the Executive agree as follows: 1. Section 3(e) of the Employment Agreement is amended by deleting the Change of Control Agreement referred to therein and attached thereto as Appendix A, and substituting the New Change of Control Agreement attached hereto as Exhibit A. All references in the Employment Agreement to the "Change of Control Agreement" shall, from the date of this Amendment No. 1 and thereafter, refer to the New Change of Control Agreement attached hereto as Exhibit A. 2. Section 3(f) of the Employment Agreement is amended by deleting the Post-Termination Confidentiality and Non-Competition Agreement referred to therein and attached thereto as Appendix B, and substituting the Amended and Restated Post-Termination Confidentiality and Non-Competition Agreement attached hereto as Exhibit B. All references in this Employment Agreement to the "Post-Termination Confidentiality and Non-Competition Agreement" shall, from the date of this Amendment No. 1 and thereafter, refer to the Amended and Restated Post-Termination Confidentiality and Non-Competition Agreement attached hereto as Exhibit B. 2 3. Section 8(e) of the Employment Agreement is amended by deleting the first sentence thereof and substituting the following therefor: If the Executive receives payment of benefits under the Change of Control Agreement (as set forth in Appendix A hereto) following his termination of employment, then its terms shall control and he shall not receive the base salary compensation benefits provided under paragraph (a) of this Section 8 nor shall he receive benefits under the Post-Termination Confidentiality and Non-Competition Agreement which shall thereupon terminate and be of no further force or effect. 4. All other terms of the Employment Agreement shall be unaffected by this Amendment No. 1 and shall remain in full force and effect. 5. This Amendment No. 1 shall be governed and construed in accordance with the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 as of the date first above set forth. EQUITABLE RESOURCES, INC.: By: /s/ Gregory R. Spencer ------------------------------------------------------- Name: Gregory R. Spencer ----------------------------------------------------- Title: Sr. Vice President and Chief Administrative Officer ---------------------------------------------------- /s/ Murry S. Gerber ---------------------------------------------------------- Murry S. Gerber -2- EX-10.10 9 CHANGE OF CONTROL AGREEMENT 1 Exhibit 10.10 CHANGE OF CONTROL AGREEMENT THIS AGREEMENT (the "Agreement") dated as of the 30th day of November, 1999 (the "Effective Date") by and between EQUITABLE RESOURCES, INC., a Pennsylvania corporation with its principal place of business at Pittsburgh, Pennsylvania (the "Company"), and, Murry S. Gerber, an individual (the "Employee"); WHEREAS, the Company and the Employee, pursuant to an Employment Agreement dated May 4, 1998, are parties to a Change of Control Agreement dated May 4, 1998, which provides for the payment of certain benefits to the Employee if the Employee's employment terminates in certain circumstances following a change of control of the Company (the "Existing Agreement"); and WHEREAS, the Board of Directors of the Company (the "Board"), continues to believe that it is in the best interest of the Company and its shareholders to assure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company; that it is imperative to diminish the inevitable distraction of the Employee by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control; and that it is appropriate to provide the Employee with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Employee will be satisfied and which are competitive with those of other corporations in the industry in which the Company's principal business activity is conducted; and WHEREAS, in order to more fully accomplish the foregoing objectives, the Company and the Employee desire to terminate the Existing Agreement and to enter into this Agreement, which, among other things, clarifies and enhances in certain respects the benefits payable to the Employee if the Employee's employment terminates in certain circumstances following a Change in Control of the Company and have agreed to amend the Employment Agreement accordingly; NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Term. The term of this Agreement shall commence on the Effective Date hereof and, subject to Sections 3(f), 5 and 8, shall terminate on the earlier of (i) the date of the termination of Employee's employment by the Company for any reason prior to a Change of Control; or (ii) unless further extended as hereinafter set forth, the date which is thirty-six (36) months after the Effective Date; provided, that, commencing on the last day of the first full calendar month after the Effective Date and on the last day of each succeeding calendar month, the term of this Agreement shall be automatically extended without further action by either party (but not beyond the date of the termination of Employee's employment prior to a Change of Control) for one (1) additional month unless one party provides written notice to the other party that such party does not wish to extend the term of this Agreement. In the event that such notice shall have been delivered, the term of this Agreement shall no longer be subject to automatic extension 2 and the term hereof shall expire on the date which is thirty-six (36) calendar months after the last day of the month in which such written notice is received. 2. Change of Control. Change of Control shall mean any of the following events (each of such events being herein referred to as a "Change of Control"): (a) The sale or other disposition by the Company of all or substantially all of its assets to a single purchaser or to a group of purchasers, other than to a corporation with respect to which, following such sale or disposition, more than eighty percent (80%) of, respectively, the then outstanding shares of Company common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of the Board of Directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively of the outstanding Company common stock and the combined voting power of the then outstanding voting securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding Company common stock and voting power immediately prior to such sale or disposition; (b) The acquisition in one or more transactions by any person or group, directly or indirectly, of beneficial ownership of twenty percent (20%) or more of the outstanding shares of Company common stock or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of the Board of Directors; provided, however, that any acquisition by (x) the Company or any of its subsidiaries, or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (y) any person that is eligible, pursuant to Rule 13d-1(b) under the Exchange Act (as such rule is in effect as of November 1, 1995) to file a statement on Schedule 13G with respect to its beneficial ownership of Company common stock and other voting securities, whether or not such person shall have filed a statement on Schedule 13G, unless such person shall have filed a statement on Schedule 13D with respect to beneficial ownership of fifteen percent or more of the Company's voting securities, shall not constitute a Change of Control; (c) The Company's termination of its business and liquidation of its assets; (d) There is consummated a merger, consolidation, reorganization, share exchange, or similar transaction involving the Company (including a triangular merger), in any case, unless immediately following such transaction: (i) all or substantially all of the persons who were the beneficial owners of the outstanding common stock and outstanding voting securities of the Company immediately prior to the transaction beneficially own, directly or indirectly, more than 60% of the outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction (including a corporation or other person which as a result of such transaction owns the Company or all or substantially all of the Company's assets through one or more subsidiaries (a "Parent Company")) in -2- 3 substantially the same proportion as their ownership of the common stock and other voting securities of the Company immediately prior to the consummation of the transaction, (ii) no person (other than the Company, any employee benefit plan sponsored or maintained by the Company or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause (i) above is satisfied in connection with the transaction, such Parent Company) beneficially owns, directly or indirectly, 20% or more of the outstanding shares of common stock or the combined voting power of the voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction and (iii) individuals who were members of the Company's Board of Directors immediately prior to the consummation of the transaction constitute at least a majority of the members of the board of directors resulting from such transaction (or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause, (i) above is satisfied in connection with the transaction, such Parent Company); or (e) The following individuals cease for any reasons to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the entire Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved. 3. Salary and Benefits Continuation. (a) "Salary and Benefits Continuation" shall be defined to mean the following: (i) payment of an amount of cash equal to three (3) times the Employee's annual base salary in effect immediately prior to the Change of Control or the termination of Employee's employment, whichever is higher; (ii) payment of an amount of cash equal to three (3) times the highest annual incentive (bonus) payment earned by the Employee for any year in the three years prior to the termination of Employee's employment; (iii) provision to Employee and his/her eligible dependents of medical, long-term disability, dental and life insurance coverage (to the extent such coverage was in effect immediately prior to the Change of Control) for thirty-six (36) months; (iv) contribution by the Company to Employee's account under the Company's defined contribution retirement plan (known as the Equitable Resources, Inc. Employee Savings Plan) of an amount of cash equal to the amount that the Company would have contributed to such plan had the Employee continued to be employed by the Company for an additional thirty-six (36) months at a base salary equal to the Employee's base salary immediately prior to the Change of Control or the termination of Employee's employment, whichever is higher, such contribution being deemed to be made immediately prior to the termination of Employee's employment; provided, that to -3- 4 the extent that the amount of such contribution exceeds the amount then allowed to be contributed to the plan under the applicable rules relating to tax qualified retirement plans, then the excess shall be paid to the Employee in cash; (vii) reimbursement to Employee of reasonable costs incurred by Employee for outplacement services in the twenty-four (24) month period following termination of Employee's employment. (b) All amounts payable by the Company to the Employee in cash pursuant to Section 3(a) shall be made in a lump sum unless the Employee otherwise elects and notifies the Company in writing prior to the termination of Employee's employment of Employee's desire to have all payments made in accordance with the Company's regular salary and benefit payment practices, provided that (i) the lump sum payment or first payment shall be made within thirty (30) days after the Employee's termination hereunder, and (ii) the Employee may elect to defer such payments pursuant to the Company's then-existing deferred compensation plan(s). All other amounts payable by the Company to the Employee pursuant to Section 3 shall be paid or provided in accordance with the Company's standard payroll and reimbursement procedures, as in effect immediately prior to the Change of Control. (c) In the event that medical, long-term disability, dental and life insurance benefits cannot be provided under appropriate Company group insurance policies, an amount equal to the premium necessary for the Employee to purchase directly the same level of coverage in effect immediately prior to the Change of Control shall be added to the Company's payments to Employee pursuant to Section 3(a) (payable in the manner elected by the Employee pursuant to Section 3(b)). (d) If there is a Change of Control as defined above, the Company will provide Salary and Benefits Continuation if at any time during the first twenty-four (24) months following the Change of Control, either (i) the Company terminates the Employee's employment other than for Cause as defined in Section 4 below or (ii) the Employee terminates his/her employment for "Good Reason" as defined below. (e) For purposes of this Agreement, "Good Reason" is defined as: (i) Removal of the Employee from the position he/she held immediately prior to the Change of Control (by reason other than death, disability or Cause); (ii) The assignment to the Employee of any duties inconsistent with those performed by the Employee immediately prior to the Change of Control or a substantial alteration in the nature or status of the Employee's responsibilities which renders the Employee's position to be of less dignity, responsibility or scope; (iii) A reduction by the Company in the Employee's annual base salary as in effect on the date hereof or as the same may be increased from time to -4- 5 time, except for proportional across-the-board salary reductions similarly affecting all executives of the Company and all executives of any person in control of the Company, provided, however, that in no event shall the Employee's annual base salary be reduced by an amount equal to ten percent or more of the Employee's annual base salary as of the end of the calendar year immediately preceding the year in which the Change of Control occurs, without the Employee's consent; (iv) The failure to grant the Employee an annual salary increase reasonably necessary to maintain such salary as reasonably comparable to salaries of senior executives holding positions equivalent to the Employee's in the industry in which the Company's then principal business activity is conducted; (v) The Company requiring the Employee to be based anywhere other than the Company's principal executive offices in the city in which the Employee is principally located immediately prior to the Change of Control, except for required travel on the Company's business to an extent substantially consistent with the Employee's business travel obligations prior to the Change of Control; (vi) Any material reduction by the Company of the benefits enjoyed by the Employee under any of the Company's pension, retirement, profit sharing, savings, life insurance, medical, health and accident, disability or other employee benefit plans, programs or arrangements, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Employee of any material fringe benefits, or the failure by the Company to provide the Employee with the number of paid vacation days to which he/she is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy, provided that this paragraph (f) shall not apply to any proportional across-the-board reduction or action similarly affecting all executives of the Company and all executives of any person in control of the Company; or (vii) The failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 15 hereof, or any other material breach by the Company of its obligations contained in this Agreement. (f) The Employee's right to Salary and Benefits Continuation shall accrue upon the occurrence of either of the events specified in (i) or (ii) of Section 3(d) and shall continue as provided, notwithstanding the termination or expiration of this Agreement pursuant to Section 1 hereof. The Employee's subsequent employment, death or disability within the thirty-six (36) month period following the Employee's termination of employment in connection with a Change of Control shall not affect the Company's obligation to continue making Salary and -5- 6 Benefits Continuation payments. The Employee shall not be required to mitigate the amount of any payment provided for in this Section 3 by seeking employment or otherwise. The rights to Salary and Benefits Continuation shall be in addition to whatever other benefits the Employee may be entitled to under any other agreement or compensation plan, program or arrangement of the Company; provided, that the Employee shall not be entitled to any separate or additional severance payments pursuant to the Company's severance plan as then in effect and generally applicable to similarly situated employees. The Company shall be authorized to withhold from any payment to the Employee, his/her estate or his/her beneficiaries hereunder all such amounts, if any, that the Company may reasonably determine it is required to withhold pursuant to any applicable law or regulation. 4. Termination of Employee for Cause. (a) Upon or following a Change of Control, the Company may at any time terminate the Employee's employment for Cause. Termination of employment by the Company for "Cause" shall mean termination upon: (i) the willful and continued failure by the Employee to substantially perform his/her duties with the Company (other than (A) any such failure resulting from Employee's disability or (B) any such actual or anticipated failure resulting from Employee's termination of his/her employment for Good Reason), after a written demand for substantial performance is delivered to the Employee by the Board of Directors which specifically identifies the manner in which the Board of Directors believes that the Employee has not substantially performed his/her duties, and which failure has not been cured within thirty days (30) after such written demand; or (ii) the willful and continued engaging by the Employee in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, or (iii) the breach by the Employee of the confidentiality provision set forth in Section 8 hereof. (b) For purposes of this Section 4, no act, or failure to act, on the Employee's part shall be considered "willful" unless done, or omitted to be done, by the Employee in bad faith and without reasonable belief that such action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him/her a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for that purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with his/her counsel, to be heard before the Board of Directors) finding that in the good faith opinion of the Board of Directors the Employee is guilty of the conduct set forth above in clauses (a)(i), (ii) or (iii) of this Section 4 and specifying the particulars thereof in detail. 5. Prior Termination. Anything in this Agreement to the contrary notwithstanding, if the Employee's employment with the Company is terminated prior to the date on which a Change of Control occurs either (i) by the Company other than for Cause or (ii) by the -6- 7 Employee for Good Reason, and it is reasonably demonstrated by Employee that such termination of employment (a) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control, or (b) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the termination shall be deemed to have occurred upon a Change of Control and the Employee will be entitled to Salary and Benefits Continuation as provided for in Section 3 hereof. 6. Employment at Will. Subject to the provisions of any other agreement between the Employee and the Company, the Employee shall remain an employee at will and nothing herein shall confer upon the Employee any right to continued employment and shall not affect the right of the Company to terminate the Employee for any reason not prohibited by law; provided, however, that any such removal shall be without prejudice to any rights the Employee may have to Salary and Benefits Continuation hereunder. 7. Construction of Agreement. (a) Governing Law. This Agreement shall be governed by and construed under the laws of the Commonwealth of Pennsylvania without regard to its conflict of law provisions. (b) Severability. In the event that any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions shall not in any way be affected or impaired thereby. (c) Headings. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience of reference only and shall not constitute a part of this Agreement. 8. Covenant as to Confidential Information. (a) Confidentiality of Information and Nondisclosure. The Employee acknowledges and agrees that his/her employment by the Company under this Agreement necessarily involves his/her knowledge of and access to confidential and proprietary information pertaining to the business of the Company and its subsidiaries. Accordingly, the Employee agrees that at all times during the term of this Agreement and for a period of two (2) years after the termination of the Employee's employment hereunder, he/she will not, directly or indirectly, without the express written authority of the Company, unless directed by applicable legal authority having jurisdiction over the Employee, disclose to or use, or knowingly permit to be so disclosed or used, for the benefit of himself/herself, any person, corporation or other entity other than the Company, (i) any information concerning any financial matters, customer relationships, competitive status, supplier matters, internal organizational matters, current or future plans, or other business affairs of or relating to the Company and its subsidiaries, (ii) any management, operational, trade, technical or other secrets or any other proprietary -7- 8 information or other data of the Company or its subsidiaries, or (iii) any other information related to the Company or its subsidiaries or which the Employee subsidiaries which has not been published and is not generally known outside of the Company. The Employee acknowledges that all of the foregoing, constitutes confidential and proprietary information, which is the exclusive property of the Company. (b) Company Remedies. The Employee acknowledges and agrees that any breach of this Agreement by him/her will result in immediate irreparable harm to the Company, and that the Company cannot be reasonably or adequately compensated by damages in an action at law. In the event of an actual or threatened breach by the Employee of the provisions of this Section 8, the Company shall be entitled, to the extent permissible by law, immediately to cease to pay or provide the Employee or his/her dependents any compensation or benefit being, or to be, paid or provided to him pursuant to Section 3 of this Agreement, and also to obtain immediate injunctive relief restraining the Employee from conduct in breach or threatened breach of the covenants contained in this Section 8. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee. 9. Reimbursement of Fees. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest by the Company, Internal Revenue Service or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Employee about the amount of any payment pursuant to Section 3 of this Agreement) or in connection with any dispute arising from this Agreement, regardless of whether Employee prevails in any such contest or dispute. 10. Tax Gross-Up. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would be subject to the excise tax imposed by section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to the excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed on the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. -8- 9 (b) Subject to the provisions of Section 10(c), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by a nationally recognized accounting firm designated by the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within fifteen (15) business days after there has been a Payment, or such earlier time as requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by the Company to the Employee within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 10(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) 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; -9- 10 (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to 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 Employee 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. Without limitation on the foregoing provisions of this Section 10(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee, on an interest-free basis, and shall indemnify and hold the Employee 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; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 10(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 10) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 10(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. -10- 11 (e) The payments provided for in this Section 10 hereof shall be made not later than the tenth (10th) day following the termination of the Employee's employment; provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Employee on such day an estimate, as determined in good faith by the Employee of the minimum amount of such payments to which the Employee is clearly entitled and shall pay the remainder of such payments (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the termination of the Employee's employment. