CHANGE IN CONTROL AGREEMENT

                                                                                                

 

 

CHANGE IN CONTROL AGREEMENT

 

This Change in Control Agreement (“ Agreement ”) dated as of June 1, 2008 is entered into by and between Black Hills Corporation (“ Company ”) and David R. Emery (“ Employee ”).

 

 

The Board of Directors of the Company (“ Board ”) has determined that it is in the best interests of the Company and its shareholders to encourage the Employee’s full attention and dedication to the Company currently and in the event of any threatened or pending Change in Control (as defined below). Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.

 

 

“ AFFILIATE ” shall have the meaning ascribed to such term in rule 12b-2 of the General Rules and Regulations of the Exchange Act.

 

“ BENEFICIAL OWNER ” or “ BENEFICIAL OWNERSHIP ” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.

 

“ CAUSE ” means those events or conditions described in subsections 9(a)(1) and (2) .

 

“ CHANGE IN CONTROL ” shall mean any of the following events:

 

(a)         The acquisition in a transaction or series of transactions by any Person of Beneficial Ownership of thirty percent (30%) or more of the combined voting power of the then outstanding shares of common stock of the Company; provided, however, that for purposes of this Agreement, the following acquisitions will not constitute a Change in Control: (A) any acquisition by the Company; (B) any acquisition of common stock of the Company by an underwriter holding securities of the Company in connection with a public offering thereof; and (C) any acquisition by any Person pursuant to a transaction which complies with subsections (c)(i), (ii) and (iii) ;

 

(b)        Individuals who, as of December 31, 2007 are members of the Board (the “ Incumbent Board ”), cease for any reason to constitute at least a majority of the members of the Board; provided, however, that if the election, or nomination for election by the Company’s common shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened “Election Contest” (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a “ Proxy Contest ”) including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest;

 

 

 

(d)       Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Combination that complies with subsections (c)(i), (ii), and (iii) above.

 

(e)        A Change in Control shall not be deemed to occur solely because any Person (the “ Subject Person ”) acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock as a result of the acquisition of Common Stock by the Company which, by reducing the number of shares of Common stock then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Common Stock by the Company, and after such stock acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Common Stock which increases the percentage of the then outstanding common Stock Beneficially Owned by the Subject Person, then a Change in Control shall occur.

 

(f)        A Change in Control shall not be deemed to occur unless and until all regulatory approvals required in order to effectuate a Change in Control of the Company have been obtained and the transaction constituting the Change in Control has been consummated.

 

“CODE” means the Internal Revenue Code of 1986, as amended.

 

“DISABILITY” means a physical or mental infirmity because of which Employee is receiving benefits under the Company sponsored long-term disability plan in which the Employee participates.

 

“DISABILITY DATE” means the date subsequent to a Change in Control on which the Employee is determined to have a Disability.

 

 

 

 

“ EFFECTIVE DATE ” means the first date on which a Change in Control occurs. The Effective Date does not occur and no benefits shall be paid under this Agreement if for any reason the Employee is not an employee of the Company on the day prior to the Effective Date.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

“ EXCHANGE ACT ” means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.

 

“ GOOD REASON ” means those events or conditions described in subsections 9(c)(i) through (vi) below.

 

“ NOTICE OF TERMINATION ” means a notice which indicates the specific termination provision in this Agreement, if any, relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee’s employment under the provisions so indicated. Any purported termination by the Company or Employee shall be communicated by written notice of termination to the other.

 

“ OMNIBUS INCENTIVE COMPENSATION PLAN ” means the incentive compensation plan known as the “Black Hills Corporation 2005 Omnibus Incentive Compensation Plan” as effective May 25, 2005, and as amended or replaced from time to time thereafter prior to the Effective Date.

 

“2005 PENSION EQUALIZATION PLAN” means the Company’s 2005 Pension Equalization Plan as in effect on January 1, 2008 and as amended or replaced from time to time thereafter prior to the Effective Date.

 

“2007 PENSION EQUALIZATION PLAN” means the Company’s 2007 Pension Equalization Plan as in effect on January 1, 2008 and as amended or replaced from time to time thereafter prior to the Effective Date.

 

“ PENSION PLAN ” means the Company’s tax qualified defined benefit pension plan as amended and restated effective October 1, 2000, and as amended from time to time thereafter prior to the Effective Date.

 

“ PERSON ” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d).

