<PAGE>

                                                                    Exhibit 10.2

                                                     PRIVILEGED AND CONFIDENTIAL
                                                     ---------------------------



                               October 18, 2000


Mr. Robert D. Fagan


Dear Robert:

     TECO Energy, Inc. (the "Company") considers it essential to the best
interests of its stockholders to foster the continuous employment of key
management personnel. In this connection, the Board of Directors of the Company
(the "Board") recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of key management
personnel to the detriment of the Company and its stockholders.

     The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company.

     In order to induce you to remain in the employ of the Company and in
consideration of your agreement set forth in Subsection 2(iii) hereof, the
Company agrees that you shall receive the severance benefits set forth in this
letter agreement (the "Agreement") in the event your employment with the Company
is terminated subsequent to a "change in control of the Company" (as defined in
Section 2(i) hereof) (or is deemed to be terminated subsequent to a change in
control of the Company in accordance with the second sentence of Section 3
hereof) under the circumstances described below. This Agreement amends and
restates the letter agreement dated October 22, 1999 between you and the
Company.

     1.  Term of Agreement.  Subject to the provisions of Section 13 hereof,
         -----------------
this Agreement shall commence on the date hereof and shall continue in effect
through June 30, 2001; provided, however, that commencing on July 1, 2000 and
each July 1 thereafter, the term of this Agreement shall automatically be
extended for one additional year unless, not later than March 31 of such year,
the Company shall have given notice that it does not wish to extend this
Agreement (provided that no such notice may be given during the pendency of or
within two years following a potential change in control of the Company, as
defined in Section 2(ii) hereof); provided, further, if a change in control of
the Company shall have occurred during the original or extended term of this
Agreement, this Agreement shall continue in effect for a period of thirty-six
(36) months beyond the month in which such change in control occurred.
<PAGE>

                                                                    Exhibit 10.2

     2.  Change in Control; Potential Change in Control.  (i) Except as provided
         ----------------------------------------------
in the second sentence of Section 3 hereof, no benefits shall be payable
hereunder unless there shall have been a change in control of the Company, as
set forth below.  For purposes of this Agreement, a "change in control of the
Company" shall mean a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
whether or not the Company is in fact required to comply therewith; provided,
that, without limitation, such a change in control shall be deemed to have
occurred if:

         (A)  any "person" (as such term is used in Sections 13(d) and 14(d) of
     the Exchange Act), other than the Company, any trustee or other fiduciary
     holding securities under an employee benefit plan of the Company or a
     corporation owned, directly or indirectly, by the stockholders of the
     Company in substantially the same proportions as their ownership of stock
     of the Company is or becomes the "beneficial owner" (as defined in Rule
     13d-3 under the Exchange Act), directly or indirectly, of securities of the
     Company representing 30% or more of the combined voting power of the
     Company's then outstanding securities;

         (B)  during any period of twenty-four (24) consecutive months (not
     including any period prior to the date of this Agreement), individuals who
     at the beginning of such period constitute the Board and any new director
     (other than a director designated by a person who has entered into an
     agreement with the Company to effect a transaction described in paragraphs
     (A), (C) or (D) of this Section 2(i)) whose election by the Board or
     nomination for election by the stockholders of the Company was approved by
     a vote of at least two-thirds (2/3) of the directors then still in office
     who either were directors at the beginning of such period or whose election
     or nomination for election was previously so approved, cease for any reason
     to constitute a majority thereof; or

         (C)  there is consummated a merger or consolidation of the Company or
     any direct or indirect subsidiary of the Company with any other
     corporation, other than (i) a merger or consolidation resulting in the
     voting securities of the Company outstanding immediately prior thereto
     continuing to represent (either by remaining outstanding or by being
     converted into voting securities of the surviving entity) at least 65% of
     the combined voting securities of the Company or such surviving entity or
     any parent thereof outstanding immediately after such merger or
     consolidation or (ii) a merger or consolidation effected to implement a
     recapitalization of the Company (or similar transaction) in which no
     "person" (as hereinabove defined) acquires 30% or more of the combined
     voting power of the Company's then outstanding securities; or

         (D)  the stockholders of the Company approve a plan of complete
     liquidation of the Company or there is consummated the sale or disposition
     by the Company of all or substantially all of the Company's assets.