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Employee, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). In the event the Company should fail to pay when due the amounts described in this Section 10, the Employee shall also be entitled to receive from the Company an amount representing interest on any unpaid or untimely paid amounts from the due date, as determined under this Section 10, to the date of payment at a rate equal to 120% of the rate provided in section 1274(b)(2)(B) of the Code. 11. Resolution of Differences Over Breaches of Agreement. Except as otherwise provided herein, in the event of any controversy, dispute or claim arising out of, or relating to this Agreement, or the breach thereof, or arising out of any other matter relating to the Employee's employment with the Company or the termination of such employment, the parties may seek recourse only for temporary or preliminary injunctive relief to the courts having jurisdiction thereof and if any relief other than injunctive relief is sought, the Company and the Employee agree that such underlying controversy, dispute or claim shall be settled by arbitration conducted in Pittsburgh, Pennsylvania in accordance with this Section 11 of this Agreement and the Commercial Arbitration Rules of the American Arbitration Association ("AAA"). The matter shall be heard and decided, and awards rendered by a panel of three (3) arbitrators (the "Arbitration Panel"). The Company and the Employee shall each select one arbitrator from the AAA National Panel of Commercial Arbitrators (the "Commercial Panel") and AAA shall select a third arbitrator from the Commercial Panel. The award rendered by the Arbitration Panel shall be final and binding as between the parties hereto and their heirs, executors, administrators, successors and assigns, and judgment on the award may be entered by any court having jurisdiction thereof. 12. Treatment of Certain Incentive Awards. All "Awards" held by the Employee under the Company's 1994 Long-Term Incentive Plan (the "1994 Plan"), the Company's 1999 Long-Term Incentive Plan (the "1999 Plan") or the Company's Breakthrough Long-Term Incentive Plan (the "Breakthrough Plan") shall, upon a Change of Control, be treated in accordance with the terms of those Plans as in effect on the date of this Agreement, without regard to the subsequent amendment of those Plans. For purposes of this Section 12, the terms "Award" and "Change of Control" shall have the meanings ascribed to them in the 1999 Plan, the 1994 Plan and the Breakthrough Plan, as the case may be. -11- 12 13. Release. The Employee hereby acknowledges and agrees that prior to the Employee's or his/her dependents' right to receive from the Company any compensation or benefit to be paid or provided to him/her or his/her dependents pursuant to Section 3 of this Agreement, the Employee may be required by the Company, in its sole discretion, to execute a release in a form reasonably acceptable to the Company, which releases any and all claims (other than amounts to be paid to Employee as expressly provided for under this Agreement) the Employee has or may have against the Company or its subsidiaries, agents, officers, directors, successors or assigns arising under any public policy, tort or common law or any provision of state, federal or local law, including, but not limited to, the Pennsylvania Human Relations Act, the Americans with Disabilities Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Protection Act, Family and Medical Leave Act, the Fair Labor Standards Act, or the Age Discrimination in Employment Act of 1967. 14. Waiver. The waiver by a party hereto of any breach by the other party hereto of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by a party hereto. 15. Assignment. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. The Company shall be obligated to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the Company's business or assets, by a written agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no succession had taken place. This Agreement shall inure to the extent provided hereunder to the benefit of and be enforceable by the Employee or his/her legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. The Employee may not delegate any of his/her duties, responsibilities, obligations or positions hereunder to any person and any such purported delegation by him shall be void and of no force and effect with respect to matters relating to his/her employment and termination of employment. Without limiting the foregoing, the Employee's rights to receive payments and benefits hereunder shall not be assignable or transferable, other than a transfer by Employee's will or by the laws of descent and distribution. 16. Notices. Any notices required or permitted to be given under this Agreement shall be sufficient if in writing, and if personally delivered or when sent by first class certified or registered mail, postage prepaid, return receipt requested -- in the case of the Employee, to his/her residence address as set forth below, and in the case of the Company, to the address of its principal place of business as set forth below, in care of the Chairman of the Board -- or to such other person or at such other address with respect to each party as such party shall notify the other in writing. 17. Pronouns. Pronouns stated in either the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. -12- 13 18. Entire Agreement. This Agreement contains the entire agreement of the parties concerning the matters set forth herein and all promises, representations, understandings, arrangements and prior agreements regarding the subject matter hereof (including the Existing Agreement, which the parties agree shall terminate as of the Effective Date hereof) are merged herein and superseded hereby; provided that the Employment Agreement, as amended, the Post-Termination Confidentiality & Non-Competition Agreement, dated May 4, 1998, and the Supplemental Executive Retirement Agreement shall not be merged or superseded but shall remain in full force and effect. The provisions of this Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of any amendment, modification, repeal, waiver, extension or discharge is sought. No person acting other than pursuant to a resolution of the Board of Directors shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto or to exercise any of the Company's rights to terminate or to fail to extend this Agreement. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto duly authorized, and the Employee has hereunto set his/her hand, all as of the day and year first above written. ATTEST: EQUITABLE RESOURCES, INC. /s/ Jean F. Marks By: /s/ Gregory R. Spencer - ---------------------------- ---------------------------- Jean F. Marks Gregory R. Spencer Senior Vice President and Chief Administrative Officer Address: One Oxford Centre Suite 3300 Pittsburgh, PA 15219 WITNESS: /s/ David J. Smith /s/ Murry S. Gerber - ---------------------------- ---------------------------- David J. Smith Murry S. Gerber Address: 1301 Inverness Avenue ---------------------------- Pittsburgh, PA 15217 ---------------------------- -13- EX-10.12 10 AMENDED & RESTATED POST-TERMINATION AGREEMENT 1 Exhibit 10.12 AMENDED AND RESTATED POST-TERMINATION CONFIDENTIALITY AND NON-COMPETITION AGREEMENT This Agreement made this 1st day of December, 1999 (the "Effective Date"), by and between EQUITABLE RESOURCES, INC., having a business address at One Oxford Centre, Pittsburgh, Pennsylvania 15219 (Equitable Resources, Inc. and its subsidiary companies hereinafter collectively known as the "Company") and MURRY S. GERBER, an individual and resident of Pittsburgh, Pennsylvania (the "Executive"). WHEREAS, the Company and Executive, pursuant to an Employment Agreement dated May 4, 1998 (the "Employment Agreement"), are parties to a Post-Termination Confidentiality and Non-Competition Agreement dated May 4, 1998 (the "Existing Agreement"); WHEREAS, the parties continue to be willing to exchange certain severance benefits for the Executive's agreement to comply with specific post-employment confidentiality and non-competition requirements contained herein; and WHEREAS, in connection with amendment of the Employment Agreement and the substitution of a new Change of Control Agreement dated December 1, 1999 (the "Change of Control Agreement"), the Company and the Executive desire also to amend and restate the Existing Agreement. NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: SECTION 1. CONFIDENTIALITY: Recognizing (1) that trade secrets or confidential information in any way related to the business activities of the Company, such as, but not limited to: marketing plans, business plans, technical information, market information, customer lists, pricing data and strategies, financial information, business methods or practices, programs, hardware and software (referred to hereinafter collectively as "Confidential Information"), constitute valuable assets of the Company, and (2) that such Confidential Information is the property of the Company, Executive covenants, in consideration of Executive's access to and use of Confidential Information, to hold such Confidential Information in trust for the Company, and successors and assigns, and not to disclose or use the same other than in the business of the Company, specifically agreeing: (a) not to, directly or indirectly, disclose or make available to anyone or use outside of the Company's organization during or after the term of employment, any Confidential Information unless such disclosure or availability or use is approved by the Company; 2 (b) to use reasonable efforts to safeguard all Confidential Information within the possession or control of Executive at all times so it is not exposed to, or taken by, any unauthorized person (including unauthorized employees and agents of the Company); (c) upon termination of employment, to deliver to the Company all papers, photographs, photoreproductions, computer tapes, tape recordings and other materials, including but not limited to Confidential Information, including personal notes and reproductions, relating to the business of the Company, its subsidiaries and affiliates in the Executive's possession or control. This Section 1 shall not apply to any Confidential Information that the Company has voluntarily disclosed to the public or that has otherwise legally entered the public domain or which was known by the Executive prior to his employment with the Company or which is required by law to be disclosed. SECTION 2. NON-COMPETITION: For a period of two years from the termination date of his employment, the Executive will not (i) engage, directly or indirectly, whether as principal or as agent, officer, director, employee, consultant, owner, partner, shareholder, or otherwise, alone or in association with any other person, corporation or other entity, in any business which produces, markets, or sells any product or service in competition with products or services which the Company, produces, markets, or sells in any geographic market where the Company is engaged in business; (ii) solicit, directly or indirectly, either for himself or any other person, any business related to the business of any customer, supplier, licensee or other person having a business relationship with the Company, or induce or attempt to induce any such person to cease doing business with the Company; (iii) interfere, or attempt to interfere, with any contemplated business project which representatives of the Company have discussed with any potential participant in such project; or (iv) induce, or attempt to induce, any employee of the Company to leave the employ of the Company or to violate the terms of his contract with the Company, or employ or otherwise engage as an employee, independent contractor or otherwise any such person. Notwithstanding the provisions of Section 2(a)(i), the Executive may purchase or otherwise acquire up to (but not more than) 1% of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934. The Executive agrees that this covenant is reasonable with respect to duration, geographical area and scope. The two year period described in the first sentence of this Section, shall be replaced with a one year period in the event the Executive is involuntarily terminated by the Company or has a termination date within twenty-four (24) months of a Change of Control as defined in the Change of Control Agreement between the Executive and the Company. 2 3 SECTION 3. CONSIDERATION: If the employment of the Executive with the Company is terminated by the Company for any reason (other than for Cause as defined below), the Executive shall receive, from the date of termination, in addition to any payments he may be entitled to under other agreements with the Company (in accordance with their terms), 24 months of base salary payments at the salary level in effect at the time of such termination. For purposes of this Agreement, "Cause" shall include: (i) the conviction of a felony, a crime of moral turpitude or fraud or having committed fraud, misappropriation or embezzlement in connection with the performance of his duties hereunder, (ii) willful and repeated failures to substantially perform his assigned duties, or (iii) a material violation of any other provisions of this Agreement or express significant policies of the Company. The purpose of this Agreement is to obtain the Executive's agreement to the covenants contained herein and it is intended that benefits payable under this Agreement should be treated as payments in the nature of compensation within the meaning of Code Section 280G and the Regulations thereunder (the "280G Rules") and that such payments constitute reasonable compensation within the meaning of the 280G Rules. SECTION 4. TERM: The term of this Agreement shall commence on the Effective Date and shall remain in effect unless amended or terminated by mutual written agreement or as provided in Section 8(e) of the Employment Agreement, as amended; provided, however, that upon the occurrence of a Change of Control as such term is defined in the Change of Control Agreement, this Agreement may be terminated upon written notice by Executive to the Company. SECTION 5. CERTAIN REMEDIES: Without limiting the remedies available to the Company, the Executive acknowledges that damages at law will be an insufficient remedy to the Company in the event that the Executive violates the terms of this Agreement and that the Company may apply for, and obtain, injunctive relief to restrain the breach or threatened breach of, or otherwise to specifically enforce, such covenants. If it should become desirable or necessary for the Company to seek compliance with this Agreement by judicial proceedings, the period of time during which Executive is restricted under Section 2 shall be extended by the amount of time remaining under the original restriction on the date Executive first breached this Agreement, commencing on the date of the trial court order or settlement requiring such compliance. If litigation should develop between the parties regarding this Agreement or the obligations undertaken hereby, the party prevailing in such litigation may recover from the other such costs and expenses, including reasonable attorneys' fees, if any, as a court of competent jurisdiction may determine or award. 3 4 SECTION 6. GOVERNING LAW: This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. SECTION 7. BINDING AGREEMENT: The obligations of Executive under this Agreement shall continue after the termination of his employment with the Company for any reason, with or without cause, and shall be binding on Executive's heirs, executors and legal representatives and shall inure to the benefit of any successors by merger or purchase of substantially all of the assets of the Company. SECTION 8. COMPANY VIOLATION NOT A DEFENSE: The existence of any claim or cause of action against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to enforcement by the Company of this Agreement. SECTION 9. AUTHORIZATION TO MODIFY RESTRICTIONS: It is the intention of the parties that the provisions of this Agreement shall be enforceable to the fullest extent permissible under applicable law, but that the unenforceability (or modification to conform to such law) of any provision or provisions hereof shall not render unforeseeable, or impair the remaining provisions of this Agreement. If any provision or provisions of this Agreement shall be deemed illegal, invalid or otherwise unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provision or provisions and to alter the bounds thereof to render it valid and enforceable. SECTION 10. CONSENT TO JURISDICTION AND VENUE: Any action or proceeding arising out of or relating to this Agreement shall be commenced by either party in any state or federal court in Allegheny County, Pennsylvania and the parties hereby irrevocably agree that all claims in respect of any such action or proceeding may be heard and determined in any such court. Executive and the Company acknowledge that the forum designated herein present the most convenient forum for both parties. In any action commenced in any of these courts, Executive and the Company waive any objections to inconvenience of forum, venue and personal jurisdiction of the Court. 4 5 SECTION 11. NOTICES: Notices hereunder shall be in writing and shall be deemed effective when received by the Company or the Executive at their respective addresses above given. SECTION 12. WAIVER: A waiver by the Company of a breach of any of the provisions of this Agreement shall not operate or be construed as a waiver or excuse of any subsequent or different breach. SECTION 13. INTEGRATION AND MODIFICATION: This Agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof (except for the Employment Agreement and its appendices executed as of even date herewith between the Executive and the Company) and supersedes all prior agreements and understandings, oral or written. This Agreement may not be changed, amended, or modified, except by a written instrument signed by the parties and shall survive the expiration or termination of the Employment Agreement. Executive acknowledges that he has read and understands the provisions of this Agreement, that he has been given an opportunity for his legal counsel to review this Agreement and that the provisions of this Agreement are reasonable. ATTEST: EQUITABLE RESOURCES, INC. /s/ Johanna G. O'Loughlin By /s/ Gregory R. Spencer - ------------------------------------ ------------------------------------ Johanna G. O'Loughlin Gregory R. Spencer Vice President, General Counsel Senior Vice President and and Corporate Secretary Chief Administrative Officer WITNESS: /s/ David J. Smith /s/ Murry S. Gerber - ------------------------------------ ------------------------------------- David J. Smith Murry S. Gerber 5 EX-10.13 11 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT 1 Exhibit 10.13 (b) AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 to Employment Agreement ("Amendment No. 1"), dated as of December 1, 1999, amends that certain Employment Agreement (the "Employment Agreement") dated July 1, 1998, by and between Equitable Resources, Inc., a Pennsylvania corporation (the "Company"), and David L. Porges, an individual (the "Executive"); WITNESSETH: WHEREAS, in connection with the Executive's employment pursuant to the Employment Agreement, the Company and Executive entered into a Change of Control Agreement dated July 1, 1998 ("Change of Control Agreement") and a Post-Termination Confidentiality and Non-Competition Agreement dated July 1, 1998 ("Non-Competition Agreement"), copies of which are attached to the Employment Agreement as Appendix A and Appendix B, respectively; and WHEREAS, the Company and the Executive desire to enter into a new Change of Control Agreement, substantially in the form attached hereto as Exhibit A (the "New Change of Control Agreement") and an amended Non-Competition Agreement, substantially in the form attached hereto as Exhibit B (the "Amended Non-Competition Agreement"); and WHEREAS, in order to coordinate the terms of the Employment Agreement with the execution of the New Change of Control Agreement and the Amended Non-Competition Agreement, the Company and the Executive desire to enter into this Amendment No. 1; NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, the Company and the Executive agree as follows: 1. Section 3(e) of the Employment Agreement is amended by deleting the Change of Control Agreement referred to therein and attached thereto as Appendix A, and substituting the New Change of Control Agreement attached hereto as Exhibit A. All references in the Employment Agreement to the "Change of Control Agreement" shall, from the date of this Amendment No. 1 and thereafter, refer to the New Change of Control Agreement attached hereto as Exhibit A. 2. Section 3(f) of the Employment Agreement is amended by deleting the Post-Termination Confidentiality and Non-Competition Agreement referred to therein and attached thereto as Appendix B, and substituting the Amended and Restated Post-Termination Confidentiality and Non-Competition Agreement attached hereto as Exhibit B. All references in this Employment Agreement to the "Post-Termination Confidentiality and Non-Competition Agreement" shall, from the date of this Amendment No. 1 and thereafter, refer to the Amended and Restated Post-Termination Confidentiality and Non-Competition Agreement attached hereto as Exhibit B. 2 3. Section 8(e) of the Employment Agreement is amended by deleting the first sentence thereof and substituting the following therefor: If the Executive receives payment of benefits under the Change of Control Agreement (as set forth in Appendix A hereto) following his termination of employment, then its terms shall control and he shall not receive the base salary compensation benefits provided under paragraph (a) of this Section 8 nor shall he receive benefits under the Post-Termination Confidentiality and Non-Competition Agreement which shall thereupon terminate and be of no further force or effect. 4. All other terms of the Employment Agreement shall be unaffected by this Amendment No. 1 and shall remain in full force and effect. 5. This Amendment No. 1 shall be governed and construed in accordance with the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 as of the date first above set forth. EQUITABLE RESOURCES, INC.: By: /s/ Gregory R. Spencer ---------------------------------------------------------- Name: Gregory R. Spencer -------------------------------------------------------- Title: Senior Vice President and Chief Administrative Officer ------------------------------------------------------- /s/ David L. Porges ------------------------------------------------------------- David L. Porges -2- EX-10.14 12 CHANGE OF CONTROL AGREEMENT 1 Exhibit 10.14 CHANGE OF CONTROL AGREEMENT THIS AGREEMENT (the "Agreement") dated as of the 30th day of November, 1999 (the "Effective Date") by and between EQUITABLE RESOURCES, INC., a Pennsylvania corporation with its principal place of business at Pittsburgh, Pennsylvania (the "Company"), and David L. Porges, an individual (the "Employee"); WHEREAS, the Company and the Employee, pursuant to an Employment Agreement dated July 1, 1998, are parties to a Change of Control Agreement dated July 1, 1998, which provides for the payment of certain benefits to the Employee if the Employee's employment terminates in certain circumstances following a change of control of the Company (the "Existing Agreement"); and WHEREAS, the Board of Directors of the Company (the "Board"), continues to believe that it is in the best interest of the Company and its shareholders to assure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company; that it is imperative to diminish the inevitable distraction of the Employee by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control; and that it is appropriate to provide the Employee with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Employee will be satisfied and which are competitive with those of other corporations in the industry in which the Company's principal business activity is conducted; and WHEREAS, in order to more fully accomplish the foregoing objectives, the Company and the Employee desire to terminate the Existing Agreement and to enter into this Agreement, which, among other things, clarifies and enhances in certain respects the benefits payable to the Employee if the Employee's employment terminates in certain circumstances following a Change in Control of the Company and have agreed to amend the Employment Agreement accordingly; NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Term. The term of this Agreement shall commence on the Effective Date hereof and, subject to Sections 3(f), 5 and 8, shall terminate on the earlier of (i) the date of the termination of Employee's employment by the Company for any reason prior to a Change of Control; or (ii) unless further extended as hereinafter set forth, the date which is thirty-six (36) months after the Effective Date; provided, that, commencing on the last day of the first full calendar month after the Effective Date and on the last day of each succeeding calendar month, the term of this Agreement shall be automatically extended without further action by either party (but not beyond the date of the termination of Employee's employment prior to a Change of Control) for one (1) additional month unless one party provides written notice to the other party that such party does not wish to extend the term of this Agreement. In the event that such notice shall have been delivered, the term of this Agreement shall no longer be subject to automatic extension 2 and the term hereof shall expire on the date which is thirty-six (36) calendar months after the last day of the month in which such written notice is received. 