 

“ PROTECTION PERIOD ” means the time period beginning on the Effective Date and which shall expire on the third anniversary of the Effective Date; provided, that the Protection Period shall in no event extend beyond the first day of the month following the month in which the Employee attains age 65, if Employee is an executive officer of the Company of the Effective Date.

 

“ RELATED COMPANY ” means any business organization or legal entity that directly or indirectly, controls, is controlled by or is under common control with the Company. For purposes of this definition, the term “control” (including the terms “controlling”,

 

 

 

“controlled by”, and “under common control with”) includes the possession, direct or indirect, of the power to vote 50 percent or more of the voting equity securities, membership interest, or other voting interest, or to direct or cause the direction of the management and policies of such business organization or other legal entity, whether through the ownership of voting equity securities, membership interest, by contract, or otherwise.

 

“RESTORATION PLAN” means the Company’s Restoration Plan as in effect on January 1, 2008 and as amended or replaced from time to time thereafter prior to the Effective Date.

 

“ RETIREMENT SAVINGS PLAN ” means the Black Hills Corporation Retirement Savings Plan (401K) as amended and restated effective January 1, 2000, and as further amended from time to time thereafter prior to the effective date.

 

“ SEVERANCE COMPENSATION ” means the Employee’s base salary and annual incentive target on the date of the Change in Control.

 

“ SUBSIDIARY ” means any corporation, partnership, limited liability company, joint venture, or other entity in which the Company has a majority voting interest.

 

“ SUCCESSOR EMPLOYER ” means any Successor Entity (as defined in the definition of “Change in Control” herein) or any other successor in interest or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) of the business and/or assets of the Company.

 

“ TERMINATION DATE ” means the date, subsequent to the Effective Date, of the Employee’s separation from service (as defined for purposes of Code Section 409A) with the Company and all Related Companies.

 

“ WELFARE BENEFITS ” means the Black Hills Corporation Medical and Dental Plan, the Black Hills Corporation Flexible Benefit Plan, and the Black Hills Corporation Employee Life and long-Term Disability Plan, and the Short-Term Disability Plan, as the plans and the terms and conditions thereof exist on the day prior to the Effective Date. Following the Employee’s Termination Date, the term Welfare Benefits shall not include a “flexible spending arrangement” (within the meaning of Proposed Regulation Section 1.125-5(a) or subsequent authoritative guidance).

 

 

The Term of this Agreement shall commence on the date of execution and shall continue in effect until June 1, 2011. If no Change in Control shall have occurred during the Term, this Agreement shall expire. If a Change in Control occurs during the Term, this Agreement shall remain in effect for full performance according to its terms. Upon expiration of this Agreement, the Company, by action of its Board of Directors, may elect to renew or not renew this Agreement, or may offer to renew the Agreement subject to modifications of any term or condition, at its discretion. The Board of Directors may, in its discretion, terminate this Agreement prior to the expiration of the Term, in the event that Employee, for any reason, ceases to be employed with the Company in a position as an executive officer within the meaning of the Exchange Act.

 

 

 

 

Subject to the provisions of this Agreement, during the Protection Period the Company agrees to continue to employ the Employee and the Employee agrees to remain in the employ of the Company. During the Protection Period, the Employee shall be employed at a position substantially similar to Employee’s position prior to the Change in Control or in such other capacity as may be mutually agreed to in writing by the parties. Employee shall perform the duties, undertake the responsibilities and exercise the authority customarily performed, undertaken and exercised by persons situated in a similar capacity.

 

During the Protection Period, excluding periods of vacation, sick leave or another approved leave of absence, Employee agrees to devote full attention and time during usual business hours to the business and affairs of the Company to the extent necessary to discharge the responsibilities assigned to Employee hereunder. It is expressly understood and agreed that to the extent that any civic, charitable or industry-related activities have been conducted by Employee prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of Employee’s responsibilities to the Company.

 

 

During the Protection Period, the Company agrees to pay or cause to be paid to Employee Annual Compensation at a rate at least equal to the highest rate of the Employee’s Annual Compensation as in effect at any time within one year preceding the Effective Date, and as may be increased from time to time. Such Annual Compensation shall be payable in accordance with the Company’s customary practices applicable to its officers and employees. For purposes of this Agreement, Annual Compensation shall mean all of the following compensation paid to the Employee by the Company during a calendar year: (a) amounts which are includable in the gross income of the Employee for federal income tax purposes, including base salary, targeted annual incentive bonus, targeted long-term incentive grants and awards; and (b) matching contributions or other benefits payable under the Retirement Savings Plan; but excluding restricted stock awards, performance units or stock options that become vested or exercisable pursuant to Article 15 (Change in Control) of the Omnibus Incentive Compensation Plan, in a calendar year.

