FIRSTENERGY CORP.
EXECUTIVE AND DIRECTOR INCENTIVE
COMPENSATION PLAN
FE Plan effective May 1,1998
Revised November 16, 1998
Revised November 16, 1999
Amendment to Plan approved by
Shareholders on May 15, 2001
Amendment to Plan approved by
Shareholders on May 21, 2002
FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
Table of Contents
Page
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Article 1 Establishment, Purpose, and Duration
1.1 Establishment of the Plan 1
1.2 Purpose of the Plan 1
1.3 Duration of the Plan 1
Article 2 Definitions and Construction
2.1 Definitions
2.1.1 Award 1
2.1.2 Beneficial Owner 1
2.1.3 Black-Scholes Value 1
2.1.4 Board or Board of Directors 1
2.1.5 Cash Award 1
2.1.6 Cause 1
2.1.7 Change in Control 2
2.1.8 Code 4
2.1.9 Committee 4
2.1.10 Company 4
2.1.11 Covered Employee 4
2.1.12 Directors' Award 4
2.1.13 Exchange Act 4
2.1.14 Fair Market Value 4
2.1.15 Incentive Stock Option or ISO 4
2.1.16 Key Employee 4
2.1.17 Nonqualified Stock Option or NSO 5
2.1.18 Option 5
2.1.19 Outside Director 5
2.1.20 Participant 5
2.1.21 Performance Share 5
2.1.22 Period of Restriction 5
2.1.23 Person 5
2.1.24 Plan 5
2.1.25 Restricted Stock 5
2.1.26 Subsidiary 5
2.1.27 Standard Rate 5
2.1.28 Stock 5
2.1.29 Stock Appreciation Right or SAR 5
2.1.30 Voting Stock 5
2.2 Gender and Number 5
2.3 Severability 5
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FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
Table of Contents
Article 3 Administration
3.1 The Committee 5
3.2 Authority of the Committee 6
3.3 Selection of Participants 6
3.4 Decisions Binding 6
3.5 Delegation of Certain Responsibilities 6
3.6 Procedures of the Committee 7
3.7 Award Agreements 7
3.8 Conditions on Awards 7
3.9 Saturdays, Sundays, and Holidays 7
Article 4 Stock Subject to the Plan
4.1 Number of Shares 7
4.2 Lapsed Awards 8
4.3 Adjustments in Authorized Shares 8
Article 5 Eligibility and Participation
5.1 Eligibility 8
5.2 Actual Participation 8
Article 6 Stock Options
6.1 Grant of Options 8
6.2 Option Agreement 9
6.3 Option Price 9
6.4 Duration of Options 9
6.5 Exercise of Options 9
6.6 Payment 9
6.7 Restrictions on Stock Transferability 10
6.8 Termination of Employment Due to Death, Disability, 10
or Retirement
6.9 Termination of Employment for Other Reasons 10
6.10 Nontransferability of Options 11
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FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
Table of Contents
Article 7 Stock Appreciation Rights
7.1 Grant of Stock Appreciation Rights 11
7.2 Exercise of SARS in Lieu of Options 11
7.3 Exercise of SARS in Addition to Options 11
7.4 Exercise of SARS Independent of Options 12
7.5 Payment of SAR Amount 12
7.6 Form and Timing of Payment 12
7.7 Term of SAR 12
7.8 Termination of Employment 12
7.9 Nontransferability of SARs 12
Article 8 Restricted Stock
8.1 Grant of Restricted Stock 12
8.2 Restricted Stock Agreement 12
8.3 Transferability 13
8.4 Other Restrictions 13
8.5 Certificate Legend 13
8.6 Removal of Restrictions 13
8.7 Voting Rights 13
8.8 Dividends and Other Distributions 13
8.9 Termination of Employment Due to Retirement 13
8.10 Termination of Employment Due to Death or Disability 14
8.11 Termination of Employment for Other Reasons 14
Article 9 Performance Shares
9.1 Grant of Performance Shares 14
9.2 Value of Performance Shares 14
9.3 Payment of Performance Shares 15
9.4 Committee Discretion to Adjust Awards 15
9.5 Form and Timing of Payment 15
9.6 Termination of Employment Due to Death, Disability, 15
or Retirement
9.7 Termination of Employment for Other Reasons 15
9.8 Nontransferability 16
Article 10 Cash Awards
10.1 Grant of Cash Award 16
10.2 Cash Award Performance Criteria 16
10.3 Payout of Cash awards 16
10.4 Conversion of Cash Award Payout to Restricted Stock 16
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FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
Table of Contents
Article 11 Directors' Awards
11.1 Grant of Director's Awards 17