2. Change of Control. Change of Control shall mean any of the following events (each of such events being herein referred to as a "Change of Control"): (a) The sale or other disposition by the Company of all or substantially all of its assets to a single purchaser or to a group of purchasers, other than to a corporation with respect to which, following such sale or disposition, more than eighty percent (80%) of, respectively, the then outstanding shares of Company common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of the Board of Directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively of the outstanding Company common stock and the combined voting power of the then outstanding voting securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding Company common stock and voting power immediately prior to such sale or disposition; (b) The acquisition in one or more transactions by any person or group, directly or indirectly, of beneficial ownership of twenty percent (20%) or more of the outstanding shares of Company common stock or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of the Board of Directors; provided, however, that any acquisition by (x) the Company or any of its subsidiaries, or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (y) any person that is eligible, pursuant to Rule 13d-1(b) under the Exchange Act (as such rule is in effect as of November 1, 1995) to file a statement on Schedule 13G with respect to its beneficial ownership of Company common stock and other voting securities, whether or not such person shall have filed a statement on Schedule 13G, unless such person shall have filed a statement on Schedule 13D with respect to beneficial ownership of fifteen percent or more of the Company's voting securities, shall not constitute a Change of Control; (c) The Company's termination of its business and liquidation of its assets; (d) There is consummated a merger, consolidation, reorganization, share exchange, or similar transaction involving the Company (including a triangular merger), in any case, unless immediately following such transaction: (i) all or substantially all of the persons who were the beneficial owners of the outstanding common stock and outstanding voting securities of the Company immediately prior to the transaction beneficially own, directly or indirectly, more than 60% of the outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction (including a corporation or other person which as a result of such transaction owns the Company or all or substantially all of the Company's assets through one or more subsidiaries (a "Parent Company")) in -2- 3 substantially the same proportion as their ownership of the common stock and other voting securities of the Company immediately prior to the consummation of the transaction, (ii) no person (other than the Company, any employee benefit plan sponsored or maintained by the Company or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause (i) above is satisfied in connection with the transaction, such Parent Company) beneficially owns, directly or indirectly, 20% or more of the outstanding shares of common stock or the combined voting power of the voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction and (iii) individuals who were members of the Company's Board of Directors immediately prior to the consummation of the transaction constitute at least a majority of the members of the board of directors resulting from such transaction (or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause, (i) above is satisfied in connection with the transaction, such Parent Company); or (e) The following individuals cease for any reasons to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the entire Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved. 3. Salary and Benefits Continuation. (a) Salary and Benefits Continuation" shall be defined to mean the following: (i) payment of an amount of cash equal to three (3) times the Employee's annual base salary in effect immediately prior to the Change of Control or the termination of Employee's employment, whichever is higher; (ii) payment of an amount of cash equal to three (3) times the highest annual incentive (bonus) payment earned by the Employee for any year in the three years prior to the termination of Employee's employment; (iii) provision to Employee and his/her eligible dependents of medical, long-term disability, dental and life insurance coverage (to the extent such coverage was in effect immediately prior to the Change of Control) for thirty-six (36) months; (iv) contribution by the Company to Employee's account under the Company's defined contribution retirement plan (known as the Equitable Resources, Inc. Employee Savings Plan) of an amount of cash equal to the amount that the Company would have contributed to such plan had the Employee continued to be employed by the Company for an additional thirty-six (36) months at a base salary equal to the Employee's base salary immediately prior to the Change of Control or the termination of Employee's employment, whichever is higher, such contribution being deemed to be made immediately prior to the termination of Employee's employment; provided, that to -3- 4 the extent that the amount of such contribution exceeds the amount then allowed to be contributed to the plan under the applicable rules relating to tax qualified retirement plans, then the excess shall be paid to the Employee in cash; (vii) reimbursement to Employee of reasonable costs incurred by Employee for outplacement services in the twenty-four (24) month period following termination of Employee's employment. (b) All amounts payable by the Company to the Employee in cash pursuant to Section 3(a) shall be made in a lump sum unless the Employee otherwise elects and notifies the Company in writing prior to the termination of Employee's employment of Employee's desire to have all payments made in accordance with the Company's regular salary and benefit payment practices, provided that (i) the lump sum payment or first payment shall be made within thirty (30) days after the Employee's termination hereunder, and (ii) the Employee may elect to defer such payments pursuant to the Company's then-existing deferred compensation plan(s). All other amounts payable by the Company to the Employee pursuant to Section 3 shall be paid or provided in accordance with the Company's standard payroll and reimbursement procedures, as in effect immediately prior to the Change of Control. (c) In the event that medical, long-term disability, dental and life insurance benefits cannot be provided under appropriate Company group insurance policies, an amount equal to the premium necessary for the Employee to purchase directly the same level of coverage in effect immediately prior to the Change of Control shall be added to the Company's payments to Employee pursuant to Section 3(a) (payable in the manner elected by the Employee pursuant to Section 3(b)). (d) If there is a Change of Control as defined above, the Company will provide Salary and Benefits Continuation if at any time during the first twenty-four (24) months following the Change of Control, either (i) the Company terminates the Employee's employment other than for Cause as defined in Section 4 below or (ii) the Employee terminates his/her employment for "Good Reason" as defined below. (e) For purposes of this Agreement, "Good Reason" is defined as: (i) Removal of the Employee from the position he/she held immediately prior to the Change of Control (by reason other than death, disability or Cause); (ii) The assignment to the Employee of any duties inconsistent with those performed by the Employee immediately prior to the Change of Control or a substantial alteration in the nature or status of the Employee's responsibilities which renders the Employee's position to be of less dignity, responsibility or scope; (iii) A reduction by the Company in the Employee's annual base salary as in effect on the date hereof or as the same may be increased from time to -4- 5 time, except for proportional across-the-board salary reductions similarly affecting all executives of the Company and all executives of any person in control of the Company, provided, however, that in no event shall the Employee's annual base salary be reduced by an amount equal to ten percent or more of the Employee's annual base salary as of the end of the calendar year immediately preceding the year in which the Change of Control occurs, without the Employee's consent; (iv) The failure to grant the Employee an annual salary increase reasonably necessary to maintain such salary as reasonably comparable to salaries of senior executives holding positions equivalent to the Employee's in the industry in which the Company's then principal business activity is conducted; (v) The Company requiring the Employee to be based anywhere other than the Company's principal executive offices in the city in which the Employee is principally located immediately prior to the Change of Control, except for required travel on the Company's business to an extent substantially consistent with the Employee's business travel obligations prior to the Change of Control; (vi) Any material reduction by the Company of the benefits enjoyed by the Employee under any of the Company's pension, retirement, profit sharing, savings, life insurance, medical, health and accident, disability or other employee benefit plans, programs or arrangements, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Employee of any material fringe benefits, or the failure by the Company to provide the Employee with the number of paid vacation days to which he/she is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy, provided that this paragraph (f) shall not apply to any proportional across-the-board reduction or action similarly affecting all executives of the Company and all executives of any person in control of the Company; or (vii) The failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 15 hereof, or any other material breach by the Company of its obligations contained in this Agreement. (f) The Employee's right to Salary and Benefits Continuation shall accrue upon the occurrence of either of the events specified in (i) or (ii) of Section 3(d) and shall continue as provided, notwithstanding the termination or expiration of this Agreement pursuant to Section 1 hereof. The Employee's subsequent employment, death or disability within the thirty-six (36) month period following the Employee's termination of employment in connection with a Change of Control shall not affect the Company's obligation to continue making Salary and -5- 6 Benefits Continuation payments. The Employee shall not be required to mitigate the amount of any payment provided for in this Section 3 by seeking employment or otherwise. The rights to Salary and Benefits Continuation shall be in addition to whatever other benefits the Employee may be entitled to under any other agreement or compensation plan, program or arrangement of the Company; provided, that the Employee shall not be entitled to any separate or additional severance payments pursuant to the Company's severance plan as then in effect and generally applicable to similarly situated employees. The Company shall be authorized to withhold from any payment to the Employee, his/her estate or his/her beneficiaries hereunder all such amounts, if any, that the Company may reasonably determine it is required to withhold pursuant to any applicable law or regulation. 4. Termination of Employee for Cause. (a) Upon or following a Change of Control, the Company may at any time terminate the Employee's employment for Cause. Termination of employment by the Company for "Cause" shall mean termination upon: (i) the willful and continued failure by the Employee to substantially perform his/her duties with the Company (other than (A) any such failure resulting from Employee's disability or (B) any such actual or anticipated failure resulting from Employee's termination of his/her employment for Good Reason), after a written demand for substantial performance is delivered to the Employee by the Board of Directors which specifically identifies the manner in which the Board of Directors believes that the Employee has not substantially performed his/her duties, and which failure has not been cured within thirty days (30) after such written demand; or (ii) the willful and continued engaging by the Employee in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, or (iii) the breach by the Employee of the confidentiality provision set forth in Section 8 hereof. (b) For purposes of this Section 4, no act, or failure to act, on the Employee's part shall be considered "willful" unless done, or omitted to be done, by the Employee in bad faith and without reasonable belief that such action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him/her a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for that purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with his/her counsel, to be heard before the Board of Directors) finding that in the good faith opinion of the Board of Directors the Employee is guilty of the conduct set forth above in clauses (a)(i), (ii) or (iii) of this Section 4 and specifying the particulars thereof in detail. 5. Prior Termination. Anything in this Agreement to the contrary notwithstanding, if the Employee's employment with the Company is terminated prior to the date on which a Change of Control occurs either (i) by the Company other than for Cause or (ii) by the -6- 7 Employee for Good Reason, and it is reasonably demonstrated by Employee that such termination of employment (a) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control, or (b) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the termination shall be deemed to have occurred upon a Change of Control and the Employee will be entitled to Salary and Benefits Continuation as provided for in Section 3 hereof. 6. Employment at Will. Subject to the provisions of any other agreement between the Employee and the Company, the Employee shall remain an employee at will and nothing herein shall confer upon the Employee any right to continued employment and shall not affect the right of the Company to terminate the Employee for any reason not prohibited by law; provided, however, that any such removal shall be without prejudice to any rights the Employee may have to Salary and Benefits Continuation hereunder. 7. Construction of Agreement. (a) Governing Law. This Agreement shall be governed by and construed under the laws of the Commonwealth of Pennsylvania without regard to its conflict of law provisions. (b) Severability. In the event that any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions shall not in any way be affected or impaired thereby. (c) Headings. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience of reference only and shall not constitute a part of this Agreement. 8. Covenant as to Confidential Information. (a) Confidentiality of Information and Nondisclosure. The Employee acknowledges and agrees that his/her employment by the Company under this Agreement necessarily involves his/her knowledge of and access to confidential and proprietary information pertaining to the business of the Company and its subsidiaries. Accordingly, the Employee agrees that at all times during the term of this Agreement and for a period of two (2) years after the termination of the Employee's employment hereunder, he/she will not, directly or indirectly, without the express written authority of the Company, unless directed by applicable legal authority having jurisdiction over the Employee, disclose to or use, or knowingly permit to be so disclosed or used, for the benefit of himself/herself, any person, corporation or other entity other than the Company, (i) any information concerning any financial matters, customer relationships, competitive status, supplier matters, internal organizational matters, current or future plans, or other business affairs of or relating to the Company and its subsidiaries, (ii) any management, operational, trade, technical or other secrets or any other proprietary -7- 8 information or other data of the Company or its subsidiaries, or (iii) any other information related to the Company or its subsidiaries or which the Employee subsidiaries which has not been published and is not generally known outside of the Company. The Employee acknowledges that all of the foregoing, constitutes confidential and proprietary information, which is the exclusive property of the Company. (b) Company Remedies. The Employee acknowledges and agrees that any breach of this Agreement by him/her will result in immediate irreparable harm to the Company, and that the Company cannot be reasonably or adequately compensated by damages in an action at law. In the event of an actual or threatened breach by the Employee of the provisions of this Section 8, the Company shall be entitled, to the extent permissible by law, immediately to cease to pay or provide the Employee or his/her dependents any compensation or benefit being, or to be, paid or provided to him pursuant to Section 3 of this Agreement, and also to obtain immediate injunctive relief restraining the Employee from conduct in breach or threatened breach of the covenants contained in this Section 8. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee. 9. Reimbursement of Fees. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest by the Company, Internal Revenue Service or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Employee about the amount of any payment pursuant to Section 3 of this Agreement) or in connection with any dispute arising from this Agreement, regardless of whether Employee prevails in any such contest or dispute. 10. Tax Gross-Up. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would be subject to the excise tax imposed by section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to the excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed on the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. -8- 9 (b) Subject to the provisions of Section 10(c), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by a nationally recognized accounting firm designated by the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within fifteen (15) business days after there has been a Payment, or such earlier time as requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by the Company to the Employee within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 10(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) 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; -9- 10 (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to 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 Employee 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. Without limitation on the foregoing provisions of this Section 10(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee, on an interest-free basis, and shall indemnify and hold the Employee 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; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 10(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 10) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 10(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. -10- 11 (e) The payments provided for in this Section 10 hereof shall be made not later than the tenth (10th) day following the termination of the Employee's employment; provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Employee on such day an estimate, as determined in good faith by the Employee of the minimum amount of such payments to which the Employee is clearly entitled and shall pay the remainder of such payments (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the termination of the Employee's employment. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Employee, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). In the event the Company should fail to pay when due the amounts described in this Section 10, the Employee shall also be entitled to receive from the Company an amount representing interest on any unpaid or untimely paid amounts from the due date, as determined under this Section 10, to the date of payment at a rate equal to 120% of the rate provided in section 1274(b)(2)(B) of the Code. 11. Resolution of Differences Over Breaches of Agreement. Except as otherwise provided herein, in the event of any controversy, dispute or claim arising out of, or relating to this Agreement, or the breach thereof, or arising out of any other matter relating to the Employee's employment with the Company or the termination of such employment, the parties may seek recourse only for temporary or preliminary injunctive relief to the courts having jurisdiction thereof and if any relief other than injunctive relief is sought, the Company and the Employee agree that such underlying controversy, dispute or claim shall be settled by arbitration conducted in Pittsburgh, Pennsylvania in accordance with this Section 11 of this Agreement and the Commercial Arbitration Rules of the American Arbitration Association ("AAA"). The matter shall be heard and decided, and awards rendered by a panel of three (3) arbitrators (the "Arbitration Panel"). The Company and the Employee shall each select one arbitrator from the AAA National Panel of Commercial Arbitrators (the "Commercial Panel") and AAA shall select a third arbitrator from the Commercial Panel. The award rendered by the Arbitration Panel shall be final and binding as between the parties hereto and their heirs, executors, administrators, successors and assigns, and judgment on the award may be entered by any court having jurisdiction thereof. 12. Treatment of Certain Incentive Awards. All "Awards" held by the Employee under the Company's 1994 Long-Term Incentive Plan (the "1994 Plan"), the Company's 1999 Long-Term Incentive Plan (the "1999 Plan") or the Company's Breakthrough Long-Term Incentive Plan (the "Breakthrough Plan") shall, upon a Change of Control, be treated in accordance with the terms of those Plans as in effect on the date of this Agreement, without regard to the subsequent amendment of those Plans. For purposes of this Section 12, the terms "Award" and "Change of Control" shall have the meanings ascribed to them in the 1999 Plan, the 1994 Plan and the Breakthrough Plan, as the case may be. -11- 12 13. Release. The Employee hereby acknowledges and agrees that prior to the Employee's or his/her dependents' right to receive from the Company any compensation or benefit to be paid or provided to him/her or his/her dependents pursuant to Section 3 of this Agreement, the Employee may be required by the Company, in its sole discretion, to execute a release in a form reasonably acceptable to the Company, which releases any and all claims (other than amounts to be paid to Employee as expressly provided for under this Agreement) the Employee has or may have against the Company or its subsidiaries, agents, officers, directors, successors or assigns arising under any public policy, tort or common law or any provision of state, federal or local law, including, but not limited to, the Pennsylvania Human Relations Act, the Americans with Disabilities Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Protection Act, Family and Medical Leave Act, the Fair Labor Standards Act, or the Age Discrimination in Employment Act of 1967. 