Nicor Inc.
Form 8-K
Exhibit 10.03
2005 LONG-TERM INCENTIVE PROGRAM
In March 2005, the Compensation Committee approved the 2005 Long-Term Incentive
Program, the participants and awards. Shown below is a full description of the
Long-Term Program for 2005.
Summary of 2005 Long-Term Incentive Program
o Combination of Stock Options (SOs) and Performance Units (PUs).
o SOs have a ten-year term.
o PUs are a percentage of base salary at the time of the award and pay out
based on total shareholder return over at least a three-year performance
period.
o SOs and PUs are independent of each other.
o The company will also make selected use of restricted stock.
o SOs and PUs are granted under the 1997 Long Term Incentive Plan
Description of Stock Options
o Option exercise price set at fair market value on date of grant.
o Options vest after one year and are generally exercisable after three years
(100% in year three).
o Options expire ten years from date of grant.
o Options can be non-qualified stock options (NQSOs) or Incentive Stock Options
(ISOs); Nicor plans to grant NQSOs in 2005.
Description of Performance Units
o Each performance unit equals $1.00 and total units are a percentage of base
salary at the time of the award. As an example, if the participant's base
salary is $150,000 and their long-term target percentage attributable to
Performance Units is 20%, their target award would be $30,000 or 30,000
Performance Units.
o Performance units will pay out in cash, except that a participant in the
Stock Deferral Plan may elect to defer up to 50% of their payout into that
plan. Deferral elections must meet the guidelines and timing of the Stock
Deferral Plan to be effective.
How Performance Unit Payouts are Determined
o All performance units pay out at the end of a three year performance period.
Payouts generally will be made as soon as practicable following the end of
the performance period. However, if payout is not made before March 15
following the end of the performance period, then payment will be made on May
1, following the end of the performance period.
o The payout is based on a performance measure.
o The performance measure and multiplier is based on the Nicor total
shareholder return (TSR) over the performance period, as compared to the
performance of a utility industry peer group (S&P utility group).
o The following schedule shows the proposed performance unit multiplier:
Performance Unit Multiplier Schedule
-------------------------------------
Payout
Nicor TSR* Multiple
---------- --------
90th Percentile or higher 200%
75th Percentile 150%
60th Percentile 100%
50th Percentile 75%
40th Percentile 50%
25th Percentile 25%
Below 25th Percentile 0%
* Values between the data points will be interpolated.
Transferability
With Compensation Committee approval, stock options and performance units may be
transferred, for no consideration, to or for the benefit of the participant's
immediate family as defined in the plan. All terms and conditions remain
applicable after transfer.
Termination Provisions
In the case of death, disability or retirement:
o Nonexercised options held for more than one year (as of the date of death,
disability or retirement) will be immediately exercisable. Performance units
held for more than one year (as of the date of death, disability or
retirement) will be eligible for payout at the end of the performance period.
o The full number of performance units will pay out at the end of the
performance cycle, based on the normal per-unit performance/pay out
guidelines.
o Vested options will remain exercisable for ten years after the date of grant.
o The Compensation Committee can override these provisions at its discretion.
In the case of termination of employment for any other reason, there will be no
accelerated vesting of unvested options and performance units. Options held less
than one year and performance units held less than three years are immediately
cancelled. Options held for one year or longer will become exercisable for three
months after the date of termination. The Compensation Committee can override
these provisions at its discretion.
Amendment
The Compensation Committee may in its sole discretion, amend the Program in such
manner as it may determine is necessary or desirable for the performance units
or the options to be exempt from the application of Section 409A of the Internal
Revenue Code of 1986, as amended (the "Code") or to satisfy the requirements of
Section 409A of the Code, provided that no such amendment may change the
Program's "performance goals," within the meaning of Section 162(m) of the Code,
with respect to any person who is a "covered employee," within the meaning of
Section 162(m) of the Code.