11.2 Conversion of Retainer to Stock 17
11.3 Conversion of Retainer to Restricted Stock 17
11.4 Conversion of Retainer to Stock Options 17
Article 12 Beneficiary Designation 17
Article 13 Rights of Employees
13.1 Employment 18
13.2 Participation 18
13.3 No Implied Rights; Rights on Termination of Service 18
13.4 No Right to Company Assets 18
Article 14 Change in Control
14.1 Stock Based Awards 18
14.2 All Awards Other than Stock Based Awards 18
Article 15 Amendment, Modification, and Termination
15.1 Amendment, Modification, and Termination 19
15.2 Awards Previously Granted 19
15.3 Deferral of Payments and Distributions 19
Article 16 Withholding and Deferral
16.1 Tax Withholding 19
16.2 Stock Delivery or Withholding 19
Article 17 Successors 20
Article 18 Requirements of Law
18.1 Requirements of Law 20
18.2 Governing Law 20
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FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
Scope of Revision
Rev. 4
Increase the number of shares under the Plan as approved by Shareholders on May
21, 2002.
Rev. 3
Clairfy that 6.8 includes early retirement. Put 6.8 in plain English.
Increase the number of shares under the Plan and the limits as approved by
Shareholders on May 15, 2001.
Add "vesting or forfeiture" to 8.4 to strengthen the substantial forfeiture
clause as required by IRS.
Rev. 2
Change definition of Fair Market Value from 20 day average to high and low on
date of grant.
Rev. 1
Reformatted from Landscape to Portrait, made numbering consistence throughout
document.
Included Table of Contents and Scope of Revision pages.
Changed the NQSO acronym to NSO throughout.
Clarified that the Chief Executive Officer could grant awards for all Key
employees, except those defined as Covered Employees.
Incorporated the changes to Rule 16b-3 requirements.
Clarified how dates referenced in the Agreements are to be handled when the date
falls on a Saturday, Sunday, or Holiday.
Clarified how cashless exercises are handled.
Clarified that exercising portions of grants are permissible.
Added language to 18.2 regarding conflicts of law.
Rev. 0
Plan approved by FirstEnergy Board of Directors on February 17, 1998
Plan approved by common shareholders on April 30, 1998
Plan became effective on May 1, 1998
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FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
ARTICLE 1 ESTABLISHMENT, PURPOSE, AND DURATION
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1.1 ESTABLISHMENT OF THE PLAN. FirstEnergy Corp. (hereinafter referred to as
"FirstEnergy"), established, effective May 1, 1998, an incentive
compensation plan known as the "Executive and Director Incentive
Compensation Plan" (hereinafter referred to as the "Plan"), which
permits the grant of Incentive Stock Options, Non-qualified Stock
Options, Stock Appreciation Rights, Restricted Stock, Performance
Shares, Cash Awards and Directors' Awards.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to promote the success
of the Company and its Subsidiaries by providing incentives to Key
Employees and Directors that will link their personal interests to the
long-term financial success of the Company and its Subsidiaries, and to
growth in shareholder value. The Plan is designed to provide flexibility
to the Company and its Subsidiaries in their ability to motivate,
attract, and retain the services of Key Employees upon whose judgment,
interest, and special effort the successful conduct of their operations
is largely dependent. The Plan is intended to preserve maximum
deductibility of all awards made under the plan within the structure of
Section 162(m) of the Internal Revenue Code of 1986 as amended "the
Code".
1.3 DURATION OF THE PLAN. The Plan will commence on May 1, 1998, as
described in Section 1.1 herein. The Plan shall remain in effect,
subject to the right of the Board of Directors to terminate the Plan at
any time, until all Shares subject to it shall have been purchased or
acquired according to the provisions herein.