14. Waiver. The waiver by a party hereto of any breach by the other party hereto of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by a party hereto. 15. Assignment. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. The Company shall be obligated to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the Company's business or assets, by a written agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no succession had taken place. This Agreement shall inure to the extent provided hereunder to the benefit of and be enforceable by the Employee or his/her legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. The Employee may not delegate any of his/her duties, responsibilities, obligations or positions hereunder to any person and any such purported delegation by him shall be void and of no force and effect with respect to matters relating to his/her employment and termination of employment. Without limiting the foregoing, the Employee's rights to receive payments and benefits hereunder shall not be assignable or transferable, other than a transfer by Employee's will or by the laws of descent and distribution. 16. Notices. Any notices required or permitted to be given under this Agreement shall be sufficient if in writing, and if personally delivered or when sent by first class certified or registered mail, postage prepaid, return receipt requested -- in the case of the Employee, to his/her residence address as set forth below, and in the case of the Company, to the address of its principal place of business as set forth below, in care of the Chairman of the Board -- or to such other person or at such other address with respect to each party as such party shall notify the other in writing. 17. Pronouns. Pronouns stated in either the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. -12- 13 18. Entire Agreement. This Agreement contains the entire agreement of the parties concerning the matters set forth herein and all promises, representations, understandings, arrangements and prior agreements regarding the subject matter hereof (including the Existing Agreement, which the parties agree shall terminate as of the Effective Date hereof) are merged herein and superseded hereby; provided that the Employment Agreement, as amended, and the Post-Termination Confidentiality and Non-Competition Agreement, dated July 1, 1998, shall not be merged or superseded but shall remain in full force and effect. The provisions of this Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of any amendment, modification, repeal, waiver, extension or discharge is sought. No person acting other than pursuant to a resolution of the Board of Directors shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto or to exercise any of the Company's rights to terminate or to fail to extend this Agreement. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto duly authorized, and the Employee has hereunto set his/her hand, all as of the day and year first above written. ATTEST: EQUITABLE RESOURCES, INC. /s/ Jean F. Marks By: /s/ Murry S. Gerber - ---------------------------- ---------------------------- Jean F. Marks Murry S. Gerber President and Chief Executive Officer Address: One Oxford Centre Suite 3300 Pittsburgh, PA 15219 WITNESS: /s/ David J. Smith /s/ David L. Porges - ---------------------------- ---------------------------- David J. Smith David L. Porges Address: 311 Olde Chapel Trail ---------------------------- Pittsburgh, PA 15238 ---------------------------- -13- EX-10.15 13 AMENDED & RESTATED POST-TERMINATION AGREEMENT 1 Exhibit 10.15 AMENDED AND RESTATED POST-TERMINATION CONFIDENTIALITY AND NON-COMPETITION AGREEMENT This Agreement made this 1st day of December 1, 1999 (the "Effective Date"), by and between EQUITABLE RESOURCES, INC., having a business address at One Oxford Centre, Pittsburgh, Pennsylvania 15219 (Equitable Resources, Inc. and its subsidiary companies hereinafter collectively known as the "Company") and DAVID L. PORGES, an individual and resident of Pittsburgh, Pennsylvania (the "Executive"). WHEREAS, the Company and the Executive, pursuant to an Employment Agreement dated July 1, 1998 (the "Employment Agreement"), are parties to a Post-Termination Confidentiality and Non-Competition Agreement date July 1, 1998 (the "Existing Agreement"); WHEREAS, the parties continue to be willing to exchange certain severance benefits for the Executive's agreement to comply with specific post-employment confidentiality and non-competition requirements contained herein; and WHEREAS, in connection with amendment of the Employment Agreement and the substitution of a new Change of Control Agreement dated December 1, 1999 (the "Change of control Agreement"), the Company and the Executive desire also to amend and restate the Existing Agreement. NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: SECTION 1. CONFIDENTIALITY: Recognizing (1) that trade secrets or confidential information in any way related to the business activities of the Company, such as, but not limited to: marketing plans, business plans, technical information, market information, customer lists, pricing data and strategies, financial information, business methods or practices, programs, hardware and software (referred to hereinafter collectively as "Confidential Information"), constitute valuable assets of the Company, and (2) that such Confidential Information is the property of the Company, Executive covenants, in consideration of Executive's access to and use of Confidential Information, to hold such Confidential Information in trust for the Company, and successors and assigns, and not to disclose or use the same other than in the business of the Company, specifically agreeing: (a) not to, directly or indirectly, disclose or make available to anyone or use outside of the Company's organization during or after the term of employment, any Confidential Information unless such disclosure or availability or use is approved by the Company; 2 (b) to use reasonable efforts to safeguard all Confidential Information within the possession or control of Executive at all times so it is not exposed to, or taken by, any unauthorized person (including unauthorized employees and agents of the Company); (c) upon termination of employment, to deliver to the Company all papers, photographs, photoreproductions, computer tapes, tape recordings and other materials, including but not limited to Confidential Information, including personal notes and reproductions, relating to the business of the Company, its subsidiaries and affiliates in the Executive's possession or control. This Section 1 shall not apply to any Confidential Information that the Company has voluntarily disclosed to the public or that has otherwise legally entered the public domain or which was known by the Executive prior to his employment with the Company or which is required by law to be disclosed. SECTION 2. NON-COMPETITION: For a period of one year from the termination date of his employment, the Executive will not (i) engage, directly or indirectly, whether as principal or as agent, officer, director, employee, consultant, owner, partner, shareholder, or otherwise, alone or in association with any other person, corporation or other entity, in any business which produces, markets, or sells any product or service in competition with products or services which the Company, produces, markets, or sells in any geographic market where the Company is engaged in business; (ii) solicit, directly or indirectly, either for himself or any other person, any business related to the business of any customer, supplier, licensee or other person having a business relationship with the Company, or induce or attempt to induce any such person to cease doing business with the Company; (iii) interfere, or attempt to interfere, with any contemplated business project which representatives of the Company have discussed with any potential participant in such project; or (iv) induce, or attempt to induce, any employee of the Company to leave the employ of the Company or to violate the terms of his contract with the Company, or employ or otherwise engage as an employee, independent contractor or otherwise any such person. Notwithstanding the provisions of Section 2(a)(i), the Executive may purchase or otherwise acquire up to (but not more than) 1% of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934. The Executive agrees that this covenant is reasonable with respect to duration, geographical area and scope. This non-competition restriction shall not apply if the Executive has a termination date within twenty-four (24) months of a Change of Control as defined in the Change of Control Agreement between the Executive and the Company. 2 3 SECTION 3. CONSIDERATION: If the employment of the Executive with the Company is terminated by the Company for any reason (other than for Cause as defined below), the Executive shall receive, from the date of termination, in addition to any payments he may be entitled to under other agreements with the Company (in accordance with their terms), 24 months of base salary payments at the salary level in effect at the time of such termination and 24 months of medical benefits continuance. For purposes of this Agreement, "Cause" shall include: (i) the conviction of a felony, a crime of moral turpitude or fraud or having committed fraud, misappropriation or embezzlement in connection with the performance of his duties hereunder, (ii) willful and repeated failures to substantially perform his assigned duties, or (iii) a material violation of any other provisions of this Agreement or express significant policies of the Company. The purpose of this Agreement is to obtain the Executive's agreement to the covenants contained herein and it is intended that benefits payable under this Agreement should be treated as payments in the nature of compensation within the meaning of Code Section 280G and the Regulations thereunder (the "280G Rules") and that such payments constitute reasonable compensation within the meaning of the 280G Rules. SECTION 4. TERM: The term of this Agreement shall commence on the Effective Date and shall remain in effect unless amended or terminated by mutual written agreement or as provided in Section 8(e) of the Employment Agreement, as amended; provided, however, that upon the occurrence of a Change of Control as such term is defined in the Change of Control Agreement, this Agreement may be terminated upon written notice by Executive to the Company. SECTION 5. CERTAIN REMEDIES: Without limiting the remedies available to the Company, the Executive acknowledges that damages at law will be an insufficient remedy to the Company in the event that the Executive violates the terms of this Agreement and that the Company may apply for, and obtain, injunctive relief to restrain the breach or threatened breach of, or otherwise to specifically enforce, such covenants. If it should become desirable or necessary for the Company to seek compliance with this Agreement by judicial proceedings, the period of time during which Executive is restricted under Section 2 shall be extended by the amount of time remaining under the original restriction on the date Executive first breached this Agreement, commencing on the date of the trial court order or settlement requiring such compliance. If litigation should develop between the parties regarding this Agreement or the obligations undertaken hereby, the party prevailing in such litigation may recover from the other such costs and expenses, including reasonable attorneys' fees, if any, as a court of competent jurisdiction may determine or award. 3 4 SECTION 6. GOVERNING LAW: This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. SECTION 7. BINDING AGREEMENT: The obligations of Executive under this Agreement shall continue after the termination of his employment with the Company for any reason, with or without cause, and shall be binding on Executive's heirs, executors and legal representatives and shall inure to the benefit of any successors by merger or purchase of substantially all of the assets of the Company. SECTION 8. COMPANY VIOLATION NOT A DEFENSE: The existence of any claim or cause of action against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to enforcement by the Company of this Agreement. SECTION 9. AUTHORIZATION TO MODIFY RESTRICTIONS: It is the intention of the parties that the provisions of this Agreement shall be enforceable to the fullest extent permissible under applicable law, but that the unenforceability (or modification to conform to such law) of any provision or provisions hereof shall not render unenforceable, or impair the remaining provisions of this Agreement. If any provision or provisions of this Agreement shall be deemed illegal, invalid or otherwise unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provision or provisions and to alter the bounds thereof to render it valid and enforceable. 4 5 SECTION 10. CONSENT TO JURISDICTION AND VENUE: Any action or proceeding arising out of or relating to this Agreement shall be commenced by either party in any state or federal court in Allegheny County, Pennsylvania and the parties hereby irrevocably agree that all claims in respect of any such action or proceeding may be heard and determined in any such court. Executive and the Company acknowledge that the forum designated herein present the most convenient forum for both parties. In any action commenced in any of these courts, Executive and the Company waive any objections to inconvenience of forum, venue and personal jurisdiction of the Court. SECTION 11. NOTICES: Notices hereunder shall be in writing and shall be deemed effective when received by the Company or the Executive at their respective addresses above given. SECTION 12. WAIVER: A waiver by the Company of a breach of any of the provisions of this Agreement shall not operate or be construed as a waiver or excuse of any subsequent or different breach. SECTION 13. INTEGRATION AND MODIFICATION: This Agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof (except for the Employment Agreement and its appendices executed as of even date herewith between the Executive and the Company) and supersedes all prior agreements and understandings, oral or written. This Agreement may not be changed, amended, or modified, except by a written instrument signed by the parties and shall survive the expiration or termination of the Employment Agreement. 5 6 Executive acknowledges that he has read and understands the provisions of this Agreement, that he has been given an opportunity for his legal counsel to review this Agreement and that the provisions of this Agreement are reasonable. ATTEST: EQUITABLE RESOURCES, INC. /s/ Johanna G. O'Loughlin By /s/ Gregory R. Spencer - ----------------------------------- ------------------------------------ Johanna G. O'Loughlin Gregory R. Spencer Vice President, General Counsel Senior Vice President and and Corporate Secretary Chief Administrative Officer WITNESS: /s/ David J. Smith /s/ David L. Porges - ----------------------------------- ------------------------------------ David J. Smith David L. Porges 6 EX-10.16 14 CHANGE OF CONTROL AGREEMENT 1 Exhibit 10.16 CHANGE OF CONTROL AGREEMENT THIS AGREEMENT (the "Agreement") dated as of the 1st day of December, 1999 (the "Effective Date") by and between EQUITABLE RESOURCES, INC., a Pennsylvania corporation with its principal place of business at Pittsburgh, Pennsylvania (the "Company"), and Gregory R. Spencer, an individual (the "Employee"); WHEREAS, the Company and certain of its employees, including possibly the Employee, are parties to (i) a Change of Control Agreement, which provides for the payment of certain benefits to the Employee if the Employee's employment terminates in certain circumstances following a change of control of the Company and/or (ii) an Employment Agreement, which provides for the payment of severance benefits in certain circumstances (whether or not the Employee's termination of employment is in connection with a Change of Control) and includes a provision pursuant to which Employee agrees not to compete with the Company for a stated period of time (to the extent the Employee is a party to one or both of such agreements as of the date of this Agreement, they are referred to as the "Existing Agreements"); and WHEREAS, the Board of Directors of the Company (the "Board"), continues to believe that it is in the best interest of the Company and its shareholders to assure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company; that it is imperative to diminish the inevitable distraction of the Employee by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control; and that it is appropriate to provide the Employee with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Employee will be satisfied and which are competitive with those of other corporations in the industry in which the Company's principal business activity is conducted; and WHEREAS, in order to more fully accomplish the foregoing objectives, the Company and the Employee desire to terminate the Existing Agreements and to enter into this Agreement, which, among other things, clarifies and enhances in certain respects the benefits payable to the Employee if the Employee's employment terminates in certain circumstances following a Change in Control of the Company; NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Term. The term of this Agreement shall commence on the Effective Date hereof and, subject to Sections 3(f), 5 and 8, shall terminate on the earlier of (i) the date of the termination of Employee's employment by the Company for any reason prior to a Change of Control; or (ii) unless further extended as hereinafter set forth, the date which is thirty-six (36) months after the Effective Date; provided, that, commencing on the last day of the first full calendar month after the Effective Date and on the last day of each succeeding calendar month, the term of this Agreement shall be automatically extended 2 without further action by either party (but not beyond the date of the termination of Employee's employment prior to a Change of Control) for one (1) additional month unless one party provides written notice to the other party that such party does not wish to extend the term of this Agreement. In the event that such notice shall have been delivered, the term of this Agreement shall no longer be subject to automatic extension and the term hereof shall expire on the date which is thirty-six (36) calendar months after the last day of the month in which such written notice is received. 2. Change of Control. Change of Control shall mean any of the following events (each of such events being herein referred to as a "Change of Control"): (a) The sale or other disposition by the Company of all or substantially all of its assets to a single purchaser or to a group of purchasers, other than to a corporation with respect to which, following such sale or disposition, more than eighty percent (80%) of, respectively, the then outstanding shares of Company common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of the Board of Directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively of the outstanding Company common stock and the combined voting power of the then outstanding voting securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding Company common stock and voting power immediately prior to such sale or disposition; (b) The acquisition in one or more transactions by any person or group, directly or indirectly, of beneficial ownership of twenty percent (20%) or more of the outstanding shares of Company common stock or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of the Board of Directors; provided, however, that any acquisition by (x) the Company or any of its subsidiaries, or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (y) any person that is eligible, pursuant to Rule 13d-1(b) under the Exchange Act (as such rule is in effect as of November 1, 1995) to file a statement on Schedule 13G with respect to its beneficial ownership of Company common stock and other voting securities, whether or not such person shall have filed a statement on Schedule 13G, unless such person shall have filed a statement on Schedule 13D with respect to beneficial ownership of fifteen percent or more of the Company's voting securities, shall not constitute a Change of Control; (c) The Company's termination of its business and liquidation of its assets; (d) There is consummated a merger, consolidation, reorganization, share exchange, or similar transaction involving the Company (including a triangular merger), in any case, unless immediately following such transaction: (i) all or substantially all of -2- 3 the persons who were the beneficial owners of the outstanding common stock and outstanding voting securities of the Company immediately prior to the transaction beneficially own, directly or indirectly, more than 60% of the outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction (including a corporation or other person which as a result of such transaction owns the Company or all or substantially all of the Company's assets through one or more subsidiaries (a "Parent Company")) in substantially the same proportion as their ownership of the common stock and other voting securities of the Company immediately prior to the consummation of the transaction, (ii) no person (other than the Company, any employee benefit plan sponsored or maintained by the Company or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause (i) above is satisfied in connection with the transaction, such Parent Company) beneficially owns, directly or indirectly, 20% or more of the outstanding shares of common stock or the combined voting power of the voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction and (iii) individuals who were members of the Company's Board of Directors immediately prior to the consummation of the transaction constitute at least a majority of the members of the board of directors resulting from such transaction (or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause, (i) above is satisfied in connection with the transaction, such Parent Company); or (e) The following individuals cease for any reasons to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the entire Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved. 3. Salary and Benefits Continuation. (a) Salary and Benefits Continuation" shall be defined to mean the following: (i) payment of an amount of cash equal to three (3) times the Employee's annual base salary in effect immediately prior to the Change of Control or the termination of Employee's employment, whichever is higher; (ii) payment of an amount of cash equal to three (3) times the highest annual incentive (bonus) payment earned by the Employee for any year in the three years prior to the termination of Employee's employment; (iii) provision to Employee and his/her eligible -3- 4 dependents of medical, long-term disability, dental and life insurance coverage (to the extent such coverage was in effect immediately prior to the Change of Control) for thirty-six (36) months; (iv) contribution by the Company to Employee's account under the Company's defined contribution retirement plan (known as the Equitable Resources, Inc. Employee Savings Plan) of an amount of cash equal to the amount that the Company would have contributed to such plan had the Employee continued to be employed by the Company for an additional thirty-six (36) months at a base salary equal to the Employee's base salary immediately prior to the Change of Control or the termination of Employee's employment, whichever is higher, such contribution being deemed to be made immediately prior to the termination of Employee's employment; provided, that to the extent that the amount of such contribution exceeds the amount then allowed to be contributed to the plan under the applicable rules relating to tax qualified retirement plans, then the excess shall be paid to the Employee in cash; (v) reimbursement to Employee of reasonable costs incurred by Employee for outplacement services in the twenty-four (24) month period following termination of Employee's employment. (b) All amounts payable by the Company to the Employee in cash pursuant to Section 3(a) shall be made in a lump sum unless the Employee otherwise elects and