 

 

During the Protection Period, the Company or the Successor Employer shall provide to the Employee the Welfare Benefits and the Pension Plan, including supplemental medical insurance, travel accident insurance, short-term disability, long-term disability or life insurance benefits, or other substantially similar employee welfare and pension benefits, but in no event on a basis less favorable in terms of benefit levels and coverage than the Welfare Benefits and the Pension Plan. In the event Employee is not a participant in a Welfare Benefits plan or the Pension Plan prior to the Effective Date, then Company shall have no obligation to provide that Welfare Benefits plan or the Pension Plan or other substantially similar employee welfare and pension benefits as provided in this Section 6 .

 

 

If Employee was a participant in the 2005 Pension Equalization Plan prior to the Effective Date, then during the Protection Period, the Company or Successor Employer shall

 

 

 

continue to provide Employee with coverage and participation under the 2005 Pension Equalization Plan or a substantially similar supplemental retirement plan.

 

If Employee was a participant in the 2007 Pension Equalization Plan prior to the Effective Date, then during the Protection Period, the Company or Successor Employer shall continue to provide Employee with coverage and participation under the 2007 Pension Equalization Plan or a substantially similar supplemental retirement plan.

 

If Employee was a participant in the Restoration Plan prior to the Effective Date, then during the Protection Period, the Company or Successor Employer shall continue to provide Employee with coverage and participation under the Restoration Plan or a substantially similar supplemental retirement plan.

 

In no event shall coverage during the Protection Period be on a basis less favorable in terms of benefit levels and coverage than the 2005 Pension Equalization Plan or the 2007 Pension Equalization Plan, as applicable, and the Restoration Plan.

 

 

(a)         Fringe Benefits, Perquisites, Vacation and Sick Leave . During the Protection Period, Employee shall be entitled to all fringe benefits, perquisites, and paid-time-off generally made available by the Company and Successor Employer to its executives or other employees. Unless otherwise provided herein, the fringe benefits, perquisites, and paid-time-off provided to Employee shall be on the same basis and terms as other similarly situated employees of the Company, but in no event shall be less favorable than the most favorable fringe benefits, perquisites, or paid-time-off to Employee at any time within one year period preceding the Effective Date, or if more favorable, at any time thereafter.

 

(b)        Expenses . Employee shall be entitled to receive prompt reimbursement of all expenses reasonably incurred by him in connection with the performance of his duties hereunder or for promoting, pursuing or otherwise furthering the business or interests of the Company or Successor Employer. All reimbursements under this Section 8(b) will be paid as promptly as administratively practicable, but in no event later than by December 31st of the year next following the calendar year in which the expense was incurred.

 

(c)         Indemnity . If, at the time of a Change in Control, the Employee was covered by an Indemnity Agreement and/or Directors’ and Officers’ Insurance (D & O) coverage, then the Indemnity Agreement and D & O coverage shall continue in full force and effect throughout the Protection Period, and beyond the Protection Period, with respect to claims arising out of acts or omissions of the Employee prior to a Change in Control. If, following a Change in Control, Company or the Successor Employer adopts substitute Indemnity Agreements, and/or D & O coverage, for employees having substantially the same authority, duties, and responsibilities as Employee, then Employee shall be entitled to receive the benefit of such protection with respect to claims arising from acts or omissions of Employee following a Change in Control. Payment for expenses to be reimbursed under this Section 8(c) shall be made in accordance with the time specified under the Indemnity Agreement or D & O coverage, but in no event later than by December 31 ^st of the year next following the year in which the expense was incurred.

 

 

 

 

During the Protection Period, Employee’s employment hereunder may be terminated under the following circumstances:

 

(a)         Cause . The Company may terminate Employee’s employment for “Cause.” A termination of employment is for “Cause” if Employee (1) enters a guilty plea, pleads nolo contendre to, or is convicted of a felony offense that is demonstrably injurious to the Company; (2) intentionally engages in other conduct which is demonstrably injurious to the Company, monetarily or otherwise; or (3) fails, after reasonable request, to cooperate with the Company or governmental authorities in connection with a civil or criminal regulatory investigation or proceeding, or other civil litigation involving the company; provided, however, that no termination of Employee’s employment shall be for Cause as set forth in clauses (2) or (3), unless (i) there shall have been delivered to Employee a copy of a written Notice of Termination, at least thirty (30) days in advance of the Termination Date, setting forth that Employee was guilty of the conduct set forth in such applicable clause and specifying the particulars thereof in detail; and (ii) Employee shall have been provided an opportunity to be heard by the Board (with the assistance of Employee’s counsel if Employee so desires). No act, nor failure to act, on Employee’s part shall be considered “intentional” unless he has acted, or failed to act, with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by Employee after a Notice of Termination is given to the Employee shall constitute Cause for purposes of this Agreement.