ARTICLE 2 DEFINITIONS AND CONSTRUCTION
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2.1. DEFINITIONS. Whenever used in the Plan, the following terms shall have
the meanings set forth below and, when the meaning is intended, the
initial letter of the word is capitalized:
2.1.1 "Award" means, individually or collectively, a grant under
this Plan of Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Restricted Stock,
Performance Shares, Cash Awards or Directors' Awards.
2.1.2 "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
2.1.3 "Black-Scholes Value" means the value of one stock option as
calculated by the Black-Scholes Valuation Model as prescribed
under Financial Accounting Standard 123.
2.1.4 "Board" or "Board of Directors" means the Board of Directors
of the Company.
2.1.5 "Cash Award" means an award in the form of cash that is a
bonus made pursuant to the terms of Article 10.
2.1.6 "Cause" shall mean the occurrence of any one of the following:
(i) the willful and continued failure by a Participant to
substantially perform his/her duties (other than any
such failure resulting from the Participant's
disability), after a written demand for substantial
performance is delivered to the Participant that
specifically identifies the manner in which the
Company or any of its Subsidiaries, as the case may
be, believes that the Participant has not
substantially
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FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
performed his/her duties, and the
Participant has failed to remedy the situation within
ten (10) business days of receiving such notice; or
(ii) the Participant's conviction for committing a felony
or a crime involving an act of moral turpitude,
dishonesty or misfeasance; or
(iii) the willful engaging by the Participant in gross
misconduct materially and demonstrably injurious to
the Company or any of its Subsidiaries. However, no
act, or failure to act, on the Participant's part
shall be considered "willful" unless done, or omitted
to be done, by the Participant not in good faith and
without reasonable belief that his/her action or
omission was in the best interest of the Company or
any of its Subsidiaries.
2.1.7 "Change in Control" shall mean:
(i) The acquisition by Person of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 50% (25%if such Person proposes
any individual for election to the Board or any member
of the Board is the representative of such Person) or
more of either
(a) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common
Stock") or
(b) 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 the
following acquisitions shall not constitute a
Change in Control:
(1) any acquisition directly from the
Company (excluding an acquisition by
virtue of the exercise of a conversion
privilege),
(2) any acquisition by the Company,
(3) any acquisition by any employee benefit
plan (or related trust) sponsored or
maintained by the Company or any
corporation controlled by the Company,
or
(4) any acquisition by any corporation
pursuant to a reorganization, merger or
consolidation, if, following such
reorganization, merger or
consolidation, the conditions described
in clauses (a), (b) and (c) of
subsection (iii) of this subsection
2.1.7 are satisfied; 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 either an actual or
threatened election contest (as such terms are used
in Rule 14a-11 of the Regulation 14A 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; or
(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case,
unless, following such reorganization, merger or
consolidation,
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FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
(a) more than 75% of, respectively, the then outstanding
shares of common stock of the corporation resulting
from such reorganization, merger or consolidation and
the combined voting power of the then outstanding
voting securities of such corporation entitled to
vote generally in the election of directors is then
beneficially owned, directly or indirectly, by
all or substantially all of the individuals and
entities who were the beneficial owners,
respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities
immediately prior to such reorganization,
merger or consolidation in substantially the
same proportions as their ownership,
immediately prior to such reorganization,
merger or consolidation, of the Outstanding
Company Common Stock and Outstanding Company
Voting Securities, as the case may be,
(b) no Person (excluding the Company, an employee benefit
plan (or related trust) of the Company or such
corporation resulting from such reorganization,
merger or consolidation and any Person beneficially
owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 25%
or more of the Outstanding Company Common Stock
or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 25% or
more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such
reorganization, merger or consolidation or the
combined voting power of the then outstanding voting
securities of such corporation entitled to vote
generally in the election of directors and
(c) at least a majority of the members of the board
of directors of the corporation resulting from
such reorganization, merger or consolidation
were members of the Incumbent Board at the time
of the execution of the initial agreement
providing for such reorganization, merger or
consolidation; or
(iv) Approval by the shareholders of the Company of (a) a
complete liquidation or dissolution of the Company or (b)
the sale or other disposition of all or substantially all
of the assets of the Company, other than to a
corporation, with respect to which following such sale or
other disposition (1) more than 75% of, respectively, the
then outstanding shares of common stock of such
corporation and the combined voting power of the then
outstanding voting securities of such corporation
entitled to vote generally in the election of directors
is then beneficially owned, directly or indirectly,
by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale
or other disposition in substantially the same proportion
as their ownership, immediately prior to such sale or
other disposition, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the
case
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FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
may be, (2) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company
or such corporation and any Person beneficially owning,
immediately prior to such sale or other disposition,
directly or indirectly, 25% or more of the Outstanding
Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns,
directly or indirectly, 25% or more of, respectively, the
then outstanding share of common stock of such
corporation and the combined voting power of the then
outstanding voting securities of such corporation
entitled to vote generally in the election of directors
and (3) at least a majority of the members of the board
of directors of such corporation were members of the
Incumbent Board at the time of the execution of the
initial agreement or action of the Board providing for
such sale or other disposition of assets of the Company.