notifies the Company in writing prior to the termination of Employee's employment of Employee's desire to have all payments made in accordance with the Company's regular salary and benefit payment practices, provided that (i) the lump sum payment or first payment shall be made within thirty (30) days after the Employee's termination hereunder, and (ii) the Employee may elect to defer such payments pursuant to the Company's then-existing deferred compensation plan(s). All other amounts payable by the Company to the Employee pursuant to Section 3 shall be paid or provided in accordance with the Company's standard payroll and reimbursement procedures, as in effect immediately prior to the Change of Control. (c) In the event that medical, long-term disability, dental and life insurance benefits cannot be provided under appropriate Company group insurance policies, an amount equal to the premium necessary for the Employee to purchase directly the same level of coverage in effect immediately prior to the Change of Control shall be added to the Company's payments to Employee pursuant to Section 3(a) (payable in the manner elected by the Employee pursuant to Section 3(b)). (d) If there is a Change of Control as defined above, the Company will provide Salary and Benefits Continuation if at any time during the first twenty-four (24) months following the Change of Control, either (i) the Company terminates the Employee's employment other than for Cause as defined in Section 4 below or (ii) the Employee terminates his/her employment for "Good Reason" as defined below. -4- 5 (e) For purposes of this Agreement, "Good Reason" is defined as: (i) Removal of the Employee from the position he/she held immediately prior to the Change of Control (by reason other than death, disability or Cause); (ii) The assignment to the Employee of any duties inconsistent with those performed by the Employee immediately prior to the Change of Control or a substantial alteration in the nature or status of the Employee's responsibilities which renders the Employee's position to be of less dignity, responsibility or scope; (iii) A reduction by the Company in the Employee's annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for proportional across-the-board salary reductions similarly affecting all executives of the Company and all executives of any person in control of the Company, provided, however, that in no event shall the Employee's annual base salary be reduced by an amount equal to ten percent or more of the Employee's annual base salary as of the end of the calendar year immediately preceding the year in which the Change of Control occurs, without the Employee's consent; (iv) The failure to grant the Employee an annual salary increase reasonably necessary to maintain such salary as reasonably comparable to salaries of senior executives holding positions equivalent to the Employee's in the industry in which the Company's then principal business activity is conducted; (v) The Company requiring the Employee to be based anywhere other than the Company's principal executive offices in the city in which the Employee is principally located immediately prior to the Change of Control, except for required travel on the Company's business to an extent substantially consistent with the Employee's business travel obligations prior to the Change of Control; (vi) Any material reduction by the Company of the benefits enjoyed by the Employee under any of the Company's pension, retirement, profit sharing, savings, life insurance, medical, health and accident, disability or other employee benefit plans, programs or arrangements, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Employee of any material fringe benefits, or the failure by the Company to provide the Employee with the number of paid vacation days to which he/she is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy, provided that this paragraph (f) shall not apply to -5- 6 any proportional across-the-board reduction or action similarly affecting all executives of the Company and all executives of any person in control of the Company; or (vii) The failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 15 hereof, or any other material breach by the Company of its obligations contained in this Agreement. (f) The Employee's right to Salary and Benefits Continuation shall accrue upon the occurrence of either of the events specified in (i) or (ii) of Section 3(d) and shall continue as provided, notwithstanding the termination or expiration of this Agreement pursuant to Section 1 hereof. The Employee's subsequent employment, death or disability within the thirty-six (36) month period following the Employee's termination of employment in connection with a Change of Control shall not affect the Company's obligation to continue making Salary and Benefits Continuation payments. The Employee shall not be required to mitigate the amount of any payment provided for in this Section 3 by seeking employment or otherwise. The rights to Salary and Benefits Continuation shall be in addition to whatever other benefits the Employee may be entitled to under any other agreement or compensation plan, program or arrangement of the Company; provided, that the Employee shall not be entitled to any separate or additional severance payments pursuant to the Company's severance plan as then in effect and generally applicable to similarly situated employees. The Company shall be authorized to withhold from any payment to the Employee, his/her estate or his/her beneficiaries hereunder all such amounts, if any, that the Company may reasonably determine it is required to withhold pursuant to any applicable law or regulation. 4. Termination of Employee for Cause. (a) Upon or following a Change of Control, the Company may at any time terminate the Employee's employment for Cause. Termination of employment by the Company for "Cause" shall mean termination upon: (i) the willful and continued failure by the Employee to substantially perform his/her duties with the Company (other than (A) any such failure resulting from Employee's disability or (B) any such actual or anticipated failure resulting from Employee's termination of his/her employment for Good Reason), after a written demand for substantial performance is delivered to the Employee by the Board of Directors which specifically identifies the manner in which the Board of Directors believes that the Employee has not substantially performed his/her duties, and which failure has not been cured within thirty days (30) after such written demand; or (ii) the willful and continued engaging by the Employee in conduct which is demonstrably and -6- 7 materially injurious to the Company, monetarily or otherwise, or (iii) the breach by the Employee of the confidentiality provision set forth in Section 8 hereof. (b) For purposes of this Section 4, no act, or failure to act, on the Employee's part shall be considered "willful" unless done, or omitted to be done, by the Employee in bad faith and without reasonable belief that such action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him/her a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for that purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with his/her counsel, to be heard before the Board of Directors) finding that in the good faith opinion of the Board of Directors the Employee is guilty of the conduct set forth above in clauses (a)(i), (ii) or (iii) of this Section 4 and specifying the particulars thereof in detail. 5. Prior Termination. Anything in this Agreement to the contrary notwithstanding, if the Employee's employment with the Company is terminated prior to the date on which a Change of Control occurs either (i) by the Company other than for Cause or (ii) by the Employee for Good Reason, and it is reasonably demonstrated by Employee that such termination of employment (a) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control, or (b) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the termination shall be deemed to have occurred upon a Change of Control and the Employee will be entitled to Salary and Benefits Continuation as provided for in Section 3 hereof. 6. Employment at Will. Subject to the provisions of any other agreement between the Employee and the Company, the Employee shall remain an employee at will and nothing herein shall confer upon the Employee any right to continued employment and shall not affect the right of the Company to terminate the Employee for any reason not prohibited by law; provided, however, that any such removal shall be without prejudice to any rights the Employee may have to Salary and Benefits Continuation hereunder. 7. Construction of Agreement. (a) Governing Law. This Agreement shall be governed by and construed under the laws of the Commonwealth of Pennsylvania without regard to its conflict of law provisions. (b) Severability. In the event that any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, -7- 8 legality or enforceability of the remaining provisions shall not in any way be affected or impaired thereby. (c) Headings. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience of reference only and shall not constitute a part of this Agreement. 8. Covenant as to Confidential Information. (a) Confidentiality of Information and Nondisclosure. The Employee acknowledges and agrees that his/her employment by the Company under this Agreement necessarily involves his/her knowledge of and access to confidential and proprietary information pertaining to the business of the Company and its subsidiaries. Accordingly, the Employee agrees that at all times during the term of this Agreement and for a period of two (2) years after the termination of the Employee's employment hereunder, he/she will not, directly or indirectly, without the express written authority of the Company, unless directed by applicable legal authority having jurisdiction over the Employee, disclose to or use, or knowingly permit to be so disclosed or used, for the benefit of himself/herself, any person, corporation or other entity other than the Company, (i) any information concerning any financial matters, customer relationships, competitive status, supplier matters, internal organizational matters, current or future plans, or other business affairs of or relating to the Company and its subsidiaries, (ii) any management, operational, trade, technical or other secrets or any other proprietary information or other data of the Company or its subsidiaries, or (iii) any other information related to the Company or its subsidiaries or which the Employee subsidiaries which has not been published and is not generally known outside of the Company. The Employee acknowledges that all of the foregoing, constitutes confidential and proprietary information, which is the exclusive property of the Company. (b) Company Remedies. The Employee acknowledges and agrees that any breach of this Agreement by him/her will result in immediate irreparable harm to the Company, and that the Company cannot be reasonably or adequately compensated by damages in an action at law. In the event of an actual or threatened breach by the Employee of the provisions of this Section 8, the Company shall be entitled, to the extent permissible by law, immediately to cease to pay or provide the Employee or his/her dependents any compensation or benefit being, or to be, paid or provided to him pursuant to Section 3 of this Agreement, and also to obtain immediate injunctive relief restraining the Employee from conduct in breach or threatened breach of the covenants contained in this Section 8. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee. -8- 9 9. Reimbursement of Fees. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest by the Company, Internal Revenue Service or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Employee about the amount of any payment pursuant to Section 3 of this Agreement) or in connection with any dispute arising from this Agreement, regardless of whether Employee prevails in any such contest or dispute. 10. Tax Gross-Up. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") (i) would be subject to the excise tax imposed by section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to the excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax") or (ii) is made pursuant to a Change In Control, then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed on the payment and Gross-Up Payment, the Employee retains an amount equal to (x) the Payment plus (y) the Excise Tax (if any) imposed upon the Payment and Gross-Up Payment. (b) Subject to the provisions of Section 10(c), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by a nationally recognized accounting firm designated by the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days after there has been a Payment, or such earlier time as requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of section 4999 of the Code at the time of the initial -9- 10 determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 10(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) 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; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to 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. Without limitation on the foregoing provisions of this Section 10(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in -10- 11 respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; 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; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 10(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 10) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 10(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. (e) The payments provided for in this Section 10 hereof shall be made not later than the tenth (10th) day following the termination of the Executive's employment; provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Executive of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the termination of the Executive's employment. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been -11- 12 due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). In the event the Company should fail to pay when due the amounts described in this Section 10, the Executive shall also be entitled to receive from the Company an amount representing interest on any unpaid or untimely paid amounts from the due date, as determined under this Section 10, to the date of payment at a rate equal to 120% of the rate provided in section 1274(b)(2)(B) of the Code. 11. Resolution of Differences Over Breaches of Agreement. Except as otherwise provided herein, in the event of any controversy, dispute or claim arising out of, or relating to this Agreement, or the breach thereof, or arising out of any other matter relating to the Employee's employment with the Company or the termination of such employment, the parties may seek recourse only for temporary or preliminary injunctive relief to the courts having jurisdiction thereof and if any relief other than injunctive relief is sought, the Company and the Employee agree that such underlying controversy, dispute or claim shall be settled by arbitration conducted in Pittsburgh, Pennsylvania in accordance with this Section 11 of this Agreement and the Commercial Arbitration Rules of the American Arbitration Association ("AAA"). The matter shall be heard and decided, and awards rendered by a panel of three (3) arbitrators (the "Arbitration Panel"). The Company and the Employee shall each select one arbitrator from the AAA National Panel of Commercial Arbitrators (the "Commercial Panel") and AAA shall select a third arbitrator from the Commercial Panel. The award rendered by the Arbitration Panel shall be final and binding as between the parties hereto and their heirs, executors, administrators, successors and assigns, and judgment on the award may be entered by any court having jurisdiction thereof. 12. Treatment of Certain Incentive Awards. All "Awards" held by the Employee under the Company's 1994 Long-Term Incentive Plan (the "1994 Plan"), the Company's 1999 Long-Term Incentive Plan (the "1999 Plan") or the Company's Breakthrough Long-Term Incentive Plan (the "Breakthrough Plan") shall, upon a Change of Control, be treated in accordance with the terms of those Plans as in effect on the date of this Agreement, without regard to the subsequent amendment of those Plans. For purposes of this Section 12, the terms "Award" and "Change of Control" shall have the meanings ascribed to them in the 1999 Plan, the 1994 Plan and the Breakthrough Plan, as the case may be. 13. Release. The Employee hereby acknowledges and agrees that prior to the Employee's or his/her dependents' right to receive from the Company any compensation or benefit to be paid or provided to him/her or his/her dependents pursuant to Section 3 of this Agreement, the Employee may be required by the Company, in its sole discretion, to execute a release in a form reasonably acceptable to the Company, which releases any and all claims (other than amounts to be paid to Employee as expressly provided for under this Agreement) the Employee has or may have against the Company or its subsidiaries, agents, officers, directors, successors or assigns arising under any public -12- 13 policy, tort or common law or any provision of state, federal or local law, including, but not limited to, the Pennsylvania Human Relations Act, the Americans with Disabilities Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Protection Act, Family and Medical Leave Act, the Fair Labor Standards Act, or the Age Discrimination in Employment Act of 1967. 14. Waiver. The waiver by a party hereto of any breach by the other party hereto of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by a party hereto. 15. Assignment. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. The Company shall be obligated to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the Company's business or assets, by a written agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no succession had taken place. This Agreement shall inure to the extent provided hereunder to the benefit of and be enforceable by the Employee or his/her legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. The Employee may not delegate any of his/her duties, responsibilities, obligations or positions hereunder to any person and any such purported delegation by him shall be void and of no force and effect with respect to matters relating to his/her employment and termination of employment. Without limiting the foregoing, the Employee's rights to receive payments and benefits hereunder shall not be assignable or transferable, other than a transfer by Employee's will or by the laws of descent and distribution. 16. Notices. Any notices required or permitted to be given under this Agreement shall be sufficient if in writing, and if personally delivered or when sent by first class certified or registered mail, postage prepaid, return receipt requested -- in the case of the Employee, to his/her residence address as set forth below, and in the case of the Company, to the address of its principal place of business as set forth below, in care of the Chairman of the Board -- or to such other person or at such other address with respect to each party as such party shall notify the other in writing. 17. Pronouns. Pronouns stated in either the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. 18. Entire Agreement. This Agreement contains the entire agreement of the parties concerning the matters set forth herein and all promises, representations, understandings, arrangements and prior agreements regarding the subject matter hereof (including the Existing Agreements, which the parties agree shall terminate as of the Effective Date hereof) are merged herein and superseded hereby; provided that any noncompetition agreement shall not be merged or superseded but shall remain in full force and effect. -13- 14 The provisions of this Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of any amendment, modification, repeal, waiver, extension or discharge is sought. No person acting other than pursuant to a resolution of the Board of Directors shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto or to exercise any of the Company's rights to terminate or to fail to extend this Agreement. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto duly authorized, and the Employee has hereunto set his/her hand, all as of the day and year first above written. ATTEST: EQUITABLE RESOURCES, INC. /s/ Jean F. Marks By: /s/ Murry S. Gerber - ---------------------------- ---------------------------- Jean F. Marks Murry S. Gerber President and Chief Executive Officer Address: One Oxford Centre Suite 3300 Pittsburgh, PA 15219 WITNESS: /s/ Stephanie L. Macus /s/ Gregory R. Spencer - ---------------------------- ---------------------------- Stephanie L. Macus Gregory R. Spencer Address: 1020 Devonshire Road ---------------------------- Pittsburgh, PA 15213 ---------------------------- -14- EX-10.17 15 NONCOMPETE AGREEMENT 1 Exhibit 10.17 NONCOMPETE AGREEMENT This Agreement is made as of December 1, 1999 by and between Equitable Resources, Inc., a Pennsylvania corporation (Equitable Resources, Inc. and its majority-owned subsidiaries are hereinafter collectively referred to as the "Company"), and Gregory R. Spencer (the "Employee"). WITNESSETH: WHEREAS, in order to protect the business and goodwill of the Company, the Company desires to obtain certain non-competition covenants from the Employee and the Employee desires to agree to such covenants in exchange for the Company's agreement to pay certain severance benefits in the event that the Employee's employment with the Company is terminated in certain events; and WHEREAS, the Employee is willing to enter into this Agreement, which contains, among other things, specific non-competition agreements, in consideration of the simultaneous execution by the Company and the Employee of a new Change of Control Agreement (the "Change of Control Agreement"), which enhances and clarifies in certain respects the benefits that the Company will pay to the Employee if the Employee's employment with the Company is terminated in certain events following a change of control of the Company. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. If the employment of the Employee with the Company is terminated by the Company for any reason other than Cause (as defined below) or if the Employee terminates his or her employment with the Company for Good Reason (as defined below), the Company shall pay the Employee, from the date of termination, in addition to any payments to which the Employee is entitled under the Company's severance pay plan, twenty-four (24) months of base salary at the Employee's annual base salary level in effect at the time of such termination or immediately prior to the salary reduction that serves as the basis for termination for Good Reason. Employee will also be entitled to twenty-four (24) months of health benefits continuation and outplacement assistance for a period not to exceed twelve (12) months. Such base salary amount shall be paid by the Company to the Employee in one lump sum payable within thirty (30) days after the Employee's termination or resignation hereunder. Solely for purposes of this Agreement, "Cause" shall mean (i) a conviction of a felony, a crime of moral turpitude or fraud, (ii) the Employee's willful and continuous engagement in conduct which is demonstrably and materially injurious to the Company, or (iii) the willful and continued refusal by the Employee to perform the duties of his or her position in a reasonable manner for thirty (30) days after written notice is given to the Employee by the Company specifying in reasonable detail the nature of the deficiency in the Employee's performance. Solely for purposes of this Agreement, termination for "Good Reason" shall mean termination of employment by the Employee within ninety (90) days after (i) being demoted, or (ii) being given notice of a reduction in his or her annual base salary (other than a reduction of not more than 10% applicable to all senior officers of the Company). 