         (ii) For purposes of this Agreement, a "potential change in control of
the Company" shall be deemed to have occurred if:
<PAGE>

                                                                    Exhibit 10.2

Mr. Robert D. Fagan
October 18, 2000
Page 3

         (A)   the Company enters into an agreement, the consummation of which
     would result in the occurrence of a change in control of the Company;

         (B)   any person (as hereinabove defined), including the Company,
     publicly announces an intention to take or consider taking actions which if
     consummated would constitute a change in control of the Company;

         (C)   any person (as hereinabove defined), other than the Company, any
     trustee or other fiduciary holding securities under an employee benefit
     plan of the Company or a corporation owned, directly or indirectly, by the
     stockholders of the Company in substantially the same proportions as their
     ownership of stock of the Company (a) is or becomes the beneficial owner,
     (b) discloses directly or indirectly to the Company or publicly a plan or
     intention to become the beneficial owner, or (c) makes a filing under the
     Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with
     respect to securities to become the beneficial owner, directly or
     indirectly, of securities representing 9.9% or more of the combined voting
     power of the outstanding voting securities of the Company; or

         (D)   the Board adopts a resolution to the effect that, for purposes of
     this Agreement, a potential change in control of the Company has occurred.

         (iii) You agree that, subject to the terms and conditions of this
Agreement, in the event of a potential change in control of the Company, you
will remain in the employ of the Company until the earliest of (a) a date which
is one (1) year from the occurrence of such potential change in control of the
Company, (b) the termination by you of your employment after you attain "normal
retirement age" under the provisions of the TECO Energy Group Retirement Plan or
any successor thereto (the "Retirement Plan") or by reason of Disability as
defined in Section 3(i), or (c) the date of the occurrence of a change in
control of the Company.

     3.  Termination Following Change in Control.  If (i) your employment is
         ---------------------------------------
terminated following a change in control of the Company and during the term of
this Agreement (as determined under Section 1 hereof), other than (A) by the
Company for Cause, (B) by reason of death or Disability, or (C) by you without
Good Reason, or (ii) you voluntarily terminate your employment for any reason
during the one-month period commencing on the first anniversary of the change in
control of the Company, then, in either such case, the Company shall pay you the
amounts, and provide you the benefits, described in Section 4(iii) hereof.  For
purposes of this Agreement, your employment shall be deemed to have been
terminated following a change in control of the Company by the
<PAGE>

                                                                    Exhibit 10.2

Mr. Robert D. Fagan
October 18, 2000
Page 4


Company without Cause or by you with Good Reason, if (i) your employment is
terminated by the Company without Cause prior to a change in control of the
Company (whether or not such a change in control ever occurs) and such
termination was at the request or direction of a "person" (as hereinabove
defined) who has entered into an agreement with the Company the consummation of
which would constitute a change in control of the Company, (ii) you terminate
your employment for Good Reason prior to a change in control of the Company
(whether or not such a change in control ever occurs) and the circumstance or
event which constitutes Good Reason occurs at the request or direction of such
person, or (iii) your employment is terminated by the Company without Cause or
by you for Good Reason and such termination or the circumstance or event which
constitutes Good Reason is otherwise in connection with or in anticipation of a
change in control of the Company (whether or not such a change in control ever
occurs).

          (i)    Disability. If, as a result of your incapacity due to physical
                 ----------
or mental illness, you shall have been absent from the full-time performance of
your duties with the Company for six (6) consecutive months, and within thirty
(30) days after written notice of termination is given you shall not have
returned to the full-time performance of your duties, your employment may be
terminated for "Disability".

          (ii)   Cause. Termination by the Company of your employment for
                 -----
"Cause" shall mean termination upon (A) the willful and continued failure by you
to substantially perform your duties with the Company (other than any such
failure resulting from your incapacity due to physical or mental illness or any
such actual or anticipated failure after the issuance of a Notice of Termination
by you for Good Reason, as defined in Subsections 3(iv) and 3(iii),
respectively) after a written demand for substantial performance is delivered to
you by the Board, which demand specifically identifies the manner in which the
Board believes that you have not substantially performed your duties, or (B) the
willful engaging by you in conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise. For purposes of this
Subsection, no act, or failure to act, on your part shall be deemed "willful"
unless done, or omitted to be done, by you not in good faith and without
reasonable belief that your action or omission was in the best interest of the
Company. Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to you a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting of the
Board called and held for such purpose (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard before the Board),
finding that in the good faith opinion of the Board you were guilty of conduct
set forth above in this Subsection and specifying the particulars thereof in
detail.
<PAGE>

