Exhibit 10.(c)
VALLEY RESOURCES, INC.
Executive Incentive Compensation Plan
1. Purpose. The purpose of this plan is to advance the interests of Valley
Resources, Inc. (the "company") by providing financial incentives to selected
key employees of the company and its subsidiaries for achieving specified
objectives. The plan is designed to recognize and reward success relative to
plan objectives and permit participants to acquire common shares of the company
("shares"). By encouraging such share ownership, the company seeks to attract,
retain and motivate employees of training, experience and ability.
2. Plan term. This plan became effective on September 1, 1998 (the
"effective date"), the date it was adopted by the Board of Directors of the
company. The plan will operate on a fiscal year basis beginning September 1 and
concluding August 31. Awards under the plan may be granted through September 1,
2008.
3. Administration. The plan shall be administered by the Compensation
Committee of the Board of Directors of the company (the "committee") who may not
participate in the plan. Subject to the provisions of this plan, the committee
shall have full power to construe and interpret the plan and to establish, amend
and rescind rules and regulations for its administration. The interpretation and
construction by the committee of any provisions of the plan or an award
("incentive award") granted pursuant to the plan and any determination by the
committee pursuant to any provision of the plan or any such incentive award
shall be final and conclusive, and binding on both the participant and the
company.
The committee shall hold meetings at such times and places as it may
determine. A majority of members of the committee shall constitute a quorum and
actions approved by a majority of the members of the committee at a meeting at
which a quorum is present or available by telephone, or actions reduced to or
approved in writing by a majority of the members of the committee, shall be
valid actions of the committee.
4. Eligible employees. Incentive awards may be granted to such key
employees of the company (including members of the Board of Directors who are
also employees of the company) as are selected by the committee (any such
selected employee, a "participant").
5. Shares subject to the plan. The maximum number of shares in respect for
which incentive awards may be cumulatively granted under the plan, subject to
adjustment as provided in paragraph 12 of the plan, during the term in which the
plan is effective shall be seventy-five thousand (75,000) shares of the common
stock of the company. Shares that are forfeited under the provisions specified
in paragraph 10 (f) (1) may again be subjected to an incentive award under the
Plan.
6. Incentive award potential. Participants will be assigned threshold,
target, and maximum incentive award potentials, each expressed as a percentage
of the participant's base salary range control point at the beginning of the
plan year. Incentive award potential percentages shall be established by the
committee from time to time, at its sole discretion. For the 1999 plan year
(fiscal 1999) the plan incentive award potentials are in accordance with Table 1
following:
TABLE 1
1999 Incentive Award Potential
PERCENT OF CONTROL POINT
------------------------
Level Eligible Employees Threshold Target Maximum
- ----- ------------------ --------- ------ -------
1 President & CEO ......................... 12.5% 25% 37.5%
2 Senior Vice President ................... 10.0% 20% 30.0%
3 Vice Presidents/Assistant VPs ........... 7.5% 15% 22.5%
Each participant's actual incentive award will depend upon the company's
achievements during the plan year and a discretionary assessment of the
participant's contribution relative to specific key results as made by either
the committee (for the president and CEO) or the president and CEO for other
plan participants as set forth in paragraph 7 and subject to the satisfaction of
the provisions in paragraph 8.
7. Performance evaluation. The committee shall establish whether any
incentive award shall be granted under the plan during the plan year based on
company results and a discretionary assessment as shown in these three success
categories:
- Ratepayer interests
- Shareholder interests
- Discretion
Ratepayer interests shall consist of one or more company performance
objectives directed at promoting the achievement of such considerations as
enhancing the efficiency of the company's operations, lowering the company's
cost of service, improving the company's cost standing against peer companies,
or other such company operational factors as approved by the committee. The
committee shall establish the plan year performance standards for threshold,
target and maximum levels of achievement and the proportionate weight given to
each of the operational performance criteria. For the 1999 plan year the plan
shall utilize one ratepayer criterion: cost of service. Cost of service is
defined as the company's 3-year average operating expense per firm Mcf as a
ratio to company base revenue per Mcf. The ratepayer category shall constitute
twenty percent (20%) of a participant's target incentive award potential.