 

(b)        Disability . The Company may terminate Employee’s employment after the Employee’s Disability Date. Employee shall be entitled to the compensation and benefits provided for under this Agreement for any period during the Protection Period and prior to the Employee’s Disability Date, during which Employee is unable to work due to a physical or mental infirmity, and up to the Employee’s Disability Date. Notwithstanding anything contained in this Agreement to the contrary, and subject to applicable law and the provisions of the Company’s long-term disability policy, until the Termination Date specified in a Notice of Termination relating to Employee’s Disability, Employee shall be entitled to return to his position with the Company as set forth in this Agreement, in which event no Disability Date will be deemed to have occurred.

 

(c)         Good Reason . During the Protection Period, the Employee may terminate his employment for “Good Reason.” For purposes of this Agreement, “Good Reason” shall mean the occurrence after the Effective Date of any of the events or conditions described below.

 

(i)          A material reduction of the Employee’s authority, duties, or responsibilities from those in effect immediately prior to the Effective Date; provided that, any reduction in the foregoing resulting merely from the acquisition of the Company, or any Business Combination, by reason of which the Company thereafter exists as a subsidiary or division of another entity, shall not constitute Good Reason;

 

(ii)        A material reduction in the Employee’s “base compensation” within the meaning of such term under the Final Treasury Regulations issued under Code Section 409A, or a failure to pay the Employee any compensation or benefits to

 

 

 

which he is entitled within a reasonable period after the date due, provided that such failure to pay constitutes a material breach under subsection 9(c)(vi) (unless otherwise specified in authority under Code Section 409A, a material reduction in base compensation for this purpose shall occur if the Employee’s base compensation is reduced by two percent (2%) or more of the base compensation as in effect immediately prior to such reduction);

 

(iii)       Any material breach by the Company of any provision of this Agreement, including, but not limited to, the Company’s failure to provide the Employee Welfare and Pension Benefits or the Pension Equalization Plan or Restoration Plan benefits, as set forth in Sections 6 and 7 , provided that such failure constitutes a material breach under subsection 9(c)(vi) ;

 

(iv)       The Company’s requiring the Employee to be based outside a 50-mile radius from Employee’s usual and normal place of work prior to the Change in Control, except for reasonably required travel on the Company’s business which is not substantially greater than such travel requirements prior to the Effective Date;

 

(v)        Any purported termination of the Employee’s employment for Cause by the Company which does not comply with the terms of Section 9(a) , provided that such termination constitutes a material breach under subsection 9(c)(vi) ; or

 

(vi)      Any other action or inaction that constitutes a material breach by the Company of the agreements under which the Employee provides services including, but not limited to, the failure of the Company to obtain an agreement, satisfactory to the Employee, from any Successor Employer or assign of the Company, to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be obligated to perform under this Agreement, as contemplated in Section 14 .

 

In order to effectuate a termination for Good Reason under this Section 9(c) , the Employee shall, within 90 days after the initial existence of the condition, deliver written notice to the Company stating the grounds for Good Reason in support of termination. The Company may, within 30 days after receipt of such notice, remedy the condition, in which case the Good Reason for termination shall be deemed not to have occurred. For purposes of determining the amount of any cash payment payable to the Employee in accordance with Section 10 , any reduction in compensation or benefit that would constitute Good Reason hereunder shall be deemed not to have occurred.

 

 

Upon termination of Employee’s employment, prior to the end of the Protection Period, Employee shall be entitled to the following compensation and benefits:

 

(a)        If Employee’s employment with the Company shall be terminated (i) by the Company for Cause or Disability, or (ii) by reason of Employee’s death, or (iii) by Employee without “Good Reason” pursuant to Section 9(c) , the Company shall pay Employee all amounts earned or accrued through the Termination Date, but not paid as of the Termination Date, including all Annual Compensation, reimbursement for reasonable and necessary expenses incurred by Employee on behalf of the Company during the

 

 

 

period ending on the Termination Date, together with accrued vacation pay, and paid time