                                                                    Exhibit 10.2

Mr. Robert D. Fagan
October 18, 2000
Page 5



          (iii)  Good Reason.  "Good Reason" for termination by you of your
                 -----------
employment shall mean the occurrence (without your express written consent)
after any change in control of the Company, or prior to a change in control of
the Company under the circumstances described in the second sentence of Section
3 hereof (treating all references in paragraphs (A) through (H) below to a
"change in control of the Company" as references to a "potential change in
control of the Company"), of any one of the following acts by the Company, or
failures by the Company to act:

          (A)    the assignment to you of any duties inconsistent (except in the
     nature of a promotion) with the position in the Company that you held
     immediately prior to the change in control of the Company or a substantial
     adverse alteration in the nature or status of your position or
     responsibilities or the conditions of your employment from those in effect
     immediately prior to the change in control of the Company;

          (B)    a reduction by the Company in your annual base salary as in
     effect on the date hereof or as the same may be increased from time to
     time;

          (C)    the Company's requiring you to be based more than twenty-five
     (25) miles from the Company's offices at which you were principally
     employed immediately prior to the date of the change in control of the
     Company except for required travel on the Company's business to an extent
     substantially consistent with your present business travel obligations;

          (D)    the failure by the Company to pay to you any portion of your
     current compensation or compensation under any deferred compensation
     program of the Company, within seven (7) days of the date such compensation
     is due;

          (E)    the failure by the Company to continue in effect any material
     compensation or benefit plan in which you participate immediately prior to
     the change in control of the Company unless an equitable arrangement
     (embodied in an ongoing substitute or alternative plan) has been made with
     respect to such plan, or the failure by the Company to continue your
     participation therein (or in such substitute or alternative plan) on a
     basis not materially less favorable, both in terms of the amount of
     benefits provided and the level of your participation relative to other
     participants, than existed at the time of the change in control;

          (F)    the failure by the Company to continue to provide you with
     benefits substantially similar to those enjoyed by you under any of the
     Company's pension, life insurance, medical, health and accident, or
     disability plans in which you were participating at the time of the change
     in control of the Company, the taking of any action by the Company
<PAGE>

                                                                    Exhibit 10.2

Mr. Robert D. Fagan
October 18, 2000
Page 6



     which would directly or indirectly materially reduce any of such benefits
     or deprive you of any material fringe benefit enjoyed by you at the time of
     the change in control of the Company, or the failure by the Company to
     provide you with the number of paid vacation days to which you are entitled
     on the basis of your years of service with the Company in accordance with
     the Company's normal vacation policy in effect at the time of the change in
     control of the Company;

          (G)    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 6 hereof; or

          (H)    any purported termination of your employment which is not
     effected pursuant to a Notice of Termination satisfying the requirements of
     Subsection (iv) below (and, if applicable, the requirements of Subsection
     (ii) above), which purported termination shall not be effective for
     purposes of this Agreement.

Your right to terminate your employment pursuant to this Subsection shall not be
affected by your incapacity due to physical or mental illness.  Your continued
employment shall not constitute consent to, or a waiver of rights with respect
to, any circumstance constituting Good Reason hereunder.

          (iv)   Notice of Termination.  Any purported termination of your
                 ---------------------
employment by the Company or by you shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 7 hereof.  For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision so
indicated.

          (v)    Date of Termination, Etc. "Date of Termination" shall mean (A)
                 ------------------------
if your employment is terminated for Disability, thirty (30) days after Notice
of Termination is given (provided that you shall not have returned to the full-
time performance of your duties during such thirty (30) day period), and (B) if
your employment is terminated pursuant to Subsection (ii) or (iii) above or for
any other reason (other than Disability), the date specified in the Notice of
Termination (which, in the case of a termination pursuant to Subsection (ii)
above shall not be less than thirty (30) days, and in the case of a termination
pursuant to Subsection (iii) above shall not be less than fifteen (15) nor more
than sixty (60) days, respectively, from the date such Notice of Termination is
given); provided that if within fifteen (15) days after any Notice of
Termination is given, or, if later, prior to the Date of Termination (as
determined without regard to this proviso), the party receiving such
<PAGE>

                                                                    Exhibit 10.2

Mr. Robert D. Fagan
October 18, 2000
Page 7


Notice of Termination notifies the other party that a dispute exists concerning
the termination, the Date of Termination shall be the date on which the dispute
is finally determined, either by mutual written agreement of the parties or by a
binding arbitration award; and provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of any such dispute, the
Company will continue to pay you your full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, base
salary) and continue you as a participant in all compensation, benefit and
insurance plans in which you were participating when the notice giving rise to
the dispute was given, until the dispute is finally resolved in accordance with
this Subsection. Amounts paid under this Subsection are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce any
other amounts due under this Agreement.