Shareholder interests shall consist of two company performance criteria
directed at achieving the company's net income objective and promoting a level
of total shareholder return which aligns with the company's stated objective, or
other such company criteria as established annually by the committee. The
committee shall establish the plan year performance standards for threshold,
target and maximum levels of achievement and the proportionate weight given to
each of the financial performance criteria. For the 1999 plan year the plan
shall utilize two performance criteria: the company's actual net income versus
budgeted net income (un-weather normalized) and annual company total shareholder
return versus the average total shareholder return of a peer group representing
11 investor-owned gas utilities (Appendix I). Each shareholder performance
criterion will be weighted as a percent of a participant's target Incentive
Award Potential. For the 1999 plan year the net income criterion will be
weighted thirty-five (35%) percent and the total shareholder return criterion
twenty-five (25%) percent of the participant's target award.
Discretion shall represent twenty (20%) percent of a participant's
incentive award potential during the plan year as established annually by the
committee. The committee shall exercise its discretion in determining what
portion, if any, of the discretionary component shall be awarded to the
president and CEO at the close of the plan year. The discretion component shall
consist of 3-5 key results specified for the participant for the plan year. The
president and CEO,
subject to committee approval, shall establish what portion, if any, of the
discretionary component shall be awarded to other plan participants at the close
of the plan year. For the 1999 plan year Table 2 displays the performance
categories and their weightings.
TABLE 2
1999 Plan Performance Categories
CATEGORY WEIGHT CRITERIA
Ratepayer 20% Cost of Service
Shareholder 35 Net Income
25 Total Shareholder Return
Discretion 20 Key Results
---
TOTAL 100%
For plan year 1999 the threshold, target and maximum incentive percentages
are shown by level of participant (Appendix 2).
8. Shareholder protection. The grant of an incentive award under the plan
for the plan year shall be subject to the committee's determination that company
earnings available for common stock equal or exceed dividends declared on common
stock for the plan year. The committee will have discretion to make awards
outside the plan should the company's plan year earnings fall below the dividend
level.
9. Incentive award grants. Each participant's actual incentive award, if
any, will depend on the company's results relative to stated plan year ratepayer
and shareholder performance objectives and the discretionary rating. The
committee shall determine any earned awards relative to the company's actual
results for the plan year against the ratepayer and shareholder threshold,
target and maximum standards and discretionary component. Results occurring
between performance standards for the ratepayer and shareholder criteria will be
found using interpolation.
(a) Incentive awards shall be payable in cash, or a combination of cash
and restricted common shares ("grant shares"), as the committee in its
sole discretion shall determine, provided however that no more than
two-thirds (67%) of any earned incentive award shall be payable in
cash unless modified by the committee. The proportion, if any, of a
participant's incentive award payable in cash shall be paid in a
lump-sum as soon as practical following the close of the plan year.
Grant shares will constitute up to one-third of a participants earned
award.
10. Terms and conditions of grant shares. Grant shares issued under this
plan shall be issued according to the terms and conditions which follow:
(a) Price. Grant shares shall be issued for no consideration.
(b) Number of shares. The number of grant shares issued to each
participant, if any, shall be determined by dividing the amount of a
participant's earned incentive award to be paid in grant shares by
the average closing price of the company's common stock during the
last five business days in September of the new fiscal year.
(c) Forfeiture of grant shares. Grant shares issued under this plan shall
be subject to vesting provisions specified in paragraph 10(f)(1).
(d) Non-Transferability. Any grant shares which are subject to the
vesting provisions in paragraph 10(f)(1) shall be non-transferable
by the participant, and may not be pledged, hypothecated or
otherwise encumbered. Notwithstanding the preceding sentence, grant
shares may with the consent of the committee, be registered in
the
name of a personal, irrevocable trust established by such
participant; provided, however, that all of the terms of the
plan, including without limitation, the forfeiture provisions shall
be binding upon the trustee of any such trust.
(e) Withholding Taxes. Whenever payments under an incentive award are
made in cash, the company will withhold therefrom an amount
sufficient to satisfy all taxes required to be withheld by the
company. At the time of the issuance of grant shares to a
participant, and as a condition of the company's obligation to
deliver a certificate for such grant shares to the participant, the
participant shall pay to the company an amount equal to all taxes
required to be withheld by the company for the account of the
participant as a result of such issuance; or, in lieu of such
payment, the company may, at its sole option, accept the written
authorization of the participant to withhold such taxes from
compensation thereafter becoming payable to the participant by the
company. If the participant shall elect under Section 83 of the
Internal Revenue Code of 1986, as amended to accelerate the
recognition of income attributable to the receipt of grant shares,
the participant shall furnish the company with a copy of such
election concurrently with its filing with the Internal Revenue
Service and shall pay to the company the amount of taxes required to
be withheld for the account of the participant by reason of such
election.