2 2. While the Employee is employed by the Company and for a period of twelve (12) months after date of Employee's termination of employment with Company for any reason, the Employee shall not (i) directly or indirectly engage, whether as an employee, consultant, partner, owner, agent, stockholder, officer, director or otherwise, alone or in association with any other person or entity, in (A) the energy industry, including the production, transmission, distribution and marketing of oil, natural gas or electricity and the provision of related energy services (including project development and engineering analysis, construction management, project financing, equipment operation and maintenance, energy savings metering, monitoring and verification, and facilities management (developing and operating private power, cogeneration and central plant facilities)) anywhere in the continental United States (including the Gulf of Mexico), Central America or South America, except that the restriction as to the regulated distribution of oil, natural gas or electricity shall be limited to the markets in which the Company conducted such business or contemplated (with the Employee's knowledge) conducting such business at the time of the termination of Employee's employment, or (B) any business activity that competes with any project or proposed project which was discussed by or with the Employee in the course of his or her employment with the Company or any project or proposed project with respect to which the Company initiated any business activity during the course of his or her employment (for purposes of this subsection (i) employment or engagement by a customer of the Company to provide or manage services that are provided by the Company shall be deemed to violate this subsection (i)); (ii) directly or indirectly on his or her own behalf or on behalf of any other person or entity contact (A) any customer of the Company with whom he or she had contact while employed by the Company, or (B) any person or entity to whom he or she attempted to market the Company's products and services while employed by the Company, in either case, for the purpose of soliciting the purchase of any product or service that competes with any product or service offered by the Company or which was considered to be offered by the Company while the Employee was employed by the Company; (iii) take away or interfere, or attempt to interfere, with any custom, trade or existing contractual relations of the Company, including any business project or any contemplated business project which representatives of the Company have discussed with any potential participant in such project; or (iv) directly or indirectly on his or her own behalf or on behalf of any other person or entity solicit or induce, or cause any other person or entity to solicit or induce, or attempt to induce, any employee or consultant to leave the employ of or engagement by the Company or its successors, assigns, or affiliates, or to violate the terms of their contracts with the Company. 3. The Company may terminate this Agreement by giving twenty-four (24) months' prior written notice to the Employee; provided that all provisions of this Agreement shall apply if any event specified in sections 1 or 2 occurs prior to the expiration of such twenty-four (24) month period. Notwithstanding anything in this Agreement to the contrary, upon the occurrence of a Change of Control as such term is defined in the Change of Control Agreement, this Agreement shall remain in full force and effect and may not thereafter be terminated (even if notice of termination has been given in the previous twenty-four (24) months under the first sentence of this paragraph), except upon written notice by Employee to the Company. If Employee receives payment of benefits under the Change of Control Agreement, he shall not receive benefits under this Agreement which shall thereupon terminate and be of no further force or effect. -2- 3 4. The provisions of this Agreement are severable. To the extent that any provision of this Agreement is deemed unenforceable in any court of law the parties intend that such provision be construed by such court in a manner to make it enforceable. 5. The Employee acknowledges and agrees that: (i) this Agreement is necessary for the protection of the legitimate business interests of the Company; (ii) the restrictions contained in this Agreement are reasonable; (iii) the Employee has no intention of competing with the Company within the limitations set forth above; (iv) the Employee acknowledges and warrants that Employee believes that Employee will be fully able to earn an adequate likelihood for Employee and Employee's dependents if the covenant not to compete contained in this Agreement is enforced against the Employee; and (v) the Employee has received adequate and valuable consideration for entering into this Agreement. 6. The Employee stipulates and agrees that any breach of this Agreement by the Employee will result in immediate and irreparable harm to the Company, the amount of which will be extremely difficult to ascertain, and that the Company could not be reasonably or adequately compensated by damages in an action at law. For these reasons, the Company shall have the right, without objection from the Employee, to obtain such preliminary, temporary or permanent mandatory or restraining injunctions, orders or decrees as may be necessary to protect the Company against, or on account of, any breach by the Employee of the provisions of Section 2 hereof. In the event the Company obtains any such injunction, order, decree or other relief, in law or in equity, (i) the duration of any violation of Section 2 shall be added to the 12 month restricted period specified in Section 2, and (ii) the Employee shall be responsible for reimbursing the Company for all costs associated with obtaining the relief, including reasonable attorneys' fees and expenses and costs of suit. Such right to equitable relief is in addition to the remedies the Company may have to protect its rights at law, in equity or otherwise. 7. This Agreement (including the covenant not to compete contained in Section 2) shall be binding upon and inure to the benefit of the successors and assigns of the Company. 8. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. For the purpose of any suit, action or proceeding arising out of or relating to this Agreement, Employee irrevocably consents and submits to the jurisdiction and venue of any state or federal court located in Allegheny County, Pennsylvania. Employee agrees that service of the summons and complaint and all other process which may be served in any such suit, action or proceeding may be effected by mailing by registered mail a copy of such process Employee at the addresses set forth below. Employee irrevocably waives any objection which they may now or hereafter have to the venue of any such suit, action or proceeding brought in such court and any claim that such suit, action or proceeding brought in such court has been brought in an inconvenient forum and agrees that service of process in accordance with this Section will be deemed in every respect effective and valid personal service of process upon Employee. Nothing in this Agreement will be construed to prohibit service of process by any other method permitted by law. The provisions of this Section will not limit or otherwise affect the right of the Company to institute and conduct an action in any other appropriate manner, jurisdiction or court. The Employee agrees that final judgment in such suit, action or proceeding will be conclusive and may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law. -3- 4 9. This Agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written (other than the Change of Control Agreement). This Agreement may not be changed, amended, or modified, except by a written instrument signed by the parties. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto duly authorized, and the Employee has hereunto set his hand, all as of the day and year first above written. ATTEST: EQUITABLE RESOURCES, INC. /s/ Jean F. Marks By: /s/ Murry S. Gerber - ----------------------------- ---------------------------------- Jean F. Marks Murry S. Gerber WITNESS: EMPLOYEE: /s/ Stephanie L. Macus /s/ Gregory R. Spencer - ----------------------------- ------------------------------------- Stephanie L. Macus Gregory R. Spencer -4- EX-10.18 16 CHANGE OF CONTROL AGREEMENT 1 Exhibit 10.18 CHANGE OF CONTROL AGREEMENT THIS AGREEMENT (the "Agreement") dated as of the 1st day of December, 1999 (the "Effective Date") by and between EQUITABLE RESOURCES, INC., a Pennsylvania corporation with its principal place of business at Pittsburgh, Pennsylvania (the "Company"), and Johanna G. O'Loughlin, an individual (the "Employee"); WHEREAS, the Company and certain of its employees, including possibly the Employee, are parties to (i) a Change of Control Agreement, which provides for the payment of certain benefits to the Employee if the Employee's employment terminates in certain circumstances following a change of control of the Company and/or (ii) an Employment Agreement, which provides for the payment of severance benefits in certain circumstances (whether or not the Employee's termination of employment is in connection with a Change of Control) and includes a provision pursuant to which Employee agrees not to compete with the Company for a stated period of time (to the extent the Employee is a party to one or both of such agreements as of the date of this Agreement, they are referred to as the "Existing Agreements"); and WHEREAS, the Board of Directors of the Company (the "Board"), continues to believe that it is in the best interest of the Company and its shareholders to assure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company; that it is imperative to diminish the inevitable distraction of the Employee by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control; and that it is appropriate to provide the Employee with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Employee will be satisfied and which are competitive with those of other corporations in the industry in which the Company's principal business activity is conducted; and WHEREAS, in order to more fully accomplish the foregoing objectives, the Company and the Employee desire to terminate the Existing Agreements and to enter into this Agreement, which, among other things, clarifies and enhances in certain respects the benefits payable to the Employee if the Employee's employment terminates in certain circumstances following a Change in Control of the Company; NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Term. The term of this Agreement shall commence on the Effective Date hereof and, subject to Sections 3(f), 5 and 8, shall terminate on the earlier of (i) the date of the termination of Employee's employment by the Company for any reason prior to a Change of Control; or (ii) unless further extended as hereinafter set forth, the date which is thirty-six (36) months after the Effective Date; provided, that, commencing on the last day of the first full calendar month after the Effective Date and on the last day of each succeeding calendar month, the term of this Agreement shall be automatically extended 2 without further action by either party (but not beyond the date of the termination of Employee's employment prior to a Change of Control) for one (1) additional month unless one party provides written notice to the other party that such party does not wish to extend the term of this Agreement. In the event that such notice shall have been delivered, the term of this Agreement shall no longer be subject to automatic extension and the term hereof shall expire on the date which is thirty-six (36) calendar months after the last day of the month in which such written notice is received. 2. Change of Control. Change of Control shall mean any of the following events (each of such events being herein referred to as a "Change of Control"): (a) The sale or other disposition by the Company of all or substantially all of its assets to a single purchaser or to a group of purchasers, other than to a corporation with respect to which, following such sale or disposition, more than eighty percent (80%) of, respectively, the then outstanding shares of Company common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of the Board of Directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively of the outstanding Company common stock and the combined voting power of the then outstanding voting securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding Company common stock and voting power immediately prior to such sale or disposition; (b) The acquisition in one or more transactions by any person or group, directly or indirectly, of beneficial ownership of twenty percent (20%) or more of the outstanding shares of Company common stock or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of the Board of Directors; provided, however, that any acquisition by (x) the Company or any of its subsidiaries, or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (y) any person that is eligible, pursuant to Rule 13d-1(b) under the Exchange Act (as such rule is in effect as of November 1, 1995) to file a statement on Schedule 13G with respect to its beneficial ownership of Company common stock and other voting securities, whether or not such person shall have filed a statement on Schedule 13G, unless such person shall have filed a statement on Schedule 13D with respect to beneficial ownership of fifteen percent or more of the Company's voting securities, shall not constitute a Change of Control; (c) The Company's termination of its business and liquidation of its assets; (d) There is consummated a merger, consolidation, reorganization, share exchange, or similar transaction involving the Company (including a triangular merger), in any case, unless immediately following such transaction: (i) all or substantially all of -2- 3 the persons who were the beneficial owners of the outstanding common stock and outstanding voting securities of the Company immediately prior to the transaction beneficially own, directly or indirectly, more than 60% of the outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction (including a corporation or other person which as a result of such transaction owns the Company or all or substantially all of the Company's assets through one or more subsidiaries (a "Parent Company")) in substantially the same proportion as their ownership of the common stock and other voting securities of the Company immediately prior to the consummation of the transaction, (ii) no person (other than the Company, any employee benefit plan sponsored or maintained by the Company or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause (i) above is satisfied in connection with the transaction, such Parent Company) beneficially owns, directly or indirectly, 20% or more of the outstanding shares of common stock or the combined voting power of the voting securities entitled to vote generally in the election of directors of the corporation resulting from such transaction and (iii) individuals who were members of the Company's Board of Directors immediately prior to the consummation of the transaction constitute at least a majority of the members of the board of directors resulting from such transaction (or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause, (i) above is satisfied in connection with the transaction, such Parent Company); or (e) The following individuals cease for any reasons to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the entire Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved. 3. Salary and Benefits Continuation. (a) Salary and Benefits Continuation" shall be defined to mean the following: (i) payment of an amount of cash equal to three (3) times the Employee's annual base salary in effect immediately prior to the Change of Control or the termination of Employee's employment, whichever is higher; (ii) payment of an amount of cash equal to three (3) times the highest annual incentive (bonus) payment earned by the Employee for any year in the three years prior to the termination of Employee's employment; (iii) provision to Employee and his/her eligible -3- 4 dependents of medical, long-term disability, dental and life insurance coverage (to the extent such coverage was in effect immediately prior to the Change of Control) for thirty-six (36) months; (iv) contribution by the Company to Employee's account under the Company's defined contribution retirement plan (known as the Equitable Resources, Inc. Employee Savings Plan) of an amount of cash equal to the amount that the Company would have contributed to such plan had the Employee continued to be employed by the Company for an additional thirty-six (36) months at a base salary equal to the Employee's base salary immediately prior to the Change of Control or the termination of Employee's employment, whichever is higher, such contribution being deemed to be made immediately prior to the termination of Employee's employment; provided, that to the extent that the amount of such contribution exceeds the amount then allowed to be contributed to the plan under the applicable rules relating to tax qualified retirement plans, then the excess shall be paid to the Employee in cash; (v) reimbursement to Employee of reasonable costs incurred by Employee for outplacement services in the twenty-four (24) month period following termination of Employee's employment. (b) All amounts payable by the Company to the Employee in cash pursuant to Section 3(a) shall be made in a lump sum unless the Employee otherwise elects and notifies the Company in writing prior to the termination of Employee's employment of Employee's desire to have all payments made in accordance with the Company's regular salary and benefit payment practices, provided that (i) the lump sum payment or first payment shall be made within thirty (30) days after the Employee's termination hereunder, and (ii) the Employee may elect to defer such payments pursuant to the Company's then-existing deferred compensation plan(s). All other amounts payable by the Company to the Employee pursuant to Section 3 shall be paid or provided in accordance with the Company's standard payroll and reimbursement procedures, as in effect immediately prior to the Change of Control. (c) In the event that medical, long-term disability, dental and life insurance benefits cannot be provided under appropriate Company group insurance policies, an amount equal to the premium necessary for the Employee to purchase directly the same level of coverage in effect immediately prior to the Change of Control shall be added to the Company's payments to Employee pursuant to Section 3(a) (payable in the manner elected by the Employee pursuant to Section 3(b)). (d) If there is a Change of Control as defined above, the Company will provide Salary and Benefits Continuation if at any time during the first twenty-four (24) months following the Change of Control, either (i) the Company terminates the Employee's employment other than for Cause as defined in Section 4 below or (ii) the Employee terminates his/her employment for "Good Reason" as defined below. -4- 5 (e) For purposes of this Agreement, "Good Reason" is defined as: (i) Removal of the Employee from the position he/she held immediately prior to the Change of Control (by reason other than death, disability or Cause); (ii) The assignment to the Employee of any duties inconsistent with those performed by the Employee immediately prior to the Change of Control or a substantial alteration in the nature or status of the Employee's responsibilities which renders the Employee's position to be of less dignity, responsibility or scope; (iii) A reduction by the Company in the Employee's annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for proportional across-the-board salary reductions similarly affecting all executives of the Company and all executives of any person in control of the Company, provided, however, that in no event shall the Employee's annual base salary be reduced by an amount equal to ten percent or more of the Employee's annual base salary as of the end of the calendar year immediately preceding the year in which the Change of Control occurs, without the Employee's consent; (iv) The failure to grant the Employee an annual salary increase reasonably necessary to maintain such salary as reasonably comparable to salaries of senior executives holding positions equivalent to the Employee's in the industry in which the Company's then principal business activity is conducted; (v) The Company requiring the Employee to be based anywhere other than the Company's principal executive offices in the city in which the Employee is principally located immediately prior to the Change of Control, except for required travel on the Company's business to an extent substantially consistent with the Employee's business travel obligations prior to the Change of Control; (vi) Any material reduction by the Company of the benefits enjoyed by the Employee under any of the Company's pension, retirement, profit sharing, savings, life insurance, medical, health and accident, disability or other employee benefit plans, programs or arrangements, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Employee of any material fringe benefits, or the failure by the Company to provide the Employee with the number of paid vacation days to which he/she is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy, provided that this paragraph (f) shall not apply to -5- 6 any proportional across-the-board reduction or action similarly affecting all executives of the Company and all executives of any person in control of the Company; or (vii) The failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 15 hereof, or any other material breach by the Company of its obligations contained in this Agreement. (f) The Employee's right to Salary and Benefits Continuation shall accrue upon the occurrence of either of the events specified in (i) or (ii) of Section 3(d) and shall continue as provided, notwithstanding the termination or expiration of this Agreement pursuant to Section 1 hereof. The Employee's subsequent employment, death or disability within the thirty-six (36) month period following the Employee's termination of employment in connection with a Change of Control shall not affect the Company's obligation to continue making Salary and Benefits Continuation payments. The Employee shall not be required to mitigate the amount of any payment provided for in this Section 3 by seeking employment or otherwise. The rights to Salary and Benefits Continuation shall be in addition to whatever other benefits the Employee may be entitled to under any other agreement or compensation plan, program or arrangement of the Company; provided, that the Employee shall not be entitled to any separate or additional severance payments pursuant to the Company's severance plan as then in effect and generally applicable to similarly situated employees. The Company shall be authorized to withhold from any payment to the Employee, his/her estate or his/her beneficiaries hereunder all such amounts, if any, that the Company may reasonably determine it is required to withhold pursuant to any applicable law or regulation. 4. Termination of Employee for Cause. (a) Upon or following a Change of Control, the Company may at any time terminate the Employee's employment for Cause. Termination of employment by the Company for "Cause" shall mean termination upon: (i) the willful and continued failure by the Employee to substantially perform his/her duties with the Company (other than (A) any such failure resulting from Employee's disability or (B) any such actual or anticipated failure resulting from Employee's termination of his/her employment for Good Reason), after a written demand for substantial performance is delivered to the Employee by the Board of Directors which specifically identifies the manner in which the Board of Directors believes that the Employee has not substantially performed his/her duties, and which failure has not been cured within thirty days (30) after such written demand; or (ii) the willful and continued engaging by the Employee in conduct which is demonstrably and -6- 7 materially injurious to the Company, monetarily or otherwise, or (iii) the breach by the Employee of the confidentiality provision set forth in Section 8 hereof. (b) For purposes of this Section 4, no act, or failure to act, on the Employee's part shall be considered "willful" unless done, or omitted to be done, by the Employee in bad faith and without reasonable belief that such action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him/her a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for that purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with his/her counsel, to be heard before the Board of Directors) finding that in the good faith opinion of the Board of Directors the Employee is guilty of the conduct set forth above in clauses (a)(i), (ii) or (iii) of this Section 4 and specifying the particulars thereof in detail. 