     4.  Compensation Upon Termination or During Disability.  Following a change
         --------------------------------------------------
in control of the Company, as defined by Subsection 2(i), or prior to a change
in control of the Company under the circumstances described in the second
sentence of Section 3 hereof, upon termination of your employment or during a
period of disability you shall be entitled to the following benefits:

         (i)    During any period that you fail to perform your full-time duties
with the Company as a result of incapacity due to physical or mental illness,
you shall continue to receive your base salary at the rate in effect at the
commencement of any such period, together with all compensation payable to you
under the Company's disability plan or program or other similar plan during such
period, until this Agreement is terminated pursuant to Section 3(i) hereof.
Thereafter, or in the event your employment shall be terminated by reason of
your death, your benefits shall be determined under the Company's retirement,
insurance and other compensation programs then in effect in accordance with the
terms of such programs.

          (ii)  If your employment shall be terminated by the Company for Cause
or by you other than for Good Reason, the Company shall pay you your full base
salary through the Date of Termination at the rate in effect at the time Notice
of Termination is given, plus all other amounts to which you are entitled under
any compensation plan of the Company at the time such payments are due, and the
Company shall have no further obligations to you under this Agreement.

          (iii) If your employment by the Company terminates in a manner
entitling you to benefits under this Section pursuant to Section 3 hereof, then
you shall be entitled to the benefits provided below:
<PAGE>

                                                                    Exhibit 10.2

Mr. Robert D. Fagan
October 18, 2000
Page 8


          (A)   the Company shall pay you your full base salary through the Date
     of Termination at the rate in effect at the time Notice of Termination is
     given, plus all other amounts to which you are entitled under any
     compensation plan of the Company, at the time such payments are due, except
     as otherwise provided below;

          (B)   in lieu of any further salary payments to you for periods
     subsequent to the Date of Termination, the Company shall pay as severance
     pay to you a lump sum severance payment (together with the payments
     provided in paragraphs (D), (E) and (F) below, the "Severance Payments")
     equal to three (3) times the sum of (1) the greater of (a) your annual rate
     of base salary in effect on the Date of Termination or (b) your annual rate
     of base salary in effect immediately prior to the change in control of the
     Company and (2) the greatest of (a) the average of the last two annual
     bonuses (annualized in the case of any bonus paid with respect to a partial
     year) paid to you preceding the Date of Termination, (b) the average of the
     last two annual bonuses (annualized in the case of any bonus paid with
     respect to a partial year) paid to you preceding such change in control,
     (c) the most recent annual bonus (annualized in the case of any bonus paid
     with respect to a partial year) paid to you preceding the Date of
     Termination, or (d) the most recent annual bonus (annualized in the case of
     any bonus paid with respect to a partial year) paid to you preceding such
     change in control, or (e) in the event that on the date of the change in
     control of the the Company you have been employed by the Company for less
     than two years and have not yet been considered for receipt of an annual
     bonus, your annual incentive target award in effect immediately prior to
     such change in control;

          (C)   the Company shall also pay to you, within five (5) days after
     any such fees or expenses are incurred, all legal fees and expenses
     incurred by you as a result of or in connection with such termination,
     including all such fees and expenses, if any, incurred in contesting or
     disputing any such termination or in seeking to obtain or enforce any right
     or benefit provided by this Agreement (other than any such fees or expenses
     incurred in connection with any such claim which is determined by
     arbitration, in accordance with Section 11 of this Agreement, to be
     frivolous) or in connection with any tax audit or proceeding to the extent
     attributable to the application of Section 4999 of the Internal Revenue
     Code of 1986, as amended (the "Code"), to any payment or benefit provided
     hereunder;

          (D)   for a thirty-six (36) month period after such termination, the
     Company shall arrange to provide you with life, disability, accident and
     health insurance benefits substantially similar to those which you are
     receiving immediately prior to the Notice of Termination.  Benefits
     otherwise receivable by you pursuant to this Subsection 4(iii)(D) shall be
     reduced to
<PAGE>

                                                                    Exhibit 10.2

Mr. Robert D. Fagan
October 18, 2000
Page 9


     the extent comparable benefits are actually received by you from a
     subsequent employer during the thirty-six (36) month period following your
     termination, and any such benefits actually received by you shall be
     reported to the Company;