However, in no event shall a Change in Control be
deemed to have occurred, with respect to a
Participant, if the Participant is part of a
purchasing group, which consummates the Change in
Control transaction. The Participant shall be deemed
"part of a purchasing group. . . " for purposes of the
preceding sentence if the Participant is an equity
participant or has agreed to become an equity
participant in the purchasing company or group (except
for (i) passive ownership of less than 5% of the
voting securities of the purchasing company or (ii)
ownership of equity participation in the purchasing
company or group which is otherwise not deemed to be
significant, as determined prior to the Change in
Control by a majority of the non-employee continuing
members of the Board).
2.1.8 "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
2.1.9 "Committee" means the Compensation Committee of the Board.
2.1.10 "Company" means FirstEnergy Corp., an Ohio corporation, or any
successor thereto as provided in Article 17 herein.
2.1.11 "Covered Employee" means any Participant designated prior to
the grant of Stock Options, Stock Appreciation Rights,
Restricted Stock, Performance Shares or Cash Award by the
Committee who is or may be a "covered employee" within the
meaning of Section 162(m)(3) of the Code in the year in which
such Stock Options, Stock Appreciation Rights, Restricted
Stock, Performance Shares or Cash Award are taxable to such
Participant.
2.1.12 "Directors' Award" means an Award made pursuant to Article 11
of this Plan.
2.1.13 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
2.1.14 "Fair Market Value" means the average of the high and low sale
prices of the common stock as reported on the composite tape
of the New York Stock Exchange for the date in which the
determination of the fair market value is made, or, if there
are no sales of common stock on that date, then on the next
preceding date on which there were sales of common stock.
2.1.15 "Incentive Stock Option" or "ISO" means an option to purchase
Stock, granted under Article 6 herein, which is designated as
an incentive stock option and is intended to meet the
requirements of Section 422 of the Code.
2.1.16 "Key Employee" means an employee of the Company or any of its
Subsidiaries, including an employee who is an officer or a
director of the Company or any of its Subsidiaries, who, in
the opinion of the Committee, can contribute significantly to
the growth and profitability of the Company and its
Subsidiaries. "Key Employee" also may include any other
employee, identified by the Committee, in special situations
involving extraordinary performance, promotion, retention, or
recruitment. The granting of an
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FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
Award under this Plan shall be deemed a determination by the
Committee that such employee is a Key Employee, but shall not
create a right to remain a Key Employee.
2.1.17 "Nonqualified Stock Option" or "NSO" means an option to
purchase Stock, granted under Article 6 herein, which is not
intended to be an Incentive Stock Option.
2.1.18 "Option" means an Incentive Stock Option or a Nonqualified
Stock Option.
2.1.19 "Outside Director" means any director who qualifies as an
"outside director" as that term is defined in Code Section
162(m) and the regulations issued thereunder.
2.1.20 "Participant" means a Key Employee or Director who has been
granted an Award under the Plan.
2.1.21 "Performance Share" means an Award, designated as a
performance share, granted to a Participant pursuant to
Article 9 herein.
2.1.22 "Period of Restriction" means the period during which the
transfer or sale of Shares of Restricted Stock by the
participant is restricted.
2.1.23 "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) thereof.
2.1.24 "Plan" means this Executive and Director Incentive
Compensation Plan of FirstEnergy Corp., as herein described
and as hereafter from time to time amended.
2.1.25 "Restricted Stock" means an Award of Stock granted to a
Participant pursuant to Article 8 herein.