(f) Vesting.
(1) The interest of a participant in grant shares shall vest on the
date three (3) years from the date such grant shares were issued
to the participant, except as provided in subparagraph (2) below,
provided,
that the participant shall have remained employed by the company
and/or one of its subsidiaries during the three-year period
immediately following the date the grant shares were issued to
such participant. If the participant fails to complete such
three-year employment requirement and his or her interest in
grant shares is not otherwise vested under subparagraph (2),
below, the participant shall forfeit to the company all un-vested
grant shares theretofore issued to such participant and the
participant shall thereafter have no further rights with respect
to such grant shares.
(2) Notwithstanding the foregoing, a participant's interest in grant
shares may become vested at a date earlier than three years from
their date of issue for such good reason as may be specified by
the committee, in its sole discretion, at the time of or
subsequent to the award of such grant shares, and such interest
shall become immediately vested upon any of the following
occurrences:
(aa) The participant's employment by the company or any of its
subsidiaries terminated by reason of such participant's
death, disability (as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, as amended), or a
reorganization that eliminates the participant's position
and results in the participant's termination of employment;
or
(bb) There is a "change in control" of the company. A "change in
control" shall mean the occurrence of any of the following:
(i) the acquisition by any individual, entity or group
(within the meaning of Section 13 (d) (3) or 14 (d) (2)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of twenty (20%) percent or more of the
combined voting power of the then outstanding voting
securities of the company entitled to vote generally in
the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that for
purposes of this subsection (i), the following
acquisitions shall not constitute a change of control:
(A) any acquisition directly from the company, (B) any
acquisition by the company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the company or any company controlled by
the company or (D) any acquisition by any company
pursuant to a transaction that complies with clauses
(A), (B) and (C) of subsection (iii) below; or
(ii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided,
however, that any individual becoming a director
subsequent to the date hereof whose election, or
nomination for election by the company's shareholders,
was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be
considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of office
occurs as a result of an actual or threatened election
contest with respect to the election or removal of
directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other
than the Board; or
(iii)the approval by the shareholders of the company of a
reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the
assets of the company ("Business Combination") or, if
consummation of such Business Combination is subject,
at the time of such approval by shareholders, to the
consent of any government or governmental agency, the
obtaining of such consent (either explicitly or
implicitly by consummation); excluding, however, such a
Business Combination pursuant to which (A) all or
substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Company
Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly,
more than sixty (60%) percent 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 directors, as the
case may be, of the company resulting from such
resulting from such Business Combination (including,
without limitation, a company that as a result of such
transaction owns the company or all or substantially
all of the company's assets either directly or through
one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company
Voting Securities, (B) no Person (excluding any
employee benefit plan (or related trust) of the company
or such company resulting from such Business
Combination) beneficially owns, directly or indirectly
twenty (20%) percent or more of, respectively, the then
outstanding shares of common stock of the company
resulting from such Business Combination or the
combined voting power of the then outstanding voting
securities of such company except to the extent that
such ownership existed prior to the Business
Combination and (C) at least a majority of the members
of the Board of Directors of company resulting from
such Business Combination were members of the Incumbent
Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for
such Business Combination; or
(iv) approval by the shareholders of the company of a
complete
liquidation or dissolution of the company.
(3) If a participant's employment by the company or one of its
subsidiaries terminates during the three-year employment period
described in paragraph 10(f)(1) by reason of his or her
retirement, and participant retires on or after attaining age 62,
the interest of the participant in any grant shares then subject
to forfeiture shall become fully vested at the time of
retirement. If the participant retires, as determined by the
committee, prior to attaining age 62, there shall be deemed
vested in his account an additional number of grant shares
determined by multiplying the number of shares subject to
forfeiture for each year in which grant shares were awarded
during the three-year employment period by a fraction the
numerator of which shall be the number of full months preceding
participant's retirement that shall have elapsed since the date
of the award of such shares and the denominator of which shall be
36. The committee may, in its discretion, specify that the
interest of the participant in any remaining grant shares then
subject to forfeiture shall become vested at that time, at a
future date, or upon the completion of such conditions as the
committee may provide.
11. Rights as a shareholder. Except as otherwise provided in paragraphs 10
and 14, a participant shall have all of the rights of a shareholder of the
company with respect to grant shares registered in his or her name, including
the right to vote such grant shares and receive dividends and other
distributions paid or made with respect to such grant shares.