          (E)   in addition to the retirement benefits to which you are entitled
     under the Retirement Plan, any supplemental retirement or excess benefit
     plan maintained by TECO or any of its subsidiaries or any successor plans
     thereto (hereinafter collectively referred to as the "Pension Plans"), the
     Company shall pay you in cash a lump sum equal to the excess of (a) the
     actuarial equivalent (computed at your date of termination) of the
     retirement pension (taking into account any early retirement subsidies and
     post-retirement surviving spouse benefits associated therewith and
     determined as an annuity payable in the normal form under the Pension Plans
     commencing at your normal retirement age under the Retirement Plan or any
     earlier date, but in no event earlier than the fifth anniversary of the
     Date of Termination, whichever annuity the actuarial equivalent of which is
     greatest) which you would have accrued under the terms of the Pension Plans
     (without regard to the limitations imposed by Section 401(a)(17) of the
     Code, or any amendment to the Pension Plans made subsequent to a change in
     control of the Company and on or prior to the Date of Termination, which
     amendment adversely affects in any manner the computation of retirement
     benefits thereunder), determined as if you were fully vested thereunder and
     had continued to be a participant in each of the Pension Plans for sixty
     (60) additional months and as if you had accumulated sixty (60) additional
     months of compensation (for purposes of determining your pension benefits
     thereunder), each in an amount equal to the sum of the amounts determined
     under clauses (1) and (2) of Section 4(iii)(B) hereof over (b) the
     actuarial equivalent (computed at your date of termination) of the vested
     retirement pension (taking into account any early retirement subsidies and
     post-retirement surviving spouse benefits associated therewith and
     determined as an annuity payable in the normal form under the Pension Plans
     commencing at your normal retirement age under the Retirement Plan or any
     earlier date, but in no event earlier than the Date of Termination,
     whichever annuity the actuarial equivalent of which is greatest) which you
     had then accrued pursuant to the provisions of the Pension Plans.  For
     purposes of this Subsection, "actuarial equivalent" shall be determined
     using the same actuarial assumptions utilized in determining the amount of
     alternate forms of benefits under the Retirement Plan immediately prior to
     the change in control of the Company; and

          (F)   should you move your residence in order to pursue other business
     opportunities within one (1) year of the Date of Termination, the Company
     will pay you, within five (5) days after any such expenses are incurred, an
     amount equal to the expenses incurred by you in connection with such
     relocation (including expenses incurred in selling
<PAGE>

                                                                    Exhibit 10.2

Mr. Robert D. Fagan
October 18, 2000
Page 10


     your home to the extent such expenses were customarily reimbursed by the
     Company to transferred executives prior to the change in control of the
     Company) and which are not reimbursed by another employer.

          (iv)  Except as otherwise specifically provided in paragraph (C) and
(F) thereof, the payments provided for in Subsection (iii) shall be made not
later than the fifth day following the Date of Termination; provided, however,
that if the amounts of such payments cannot be finally determined on or before
such day, the Company shall pay to you on such day an estimate, as determined in
good faith by the Company, of the minimum amount of such payments and shall pay
the remainder of such payments (together with interest at 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 day after the Date of
Termination.  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 you payable on the fifth day after demand therefor by the
Company (together with interest at the rate provided in section 1274(b)(2)(B) of
the Code).

          (v)   You shall not be required to mitigate the amount of any payment
provided for in this Section 4 or Section 5 hereof by seeking other employment
or otherwise, nor, except as specifically provided in Sections 4(iii)(D) and (F)
above, shall the amount of any payment or benefit provided for in this Section 4
or Section 5 hereof be reduced by any compensation earned by you as the result
of employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by you to the Company, or otherwise.

     5.   Certain Additional Payments by the Company.
          ------------------------------------------

     (i)  Whether or not you become entitled to payments under this Agreement,
if any of the payments or benefits received or to be received by you in
connection with a change in control of the Company or the termination of your
employment (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose actions result in a
change in control of the Company or any person affiliated with the Company or
such person) (such payments or benefits, including the Severance Payments but
excluding the Gross-Up Payment, being hereinafter referred to as the "Total
Payments") will be subject to the excise tax imposed by section 4999 of the Code
or any interest or penalties are incurred by you with respect to such excise tax
(such excise tax, together with any such interest and penalties, being
hereinafter referred to as the "Excise Tax"), the Company shall pay to you an
additional amount (the "Gross-Up Payment") such that the net amount retained by
you, after paying any Excise Tax on the Total Payments and any federal, state
<PAGE>

                                                                    Exhibit 10.2

Mr. Robert D. Fagan
October 18, 2000
Page 11


and local income and employment taxes and Excise Tax on the Gross-Up Payment,
shall be equal to the Total Payments.