2.1.26 "Subsidiary" shall mean any corporation of which more than 50%
(by number of votes) of the Voting Stock at the time
outstanding is owned, directly or indirectly, by the Company.
2.1.27 "Standard Rate" means the electric utility median base salary
level for a given position as determined in the judgment of
the Committee.
2.1.28 "Stock" or "Shares" means the common stock with a 10 cent par
value of the Company.
2.1.29 "Stock Appreciation Right" or "SAR" means an Award, designated
as a Stock Appreciation Right, granted to a Participant
pursuant to Article 7 herein.
2.1.30 "Voting Stock" shall mean securities of any class or classes
of stock of a corporation, the holders of which are
ordinarily, in the absence of contingencies, entitled to elect
a majority of the corporate directors.
2.2 GENDER AND NUMBER. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine, the plural
shall include the singular, and the singular shall include the plural.
2.3. SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be
construed and enforced as if the illegal or invalid provision had not
been included.
ARTICLE 3 ADMINISTRATION
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3.1 THE COMMITTEE. The Plan shall be administered by the Committee, which
consists of not less than three Directors who shall be appointed from
time to time by, and shall serve at the discretion of, the Board of
Directors. To the extent required to comply with Rule 16b-3 under the
Exchange
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FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
Act, each member of the Committee shall qualify as a
"Non-Employee Director" as defined in Rule 16b-3 or any successor
definition adopted by the Securities and Exchange Commission. To the
extent required to comply with Code Section 162(m), each member of the
Committee shall also be an Outside Director.
3.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan, the
Committee shall have full power to construe and interpret the Plan; to
establish, amend or waive rules and regulations for its administration;
to accelerate the exercisability of any Award or the end of a
performance period or the termination of any Period of Restriction or
any award agreement, or any other instrument relating to an Award under
the Plan; and (subject to the provisions of Article 15 herein) to amend
the terms and conditions of any outstanding Option, Stock Appreciation
Right or other Award to the extent such terms and conditions are within
the discretion of the Committee as provided in the Plan. Notwithstanding
the foregoing, the Committee shall have no authority to adjust upwards
the amount payable to a Covered Employee with respect to a particular
Award, to take any of the foregoing actions, or to take any other action
to the extent that such action or the Committee's ability to take such
action would cause any Award under the Plan to any Covered Employee to
fail to qualify as "performance-based compensation" within the meaning
of Code Section 162(m)(4) and the regulations issued thereunder. Subject
to section 4.3, in no event shall the Committee have the right to i)
cancel outstanding Options or SARs for the purpose of replacing or
regranting such Options or SARs with an exercise price that is less than
the original exercise price of the Option or SAR, or ii) change the
Option Price of an Option or SAR to an exercise price that is less than
the original Option or SAR exercise price, without first obtaining the
approval of shareholders. Also notwithstanding the foregoing, no action
of the Committee (other than pursuant to Section 4.3 hereof or Section
9.4 hereof) may, without the consent of the person or persons entitled
to exercise any outstanding Option or Stock Appreciation Right or to
receive payment of any other outstanding Award, adversely affect the
rights of such person or persons.
3.3 SELECTION OF PARTICIPANTS. The Committee shall have the authority to
grant Awards under the Plan, from time to time, to such Key Employees
and Directors as may be selected by it. The Committee shall select
Participants from among those who they have identified as being Key
Employees or Directors.
3.4 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders
or resolutions of the Board of Directors shall be final, conclusive and
binding on all persons, including the Company and its Subsidiaries, its
stockholders, employees, and Participants and their estates and
beneficiaries, and such determinations and decisions shall not be
reviewable.
3.5 DELEGATION OF CERTAIN RESPONSIBILITIES. The Committee may, in its sole
discretion, delegate to an officer or officers of the Company the
administration of the Plan under this Article 3; provided, however, that
no such delegation by the Committee shall be made with respect to the
administration of the Plan as it affects Directors of the Company or
Covered Employees and provided further that the Committee may not
delegate its authority to correct errors, omissions or inconsistencies
in the Plan. The Committee may delegate to the Chief Executive Officer
of the Company its authority under this Article 3 to grant Awards to Key
Employees who are not
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FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
Covered Employees. All authority delegated by the
Committee under this Section 3.5 shall be exercised in accordance with
the provisions of the Plan and any guidelines for the exercise of such
authority that may from time to time be established by the Committee.