5. Prior Termination. Anything in this Agreement to the contrary notwithstanding, if the Employee's employment with the Company is terminated prior to the date on which a Change of Control occurs either (i) by the Company other than for Cause or (ii) by the Employee for Good Reason, and it is reasonably demonstrated by Employee that such termination of employment (a) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control, or (b) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the termination shall be deemed to have occurred upon a Change of Control and the Employee will be entitled to Salary and Benefits Continuation as provided for in Section 3 hereof. 6. Employment at Will. Subject to the provisions of any other agreement between the Employee and the Company, the Employee shall remain an employee at will and nothing herein shall confer upon the Employee any right to continued employment and shall not affect the right of the Company to terminate the Employee for any reason not prohibited by law; provided, however, that any such removal shall be without prejudice to any rights the Employee may have to Salary and Benefits Continuation hereunder. 7. Construction of Agreement. (a) Governing Law. This Agreement shall be governed by and construed under the laws of the Commonwealth of Pennsylvania without regard to its conflict of law provisions. (b) Severability. In the event that any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, -7- 8 legality or enforceability of the remaining provisions shall not in any way be affected or impaired thereby. (c) Headings. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience of reference only and shall not constitute a part of this Agreement. 8. Covenant as to Confidential Information. (a) Confidentiality of Information and Nondisclosure. The Employee acknowledges and agrees that his/her employment by the Company under this Agreement necessarily involves his/her knowledge of and access to confidential and proprietary information pertaining to the business of the Company and its subsidiaries. Accordingly, the Employee agrees that at all times during the term of this Agreement and for a period of two (2) years after the termination of the Employee's employment hereunder, he/she will not, directly or indirectly, without the express written authority of the Company, unless directed by applicable legal authority having jurisdiction over the Employee, disclose to or use, or knowingly permit to be so disclosed or used, for the benefit of himself/herself, any person, corporation or other entity other than the Company, (i) any information concerning any financial matters, customer relationships, competitive status, supplier matters, internal organizational matters, current or future plans, or other business affairs of or relating to the Company and its subsidiaries, (ii) any management, operational, trade, technical or other secrets or any other proprietary information or other data of the Company or its subsidiaries, or (iii) any other information related to the Company or its subsidiaries or which the Employee subsidiaries which has not been published and is not generally known outside of the Company. The Employee acknowledges that all of the foregoing, constitutes confidential and proprietary information, which is the exclusive property of the Company. (b) Company Remedies. The Employee acknowledges and agrees that any breach of this Agreement by him/her will result in immediate irreparable harm to the Company, and that the Company cannot be reasonably or adequately compensated by damages in an action at law. In the event of an actual or threatened breach by the Employee of the provisions of this Section 8, the Company shall be entitled, to the extent permissible by law, immediately to cease to pay or provide the Employee or his/her dependents any compensation or benefit being, or to be, paid or provided to him pursuant to Section 3 of this Agreement, and also to obtain immediate injunctive relief restraining the Employee from conduct in breach or threatened breach of the covenants contained in this Section 8. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee. -8- 9 9. Reimbursement of Fees. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest by the Company, Internal Revenue Service or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Employee about the amount of any payment pursuant to Section 3 of this Agreement) or in connection with any dispute arising from this Agreement, regardless of whether Employee prevails in any such contest or dispute. 10. Tax Gross-Up. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") (i) would be subject to the excise tax imposed by section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to the excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax") or (ii) is made pursuant to a Change In Control, then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed on the payment and Gross-Up Payment, the Employee retains an amount equal to (x) the Payment plus (y) the Excise Tax (if any) imposed upon the Payment and Gross-Up Payment. (b) Subject to the provisions of Section 10(c), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by a nationally recognized accounting firm designated by the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days after there has been a Payment, or such earlier time as requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of section 4999 of the Code at the time of the initial -9- 10 determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 10(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) 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; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to 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. Without limitation on the foregoing provisions of this Section 10(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in -10- 11 respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; 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; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 10(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 10) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 10(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. (e) The payments provided for in this Section 10 hereof shall be made not later than the tenth (10th) day following the termination of the Executive's employment; provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Executive of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the termination of the Executive's employment. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been -11- 12 due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). In the event the Company should fail to pay when due the amounts described in this Section 10, the Executive shall also be entitled to receive from the Company an amount representing interest on any unpaid or untimely paid amounts from the due date, as determined under this Section 10, to the date of payment at a rate equal to 120% of the rate provided in section 1274(b)(2)(B) of the Code. 11. Resolution of Differences Over Breaches of Agreement. Except as otherwise provided herein, in the event of any controversy, dispute or claim arising out of, or relating to this Agreement, or the breach thereof, or arising out of any other matter relating to the Employee's employment with the Company or the termination of such employment, the parties may seek recourse only for temporary or preliminary injunctive relief to the courts having jurisdiction thereof and if any relief other than injunctive relief is sought, the Company and the Employee agree that such underlying controversy, dispute or claim shall be settled by arbitration conducted in Pittsburgh, Pennsylvania in accordance with this Section 11 of this Agreement and the Commercial Arbitration Rules of the American Arbitration Association ("AAA"). The matter shall be heard and decided, and awards rendered by a panel of three (3) arbitrators (the "Arbitration Panel"). The Company and the Employee shall each select one arbitrator from the AAA National Panel of Commercial Arbitrators (the "Commercial Panel") and AAA shall select a third arbitrator from the Commercial Panel. The award rendered by the Arbitration Panel shall be final and binding as between the parties hereto and their heirs, executors, administrators, successors and assigns, and judgment on the award may be entered by any court having jurisdiction thereof. 12. Treatment of Certain Incentive Awards. All "Awards" held by the Employee under the Company's 1994 Long-Term Incentive Plan (the "1994 Plan"), the Company's 1999 Long-Term Incentive Plan (the "1999 Plan") or the Company's Breakthrough Long-Term Incentive Plan (the "Breakthrough Plan") shall, upon a Change of Control, be treated in accordance with the terms of those Plans as in effect on the date of this Agreement, without regard to the subsequent amendment of those Plans. For purposes of this Section 12, the terms "Award" and "Change of Control" shall have the meanings ascribed to them in the 1999 Plan, the 1994 Plan and the Breakthrough Plan, as the case may be. 13. Release. The Employee hereby acknowledges and agrees that prior to the Employee's or his/her dependents' right to receive from the Company any compensation or benefit to be paid or provided to him/her or his/her dependents pursuant to Section 3 of this Agreement, the Employee may be required by the Company, in its sole discretion, to execute a release in a form reasonably acceptable to the Company, which releases any and all claims (other than amounts to be paid to Employee as expressly provided for under this Agreement) the Employee has or may have against the Company or its subsidiaries, agents, officers, directors, successors or assigns arising under any public -12- 13 policy, tort or common law or any provision of state, federal or local law, including, but not limited to, the Pennsylvania Human Relations Act, the Americans with Disabilities Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Protection Act, Family and Medical Leave Act, the Fair Labor Standards Act, or the Age Discrimination in Employment Act of 1967. 14. Waiver. The waiver by a party hereto of any breach by the other party hereto of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by a party hereto. 15. Assignment. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. The Company shall be obligated to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the Company's business or assets, by a written agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no succession had taken place. This Agreement shall inure to the extent provided hereunder to the benefit of and be enforceable by the Employee or his/her legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. The Employee may not delegate any of his/her duties, responsibilities, obligations or positions hereunder to any person and any such purported delegation by him shall be void and of no force and effect with respect to matters relating to his/her employment and termination of employment. Without limiting the foregoing, the Employee's rights to receive payments and benefits hereunder shall not be assignable or transferable, other than a transfer by Employee's will or by the laws of descent and distribution. 16. Notices. Any notices required or permitted to be given under this Agreement shall be sufficient if in writing, and if personally delivered or when sent by first class certified or registered mail, postage prepaid, return receipt requested -- in the case of the Employee, to his/her residence address as set forth below, and in the case of the Company, to the address of its principal place of business as set forth below, in care of the Chairman of the Board -- or to such other person or at such other address with respect to each party as such party shall notify the other in writing. 17. Pronouns. Pronouns stated in either the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. 18. Entire Agreement. This Agreement contains the entire agreement of the parties concerning the matters set forth herein and all promises, representations, understandings, arrangements and prior agreements regarding the subject matter hereof (including the Existing Agreements, which the parties agree shall terminate as of the Effective Date hereof) are merged herein and superseded hereby; provided that any noncompetition agreement shall not be merged or superseded but shall remain in full force and effect. -13- 14 The provisions of this Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of any amendment, modification, repeal, waiver, extension or discharge is sought. No person acting other than pursuant to a resolution of the Board of Directors shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto or to exercise any of the Company's rights to terminate or to fail to extend this Agreement. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto duly authorized, and the Employee has hereunto set his/her hand, all as of the day and year first above written. ATTEST: EQUITABLE RESOURCES, INC. /s/ Jean F. Marks By: /s/ Gregory R. Spencer - ---------------------------- ---------------------------- Jean F. Marks Gregory R. Spencer Senior Vice President and Chief Administrative Officer Address: One Oxford Centre Suite 3300 Pittsburgh, PA 15219 WITNESS: /s/ M. Zatezalo /s/ Johanna G. O'Loughlin - ---------------------------- ---------------------------- M. Zatezalo Johanna G. O'Loughlin Address: 9 Dunmoyle Place ---------------------------- Pittsburgh, PA 15217 ---------------------------- -14- EX-10.19 17 NONCOMPETE AGREEMENT 1 Exhibit 10.19 NONCOMPETE AGREEMENT This Agreement is made as of December 1, 1999 by and between Equitable Resources, Inc., a Pennsylvania corporation (Equitable Resources, Inc. and its majority-owned subsidiaries are hereinafter collectively referred to as the "Company"), and Johanna G. O'Loughlin (the "Employee"). WITNESSETH: WHEREAS, in order to protect the business and goodwill of the Company, the Company desires to obtain certain non-competition covenants from the Employee and the Employee desires to agree to such covenants in exchange for the Company's agreement to pay certain severance benefits in the event that the Employee's employment with the Company is terminated in certain events; and WHEREAS, the Employee is willing to enter into this Agreement, which contains, among other things, specific non-competition agreements, in consideration of the simultaneous execution by the Company and the Employee of a new Change of Control Agreement (the "Change of Control Agreement"), which enhances and clarifies in certain respects the benefits that the Company will pay to the Employee if the Employee's employment with the Company is terminated in certain events following a change of control of the Company. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. If the employment of the Employee with the Company is terminated by the Company for any reason other than Cause (as defined below) or if the Employee terminates his or her employment with the Company for Good Reason (as defined below), the Company shall pay the Employee, from the date of termination, in addition to any payments to which the Employee is entitled under the Company's severance pay plan, twenty-four (24) months of base salary at the Employee's annual base salary level in effect at the time of such termination or immediately prior to the salary reduction that serves as the basis for termination for Good Reason. Employee will also be entitled to twenty-four (24) months of health benefits continuation and outplacement assistance for a period not to exceed twelve (12) months. Such base salary amount shall be paid by the Company to the Employee in one lump sum payable within thirty (30) days after the Employee's termination or resignation hereunder. Solely for purposes of this Agreement, "Cause" shall mean (i) a conviction of a felony, a crime of moral turpitude or fraud, (ii) the Employee's willful and continuous engagement in conduct which is demonstrably and materially injurious to the Company, or (iii) the willful and continued refusal by the Employee to perform the duties of his or her position in a reasonable manner for thirty (30) days after written notice is given to the Employee by the Company specifying in reasonable detail the nature of the deficiency in the Employee's performance. Solely for purposes of this Agreement, termination for "Good Reason" shall mean termination of employment by the Employee within ninety (90) days after (i) being demoted, or (ii) being given notice of a reduction in his or her annual base salary (other than a reduction of not more than 10% applicable to all senior officers of the Company). 2 2. While the Employee is employed by the Company and for a period of twelve (12) months after date of Employee's termination of employment with Company for any reason, the Employee shall not (i) directly or indirectly engage, whether as an employee, consultant, partner, owner, agent, stockholder, officer, director or otherwise, alone or in association with any other person or entity, in (A) the energy industry, including the production, transmission, distribution and marketing of oil, natural gas or electricity and the provision of related energy services (including project development and engineering analysis, construction management, project financing, equipment operation and maintenance, energy savings metering, monitoring and verification, and facilities management (developing and operating private power, cogeneration and central plant facilities)) anywhere in the continental United States (including the Gulf of Mexico), Central America or South America, except that the restriction as to the regulated distribution of oil, natural gas or electricity shall be limited to the markets in which the Company conducted such business or contemplated (with the Employee's knowledge) conducting such business at the time of the termination of Employee's employment, or (B) any business activity that competes with any project or proposed project which was discussed by or with the Employee in the course of his or her employment with the Company or any project or proposed project with respect to which the Company initiated any business activity during the course of his or her employment (for purposes of this subsection (i) employment or engagement by a customer of the Company to provide or manage services that are provided by the Company shall be deemed to violate this subsection (i)); (ii) directly or indirectly on his or her own behalf or on behalf of any other person or entity contact (A) any customer of the Company with whom he or she had contact while employed by the Company, or (B) any person or entity to whom he or she attempted to market the Company's products and services while employed by the Company, in either case, for the purpose of soliciting the purchase of any product or service that competes with any product or service offered by the Company or which was considered to be offered by the Company while the Employee was employed by the Company; (iii) take away or interfere, or attempt to interfere, with any custom, trade or existing contractual relations of the Company, including any business project or any contemplated business project which representatives of the Company have discussed with any potential participant in such project; or (iv) directly or indirectly on his or her own behalf or on behalf of any other person or entity solicit or induce, or cause any other person or entity to solicit or induce, or attempt to induce, any employee or consultant to leave the employ of or engagement by the Company or its successors, assigns, or affiliates, or to violate the terms of their contracts with the Company. 3. The Company may terminate this Agreement by giving twenty-four (24) months' prior written notice to the Employee; provided that all provisions of this Agreement shall apply if any event specified in sections 1 or 2 occurs prior to the expiration of such twenty-four (24) month period. Notwithstanding anything in this Agreement to the contrary, upon the occurrence of a Change of Control as such term is defined in the Change of Control Agreement, this Agreement shall remain in full force and effect and may not thereafter be terminated (even if notice of termination has been given in the previous twenty-four (24) months under the first sentence of this paragraph), except upon written notice by Employee to the Company. If Employee receives payment of benefits under the Change of Control Agreement, she shall not receive benefits under this Agreement which shall thereupon terminate and be of no further force or effect. -2- 3 4. The provisions of this Agreement are severable. To the extent that any provision of this Agreement is deemed unenforceable in any court of law the parties intend that such provision be construed by such court in a manner to make it enforceable. 5. The Employee acknowledges and agrees that: (i) this Agreement is necessary for the protection of the legitimate business interests of the Company; (ii) the restrictions contained in this Agreement are reasonable; (iii) the Employee has no intention of competing with the Company within the limitations set forth above; (iv) the Employee acknowledges and warrants that Employee believes that Employee will be fully able to earn an adequate likelihood for Employee and Employee's dependents if the covenant not to compete contained in this Agreement is enforced against the Employee; and (v) the Employee has received adequate and valuable consideration for entering into this Agreement. 6. The Employee stipulates and agrees that any breach of this Agreement by the Employee will result in immediate and irreparable harm to the Company, the amount of which will be extremely difficult to ascertain, and that the Company could not be reasonably or adequately compensated by damages in an action at law. For these reasons, the Company shall have the right, without objection from the Employee, to obtain such preliminary, temporary or permanent mandatory or restraining injunctions, orders or decrees as may be necessary to protect the Company against, or on account of, any breach by the Employee of the provisions of Section 2 hereof. In the event the Company obtains any such injunction, order, decree or other relief, in law or in equity, (i) the duration of any violation of Section 2 shall be added to the 12 month restricted period specified in Section 2, and (ii) the Employee shall be responsible for reimbursing the Company for all costs associated with obtaining the relief, including reasonable attorneys' fees and expenses and costs of suit. Such right to equitable relief is in addition to the remedies the Company may have to protect its rights at law, in equity or otherwise. 7. This Agreement (including the covenant not to compete contained in Section 2) shall be binding upon and inure to the benefit of the successors and assigns of the Company. 8. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. For the purpose of any suit, action or proceeding arising out of or relating to this Agreement, Employee irrevocably consents and submits to the jurisdiction and venue of any state or federal court located in Allegheny County, Pennsylvania. Employee agrees that service of the summons and complaint and all other process which may be served in any such suit, action or proceeding may be effected by mailing by registered mail a copy of such process Employee at the addresses set forth below. Employee irrevocably waives any objection which they may now or hereafter have to the venue of any such suit, action or proceeding brought in such court and any claim that such suit, action or proceeding brought in such court has been brought in an inconvenient forum and agrees that service of process in accordance with this Section will be deemed in every respect effective and valid personal service of process upon Employee. Nothing in this Agreement will be construed to prohibit service of process by any other method permitted by law. The provisions of this Section will not limit or otherwise affect the right of the Company to institute and conduct an action in any other appropriate manner, jurisdiction or court. The Employee agrees that final judgment in such suit, action or proceeding will be conclusive and may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law. -3- 4 9. This Agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written (other than the Change of Control Agreement). This Agreement may not be changed, amended, or modified, except by a written instrument signed by the parties. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto duly authorized, and the Employee has hereunto set his hand, all as of the day and year first above written. ATTEST: EQUITABLE RESOURCES, INC. /s/ Jean F. Marks By: /s/ Gregory R. Spencer - ----------------------------- ---------------------------------- Jean F. Marks Gregory R. Spencer WITNESS: EMPLOYEE: /s/ M. Zatezalo /s/ Johanna G. O'Loughlin - ----------------------------- ------------------------------------- M. Zatezalo Johanna G. O'Loughlin -4- EX-10.20(E) 18 DIRECTORS' DEFERRED COMPENSATION PLAN 1 Exhibit 10.20(e) [EQUITABLE RESOURCES LOGO] DIRECTORS' DEFERRED COMPENSATION PLAN 2000 ENROLLMENT AND DISTRIBUTION ELECTION FORM PERSONAL INFORMATION Name: Paul Christiano SS #: ###-##-#### ------------------------------- --------------------------- Address: 2176 Truxton Drive ------------------------------- Upper St. Clair, PA 15241-2230 ------------------------------- DEFERRAL ELECTION In accordance with the Equitable Resources, Inc. Directors' Deferred Compensation Plan, I hereby elect to defer: a. 100% of retainer ------ b. 100% of board meeting fees ------ c. 100% of committee meeting fees ------ INVESTMENT ELECTION I request that my deferrals in the Equitable Resources, Inc. Directors' Deferred Compensation Plan be credited as follows: Equitable Resources Common Stock ------- Putnam International Growth 50% ------- Putnam Voyager Fund 50% ------- Putnam Fund for Growth & Income ------- George Putnam Fund ------- Putnam Stable Value Fund ------- Putnam Income Fund ------- Putnam Asset Alloc. Growth Fund ------- Putnam Asset Alloc. Balanced Fund ------- Putnam Asset Alloc. Conservative Fund ------- Total (must equal 100%) 100% ------- DISTRIBUTION OPTIONS 1. PHANTOM STOCK ACCOUNT Post-Service Distribution: I understand that the Plan provides that I will receive a one-time distribution from the Plan following termination of my services on the Board of Directors of Equitable Resources unless I elect another alternative. Any such election or change in a prior election must be made at least one year before service as a Director actually ends. I also understand that changes in tax regulations, or their interpretation, could result in Plan changes which would eliminate my right to later file a change of election. In that context, an election now is optional but I may not later have an opportunity to make an election. Optional - I elect that amounts credited to my Account under the Plan be distributed to me: [X] in a single distribution, or [ ] in five (5) annual installments; [ ] in ten (10) annual installments; [ ] in fifteen (15) annual installments. 2 2. DEFERRAL ACCOUNT A. Post-Service Distribution: I understand that the Plan provides that I will receive a lump sum payment from the Plan following termination of my services on the Board of Directors of Equitable Resources unless I elect another alternative. Any such election or change in a prior election must be made at least one year before service as a Director actually ends. I also understand that changes in tax regulations, or their interpretation, could result in Plan changes which would eliminate my right to later file a change of election. In that context, an election now is optional but I may not later have an opportunity to make an election. Optional - I elect that amounts credited to my Account under the Plan be paid to me: [X] in a lump sum, or [ ] in five (5) annual installments; [ ] in ten (10) annual installments; [ ] in fifteen (15) annual installments. or B. In-Service Distribution: I want an In-Service Distribution to commence distribution of amounts credited to my account under the Plan as of January, ______ (must be later than 2001), provided such date occurs before by termination of service. I elect that amounts credited to my Account under the Plan be paid to me: [ ] in a lump sum, or [ ] in five (5) annual installments; [ ] in ten (10) annual installments; [ ] in fifteen (15) annual installments. ACKNOWLEDGMENT: I hereby acknowledge that my election to defer Compensation under the Plan is irrevocable with respect to amounts which are deferred under the Plan. SIGNATURE /s/ Paul Christiano 29 November 1999 - -------------------------------- ------------------------------- Signed Paul Christiano Date Received by the Corporate Secretary on: December 2 , 1999 ------------------------- ------ By: /s/ Jean F. Marks ---------------------------------------------- Jean F. Marks EX-10.20(E) 19 DIRECTORS' DEFERRED COMPENSATION PLAN 1 Exhibit 10.21(e) [EQUITABLE RESOURCES LOGO] DIRECTORS' DEFERRED COMPENSATION PLAN 2000 ENROLLMENT AND DISTRIBUTION ELECTION FORM PERSONAL INFORMATION Name: Phyllis A. Domm SS #: ###-##-#### ------------------------------- --------------- Address: 850 Coachway ------------------------------- Annapolis, MD 21401 ------------------------------- DEFERRAL ELECTION In accordance with the Equitable Resources, Inc. Directors' Deferred Compensation Plan, I hereby elect to defer: a. 100% of retainer ------ b. 100% of board meeting fees ------ c. 100% of committee meeting fees ------ INVESTMENT ELECTION I request that my deferrals in the Equitable Resources, Inc. Directors' Deferred Compensation Plan be credited as follows: Equitable Resources Common Stock ------- Putnam International Growth ------- Putnam Voyager Fund ------- Putnam Fund for Growth & Income ------- George Putnam Fund ------- Putnam Stable Value Fund 100% ------- Putnam Income Fund ------- Putnam Asset Alloc. Growth Fund ------- Putnam Asset Alloc. Balanced Fund ------- Putnam Asset Alloc. Conservative Fund ------- Total (must equal 100%) 100% ------- DISTRIBUTION OPTIONS 1. PHANTOM STOCK ACCOUNT Post-Service Distribution: I understand that the Plan provides that I will receive a one-time distribution from the Plan following termination of my services on the Board of Directors of Equitable Resources unless I elect another alternative. Any such election or change in a prior election must be made at least one year before service as a Director actually ends. I also understand that changes in tax regulations, or their interpretation, could result in Plan changes which would eliminate my right to later file a change of election. In that context, an election now is optional but I may not later have an opportunity to make an election. Optional - I elect that amounts credited to my Account under the Plan be distributed to me: [ ] in a single distribution, or [X] in five (5) annual installments; [ ] in ten (10) annual installments; [ ] in fifteen (15) annual installments. 2 2. DEFERRAL ACCOUNT A. Post-Service Distribution: I understand that the Plan provides that I will receive a lump sum payment from the Plan following termination of my services on the Board of Directors of Equitable Resources unless I elect another alternative. Any such election or change in a prior election must be made at least one year before service as a Director actually ends. I also understand that changes in tax regulations, or their interpretation, could result in Plan changes which would eliminate my right to later file a change of election. In that context, an election now is optional but I may not later have an opportunity to make an election. Optional - I elect that amounts credited to my Account under the Plan be paid to me: [ ] in a lump sum, or [X] in five (5) annual installments; [ ] in ten (10) annual installments; [ ] in fifteen (15) annual installments. or B. In-Service Distribution: I want an In-Service Distribution to commence distribution of amounts credited to my account under the Plan as of January, ______ (must be later than 2001), provided such date occurs before by termination of service. I elect that amounts credited to my Account under the Plan be paid to me: [ ] in a lump sum, or [ ] in five (5) annual installments; [ ] in ten (10) annual installments; [ ] in fifteen (15) annual installments. ACKNOWLEDGMENT: I hereby acknowledge that my election to defer Compensation under the Plan is irrevocable with respect to amounts which are deferred under the Plan. SIGNATURE /s/ Phyllis A. Domm 11/30/99 - ----------------------------------- ------------------------------- Signed Phyllis A. Domm Date Received by the Corporate Secretary on: December 2 , 1999 ------------------------- ------ By: /s/ Jean F. Marks ------------------------------------------------------- Jean F. Marks EX-10.23 20 RELEASE AGREEMENT 1 Exhibit 10.23 RELEASE AGREEMENT This Release Agreement is made this 8th day of December, 1999 by and between Equitable Resources, Inc., a Pennsylvania corporation having a business address at One Oxford Centre, Suite 3300, Pittsburgh, Pennsylvania 15219 (the "Company") and John C. Gongas, Jr. ("the Employee"). WITNESSETH WHEREAS, the Company and the Employee are parties to a Non-Competition Agreement under which execution of this Release Agreement by Employee is a condition to and consideration for payment by the Company of the amounts referenced in Paragraph 2 of the Non-Competition Agreement; and WHEREAS, the parties desire to settle any and all matters relating to Employee's employment and the termination thereof; NOW, THEREFORE, the Company and Employee, in consideration of the premises, covenants and agreements contained herein and each intending to be legally bound, agree as follows: 1. The employment of the Employee will be terminated as set forth in the Employment Agreement ("termination date"). 2. This Release Agreement is not, and should not be construed as, an allegation or admission on the part of either Employee or the Company that either of them has acted unlawfully or has violated any federal, state or local law, rule or regulation. 3. Except as otherwise provided in Paragraph 6 hereof, in return for the consideration described in the preamble hereto, Employee, on behalf of himself and his heirs, executors, representatives, estates and assigns, voluntarily and irrevocably releases the Company, is subsidiaries, predecessors, affiliates, shareholders, and their respective officers, directors, employees, agents, attorneys, successors and assigns (severally and collectively called "Releasees") from any and all claims (known and unknown) which Employee has or might have against any of the Releasees arising in any manner at any time up to the effective date of this Release Agreement. This release includes, without limitation, claims which Employee has or might have involving his employment with any of the Releasees, the termination of that employment or its timing or the terms and conditions of that employment. This includes, without limitation, any claim arising under any constitution, law, statute, ordinance, regulation, rule, guideline, or common-law theory, and specifically all claims arising under all state, federal or local employment discrimination or wrongful discharge laws, regulations or common-law theories, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Employee Retirement Income Security Act of 1974, the Americans With Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, and the Pennsylvania Human Relations Act, as well as any claim for breach of contract or wrongful 1 2 discharge or otherwise for any reason arising prior to the effective date of this Agreement. Employee also releases all Releasees from any and all claims for the fees, costs and expenses of any attorneys who have at any time represented Employee (or are now representing Employee) in connection with this Agreement or in connection with any matter released in this Agreement. 4. Employee agrees not to file a lawsuit against any of the Releasees in any court of the United States or any State thereof concerning any matter released in this Release Agreement. Notwithstanding any other language in this Release Agreement, the parties understand that this Release Agreement does not prohibit Employee from filing an administrative charge of alleged employment discrimination under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990 or the Equal Pay Act of 1963. Employee, however, waives his right to monetary or other recovery should any federal, state or local administrative agency pursue any claims on his behalf arising out of or relating to his employment with and/or separation from employment with any of the Releasees. THIS MEANS THAT BY SIGNING THIS RELEASE AGREEMENT, EMPLOYEE WILL HAVE WAIVED ANY RIGHT HE HAD TO BRING A LAWSUIT OR OBTAIN A RECOVERY IF AN ADMINISTRATIVE AGENCY PURSUES A CLAIM AGAINST ANY OF THE RELEASEES BASED ON ANY ACTIONS TAKEN BY ANY OF THE RELEASEES UP TO THE DATE OF THE SIGNING OF THIS RELEASE AGREEMENT, AND THAT EMPLOYEE WILL HAVE RELEASED THE RELEASEES OF ANY AND ALL CLAIMS OF ANY NATURE ARISING UP TO THE DATE OF THE SIGNING OF THIS AGREEMENT. 5. If Employee files suit against any of the Releasees in breach of the release and covenant not to sue, then Employee shall pay to the Company all attorneys' fees and expenses incurred by the Company in connection therewith plus interest at the legal rate. This provision is not intended to limit Employee's liability to the Company if the actual damages to the Company exceed these costs. 6. Notwithstanding the foregoing release and covenant not to sue, Employee shall be entitled to receive those payments and benefits as described in Paragraphs 3 through 6 of the Employment Agreement. 7. Employee acknowledges that Employee has been advised to consult with an attorney about this Agreement prior to signing it and that Employee has had a full and fair opportunity to consult with an attorney if Employee desired to do so. Employee further acknowledges that Employee had been given at least 21 calendar days in which to consider this Agreement and to make a decision as to whether to accept it. 8. Within seven (7) calendar days after signing this Release Agreement, Employee may change his mind and revoke his acceptance by delivering a revocation in writing to Equitable Resources, Inc., 420 Boulevard of the Allies, Pittsburgh, Pennsylvania 15219, Attention: Gene D. Musial -- Director, Human resources. This Release Agreement shall not become effective or enforceable until that seven-day revocation period has expired. 9. except for the Non-Competition Agreement and the Employment Agreement, this Release Agreement contains the entire agreement of the parties relating to Employee's employment and termination of employment. There are no representations or terms relating thereto other than those set forth in this written Release Agreement. This Release Agreement 2 3 and the rights of the parties relating to the subject matter hereof shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. 10. If any of the provisions of this Release Agreement are declared or determined by any court to be invalid or unenforceable for any reason, the remaining provisions and portions of this Release Agreement -- at the company's sole option -- shall be unaffected thereby and shall remain in full force to the fullest extent permitted by law. 11. EMPLOYEE ACKNOWLEDGES THAT EMPLOYEE HAS CAREFULLY READ AND FULLY UNDERSTANDS ALL OF THE PROVISIONS OF THIS RELEASE AGREEMENT, AND THAT EMPLOYEE IS VOLUNTARILY EXECUTING AND ENTERING INTO THIS RELEASE AGREEMENT, WITH FULL KNOWLEDGE OF ITS SIGNIFICANCE AND INTENDING TO BE LEGALLY BOUND BY IT. IN WITNESS WHEREOF, the Company has caused this Release Agreement to be executed by its officers thereunto duly authorized, and the Employee has hereunto set his hand, all as of the day and year first above written. ATTEST: EQUITABLE RESOURCES, INC. /s/ Vanessa J. Lombardo /s/ Gregory R. Spencer - ------------------------- -------------------------- Vanessa J. Lombardo Gregory R. Spencer Senior Vice President and Chief Administrative Officer WITNESS: EMPLOYEE: /s/ Deborah Patterson /s/ John C. Gongas, Jr. - ------------------------- -------------------------- Deborah Patterson John C. Gongas, Jr. 3 EX-21 21 SUBSIDIARIES 1 Exhibit 21
SUBSIDIARIES OF THE REGISTRANT AS OF STATE OF ADDITIONAL NAMES UNDER WHICH SUCH DECEMBER 31, 1999 INCORPORATION SUBSIDIARY DOES BUSINESS - --------------------------------------------------------------------------------------------------------------- 1 CARNEGIE GAS STORAGE, LLC Delaware - --------------------------------------------------------------------------------------------------------------- 2 CARNEGIE INTERSTATE PIPELINE COMPANY Delaware - --------------------------------------------------------------------------------------------------------------- 3 CARNEGIE NATURAL GAS COMPANY Pennsylvania - --------------------------------------------------------------------------------------------------------------- 4 CARNEGIE NATURAL GAS SALES, INC. Delaware - --------------------------------------------------------------------------------------------------------------- 5 CARNEGIE PRODUCTION COMPANY Pennsylvania - --------------------------------------------------------------------------------------------------------------- 6 EQT CAPITAL CORPORATION Delaware - --------------------------------------------------------------------------------------------------------------- 7 EQT CAPITAL CORPORATION III Delaware - --------------------------------------------------------------------------------------------------------------- 8 EQUITABLE ENERGY, LLC Delaware Equitable Energy Equitable Energy Enterprises ERI Energy - --------------------------------------------------------------------------------------------------------------- 9 EQUITABLE GAS COMPANY Pennsylvania - --------------------------------------------------------------------------------------------------------------- 10 EQUITABLE PRODUCTION (GULF) COMPANY Delaware - --------------------------------------------------------------------------------------------------------------- 11 EQUITABLE PRODUCTION COMPANY West Virginia - --------------------------------------------------------------------------------------------------------------- 12 EQUITRANS, L.P. Pennsylvania - --------------------------------------------------------------------------------------------------------------- 13 EREC NEVADA, INC. Nevada - --------------------------------------------------------------------------------------------------------------- 14 ERI COSTA RICA LDC Cayman Islands - --------------------------------------------------------------------------------------------------------------- 15 ERI GLOBAL PARTNERS, INC. Delaware - --------------------------------------------------------------------------------------------------------------- 16 ERI GROUP LDC Cayman Islands - --------------------------------------------------------------------------------------------------------------- 17 ERI HOLDINGS Cayman Islands - --------------------------------------------------------------------------------------------------------------- 18 ERI HOLDINGS II Cayman Islands - --------------------------------------------------------------------------------------------------------------- 19 ERI INVESTMENTS, INC. Delaware - --------------------------------------------------------------------------------------------------------------- 20 ERI JAM, LLC Delaware - --------------------------------------------------------------------------------------------------------------- 21 ERI PROVIDENCE, L.L.C. Delaware - --------------------------------------------------------------------------------------------------------------- 22 ERI SERVICES (ST. LUCIA) LIMITED West Indies - --------------------------------------------------------------------------------------------------------------- 23 ERI SERVICES CANADA LTD. Canada - --------------------------------------------------------------------------------------------------------------- 24 ERI SERVICES, INC. Delaware Equitable Resources Services, Inc. - --------------------------------------------------------------------------------------------------------------- 25 ERI-INDEPENDENT ENERGY GROUP-HONDURAS LDC Cayman Islands - --------------------------------------------------------------------------------------------------------------- 26 ET AVOCA COMPANY Delaware - --------------------------------------------------------------------------------------------------------------- 27 ET BLUE GRASS COMPANY Delaware - --------------------------------------------------------------------------------------------------------------- 28 IEC HUNTERDON, INC. Connecticut - --------------------------------------------------------------------------------------------------------------- 29 IEC MANAGEMENT SERVICES, INC. Connecticut - --------------------------------------------------------------------------------------------------------------- 30 IEC MONTCLAIR, INC. Connecticut - --------------------------------------------------------------------------------------------------------------- 31 IEC PLYMOUTH, INC. Connecticut - --------------------------------------------------------------------------------------------------------------- 32 INDEPENDENT ENERGY CORPORATION Connecticut - --------------------------------------------------------------------------------------------------------------- 33 INDEPENDENT ENERGY FINANCE CORPORATION Connecticut - --------------------------------------------------------------------------------------------------------------- 34 INDEPENDENT ENERGY OPERATIONS, INC. Connecticut - --------------------------------------------------------------------------------------------------------------- 35 KENTUCKY WEST VIRGINIA GAS COMPANY, L.L.C. Delaware - --------------------------------------------------------------------------------------------------------------- 36 NORA TRANSMISSION COMPANY Delaware - --------------------------------------------------------------------------------------------------------------- 37 NORTHEAST ENERGY SERVICES, INC. Delaware Noresco - --------------------------------------------------------------------------------------------------------------- 38 THREE RIVERS PIPELINE CORPORATION Texas - ---------------------------------------------------------------------------------------------------------------
EX-23 22 CONSENT OF INDEPENDENT AUDITORS 1 Exhibit 23 Consent of Independent Auditors We consent to the incorporation by reference of our report dated February 14, 2000, with respect to the consolidated financial statements and schedule of Equitable Resources, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 1999 in the Prospectus part of the following Registration Statements: o Registration Statement No. 33-52151 on Form S-8 pertaining to the 1994 Equitable Resources, Inc. Long-Term Incentive Plan; o Registration Statement No. 33-52137 on Form S-8 pertaining to the 1994 Equitable Resources, Inc. Non-Employee Directors' Stock Incentive Plan; o Registration Statement No. 33-53703 on Form S-3 pertaining to the registration of $100,000,000 Medium-Term Notes, Series C of Equitable Resources, Inc.; o Post-effective Amendment No. 1 to Registration Statement No. 33-00252 on Form S-8 pertaining to the Equitable Resources, Inc. Employee Savings Plan; o Registration Statement No. 333-01879 on Form S-8 pertaining to the Equitable Resources, Inc. Employee Stock Purchase Plan; o Registration Statement No. 333-22529 on Form S-8 pertaining to the Equitable Resources, Inc. Employee Savings and Protection Plan; o Registration Statement No. 333-20323 on Form S-3 pertaining to the registration of 164,345 shares of Equitable Resources, Inc. common stock. o Registration Statement No. 333-32197 on Form S-8 pertaining to the Equitable Resources, Inc. Nonstatutory Stock Option Plan. o Registration Statement No. 333-06839 on Form S-3 pertaining to the registration of $168,000,000 of debt securities of Equitable Resources, Inc. o Registration Statement No. 333-82193 on Form S-8 pertaining to the 1999 Equitable Resources, Inc. Non-Employee Directors' Stock Incentive Plan; o Registration Statement No. 333-82189 on Form S-8 pertaining to the 1999 Equitable Resources, Inc. Long-Term Incentive Plan; o Registration Statement No. 333-32410 on Form S-8 pertaining to the Equitable Resources, Inc. Deferred Compensation Plan and Equitable Resources, Inc. Directors' Deferred Compensation Plan. /s/ Ernst & Young LLP Pittsburgh, Pennsylvania March 13, 2000 EX-27.01(A) 23 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 18,031 0 161,127 13,024 40,859 326,838 2,052,528 831,097 1,789,574 429,530 298,350 0 0 146,704 496,106 1,789,574 0 1,062,738 0 610,659 297,407 11,917 37,132 108,486 39,356 69,130 0 0 0 69,130 2.03 2.01
EX-27.01(B) 24 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 102,444 0 209,180 9,818 33,743 451,442 1,956,763 762,320 1,860,856 441,960 281,350 0 0 241,102 467,317 1,860,856 0 870,628 0 471,609 395,183 15,634 40,302 (49,433) (22,381) (27,052) (8,804) (8,263) 0 (44,119) (1.19) (1.19)
EX-27.01(C) 25 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 69,442 0 364,106 9,985 37,156 684,734 1,862,412 675,410 2,328,051 745,701 417,564 0 0 268,328 555,192 2,328,051 0 913,069 0 467,163 327,340 16,386 34,903 117,397 43,210 74,187 3,870 0 0 78,057 2.17 2.16
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