     (ii)  For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (A) all of the
Total Payments shall be treated as "parachute payments" (within the meaning of
section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax
Counsel") acceptable to you and selected by the accounting firm which was,
immediately prior to the change in control of the Company, the Company's
independent auditor (the "Auditor"), such payments or benefits (in whole or in
part) do not constitute parachute payments, including by reason of section
280G(b)(4)(A) of the Code, (B) all "excess parachute payments" (within the
meaning of section 280G(b)(1) of the Code) shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of
the "base amount" (within the meaning of section 280G(b)(3) of the Code)
allocable to such reasonable compensation, or are otherwise not subject to the
Excise Tax, and (C) the value of any noncash benefits or any deferred payment or
benefit shall be determined by the Auditor in accordance with the principles of
sections 280G(d)(3) and (4) of the Code.  For purposes of determining the amount
of the Gross-Up Payment, you shall be deemed to pay federal income tax at the
highest marginal rate of federal income taxation in the calendar year in which
the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of your residence on
the Date of Termination, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes.

     (iii) In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of the termination
of your employment, you shall repay to the Company, at the time that the amount
of such reduction in Excise Tax is finally determined, the portion of the Gross-
Up Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by you to the
extent that such repayment results in a reduction in Excise Tax and/or a
federal, state or local income or employment tax deduction) plus interest on the
amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B)
of the Code.  In the event that the Excise Tax is determined to exceed the
amount taken into account hereunder at the time of the termination of your
employment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by you with respect to such excess) at
the time that the amount of such excess is finally determined.  You and the
Company shall each reasonably cooperate with the other in
<PAGE>

                                                                    Exhibit 10.2

Mr. Robert D. Fagan
October 18, 2000
Page 12


connection with any administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax with respect to the Total
Payments.

     6.  Successors; Binding Agreement.  (iv)  The Company will require any
         -----------------------------
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company 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 it
if no such succession had taken place.  Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle you to compensation from the
Company in the same amount and on the same terms as you would be entitled to
hereunder if you terminate your employment for Good Reason following a change in
control of the Company, except that for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed the Date
of Termination.  As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.

         (ii)   This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.  If you should die while
any amount would still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or,
if there is no such designee, to your estate.

     7.  Notice.  For the purpose of this Agreement, notices and all other
         ------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.

     8.  Miscellaneous.  No provision of this Agreement may be modified, waived
         -------------
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be specifically designated by
the Board.  No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar
<PAGE>

                                                                    Exhibit 10.2

Mr. Robert D. Fagan
October 18, 2000
Page 13


provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Florida, without giving effect to the conflicts of law principles
thereof. All references to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law. The obligations of the Company under Sections
4 and 5 shall survive the expiration of the term of this Agreement.

     9.   Validity.  The invalidity or unenforceability or any provision of this
          --------
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.

     10.  Counterparts.  This Agreement may be executed in several counterparts,
          ------------
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.

     11.  Arbitration.  Any dispute or controversy arising under or in
          -----------
connection with this Agreement shall be settled exclusively by arbitration
conducted before a panel of three arbitrators in the State of Florida in
accordance with the rules of the American Arbitration Association then in
effect.  Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.

     12.  Entire Agreement.  This Agreement sets forth the entire agreement of
          ----------------
the parties hereto in respect of the subject matter contained herein and during
the term of the Agreement supersedes the provisions of all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto with respect to the subject matter hereof.

     13.  Effective Date; Pooling.  This Agreement shall become effective as of
          -----------------------
the date set forth above.  In the event that the Company is party to an
agreement with respect to a transaction that is intended to qualify for "pooling
of interests" accounting treatment, then (A) this Agreement shall, to the extent
practicable, be interpreted so as to permit such accounting treatment, and (B)
to the extent that the application of clause (A) of this Section 13 does not
preserve the availability of such
<PAGE>

                                                                    Exhibit 10.2

Mr. Robert D. Fagan
October 18, 2000
Page 14


accounting treatment, then the Company shall have the unilateral right to amend
this Agreement to the extent necessary to enable the Company's accountants to
issue a "pooling" opinion with respect to such transaction, and any such
amendment shall be effective as of the date hereof.

     If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.

                                    Sincerely,
                                    TECO Energy, Inc.

__________________________________
                                    Name: David E. Schwartz
                                    Title:  Secretary

Agreed to this _______ day
of __________________,  2000.


______________________________
Robert D. Fagan