12. Share dividends; share splits; share combinations; re-capitalizations.
The Board of Directors of the company may make appropriate adjustment in the
maximum number of shares subject to the plan to adjust for any share dividends,
share splits, share combinations,
re-capitalizations and other similar changes in the capital structure of the
company. The provisions contained in the plan shall apply to any other shares of
capital stock of the company or other securities which may be acquired by the
participant as a result of a share dividend, share split, share combination, or
exchange for other securities resulting from any recapitalization,
reorganization or any other transaction affecting the grant shares.
13. No employment commitment. Nothing herein contained shall be deemed to
be or constitute an agreement or commitment by the company to continue the
participant in its employ or the employ of any subsidiary of the company.
14. Custody of grant shares. The grant shares shall be held in certificated
or uncertificated form as determined by the committee, by an escrow agent
designated by the committee. At the time all forfeiture provisions relating to
such grant shares shall terminate, the company will, upon the making of
arrangements under paragraph 10(e), deliver such certificate to the participant,
together with the assignment referred to above, without restrictions except for
such restrictions as may be required to ensure compliance with federal and state
securities laws. Any such restrictions may at the company's discretion be noted
or referred to conspicuously on such certificate prior to its delivery to the
participant.
15. Termination or amendment of plan.
(a) Except as provided in subparagraph (b), the Board of Directors
may at any time suspend, amend or terminate the plan, provided;
(1) that no such suspension, amendment or termination shall
adversely affect or impair the rights of a participant to any
then issued and outstanding grant shares without the consent
of such participant.
(b) In the event of a change in control (as defined in paragraph
10(f)(2)(bb), the Board of Directors may neither terminate the
plan nor reduce benefits under the plan with respect to those
individuals who are participants as of the date of the change in
control.
16. Governing law. This plan shall be subject to and construed in
accordance with the laws of the state of Rhode Island.
17. Indemnification of committee. In addition to such other rights of
indemnification as they may have as members of the Board of Directors of the
company or as members of the committee, each member of the committee shall be
indemnified by the company against the reasonable expenses, including attorneys'
fees, actually and necessarily incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
he or she may be a party by reason of any action taken or any failure to act
under or in connection with the plan, or any incentive award granted thereunder,
and against all amounts paid by him or her in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the Board of
Directors), or paid by him or her in satisfaction of a judgment in any such
action, suit or proceeding in which such committee member has been determined to
be liable for misconduct in his/her duties; provided that within fifteen (15)
days after receipt of service or process in connection with any such action,
suit or proceeding the committee member shall in writing offer the company the
opportunity, at the company's expense, to defend the same on behalf of the
committee member.
Appendix I
Gas Utility Peer Group
Bay State Gas Company
Berkshire Gas Company
Connecticut Energy Corporation
CTG Resources, Inc.
Delta Natural Gas
EnergyNorth, Inc.
Mobile Gas Service Corporation
Providence Energy Corporation
Roanoke Gas Corporation
Southeastern Michigan Energy Enterprises
Yankee Gas Services
N = 11 companies
i
Appendix II
Position Factor Weight Percent Control Point
Threshold Plan Excess
President and CEO Net Income 35% 4.375 8.75 13.125
Total Shareholder Return 25% 3.125 6.25 9.375
Cost of Service 20% 2.50 5.00 7.50
Board of Discretion 20% 2.50 5.00 7.50
------ ----- ------
TOTALS 12.50 25.00 37.50
====== ===== ======
Senior Vice President Net Income 35% 3.50 7.00 10.50
Total Shareholder Return 25% 2.50 5.00 7.50
Cost of Service 20% 2.00 4.00 6.00
Board Discretion 20% 2.00 4.00 6.00
------ ----- ------
TOTALS 10.0 20.00 30.00
====== ===== ======
Vice President Net Income 35% 2.625 5.25 7.875
Total Shareholder Return 25% 1.875 3.75 5.625
Cost of Service 20% 1.50 3.00 4.50
Board of Discretion 20% 1.50 3.00 4.50
------ ----- ------
TOTALS 7.5 15.00 22.50
====== ===== ======
Asst. Vice President Net Income 35% 2.625 5.25 7.875
Total Shareholder Return 25% 1.875 3.75 5.625
Cost of Service 20% 1.50 3.00 4.50
Board Discretion 20% 1.50 3.00 4.50
------ ----- ------
TOTALS 7.5 15.0 22.50
===== ===== ======