3.6 PROCEDURES OF THE COMMITTEE. All determinations of the Committee shall
be made by not less than a majority of its members present at the
meeting (in person or otherwise) at which a quorum is present. A
majority of the entire Committee shall constitute a quorum for the
transaction of business. Any action required or permitted to be taken at
a meeting of the Committee may be taken without a meeting if a unanimous
written consent, which sets forth the action, is signed by each member
of the Committee and filed with the minutes for proceedings of the
Committee. Service on the Committee shall constitute service as a
director of the Company so that members of the Committee shall be
entitled to indemnification, limitation of liability and reimbursement
of expenses with respect to their services as members of the Committee
to the same extent that they are entitled under the Company's Articles
of Incorporation and Ohio law for their services as directors of the
Company.
3.7 AWARD AGREEMENTS. Stock-based Awards under the Plan shall be evidenced
by an award agreement, which shall be signed by an authorized officer of
the Company or delegate and by the Participant, and shall contain such
terms and conditions as may be approved by the Committee. Such terms and
conditions need not be the same in all cases.
3.8 CONDITIONS ON AWARDS. Notwithstanding any other provision of the Plan,
the Board or the Committee may impose such conditions on any Award
(including, without limitation, the right of the Board or the Committee
to limit the time of exercise to specified periods).
Notwithstanding any other provisions of the Plan, all Awards under this
Plan shall be subject to the following conditions:
(i) Except in the case of death, no SAR, ISO, NSO or other option
granted pursuant to Article 6 shall be exercisable for at least
six months after its grant; and
(ii) Except in the case of death, no Restricted Stock or Performance
Share (or a Share issued in payment thereof) shall be sold for
at least six months after its grant.
3.9 SATURDAYS, SUNDAYS AND HOLIDAYS. When a date referenced in an award
Agreement falls on a Saturday, Sunday or other day when the FirstEnergy
General Office is closed, the date reference will revert back to the day
prior to such date.
ARTICLE 4 STOCK SUBJECT TO THE PLAN
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4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3
herein, the aggregate number of Shares that may be delivered under the
Plan at any time shall not exceed 22,500,000 Shares of common stock of
the Company. No more than three-quarters of such aggregate number of
such Shares shall be issued as Restricted Stock under Article 8 of the
Plan or as Performance Shares under Article 9. Stock delivered under the
Plan may consist, in whole or in part, of authorized and unissued
shares, treasury shares or shares purchased on the open market. The
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FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
exercise of a Stock Appreciation Right, whether paid in cash or Stock,
shall be deemed to be an issuance of Stock under the Plan.
4.2 LAPSED AWARDS. If any Award granted under this Plan terminates, expires,
or lapses for any reason, any Stock subject to such Award again shall be
available for the grant of an Award under the Plan, subject to Section
7.2 herein. If the value of any Performance Shares issued under Article
9 are paid in cash after a Performance Period has ended, such stock
subject to such award shall again be available for the grant of an award
under the Plan.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any merger,
reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, split-up, share combination, or other
change in the corporate structure of the Company affecting the Stock,
such adjustment shall be made in the number and class of shares which
may be delivered under the Plan, and in the number and class of and/or
price of shares subject to outstanding Options, Stock Appreciation
Rights, Restricted Stock Awards and Performance Shares, granted under
the Plan, as may be determined to be appropriate and equitable by the
Committee, in its sole discretion, to prevent dilution or enlargement of
rights; and provided that the number of shares subject to any Award
shall always be a whole number. Any adjustment of an Incentive Stock
Option under this paragraph shall be made in such a manner so as not to
constitute a modification within the meaning of Section 425(h)(3) of the
Code.
ARTICLE 5 ELIGIBILITY AND PARTICIPATION
-----------------------------
5.1 ELIGIBILITY. Persons eligible to receive Awards under all Articles of
this Plan except Article 11 include all employees of the Company and its
Subsidiaries who, in the opinion of the Committee, are Key Employees.
Key Employees may include employees who are members of the Board, but
may not include Directors who are not employees. Directors who are not
employees may receive Awards under this Plan exclusively under Articles
6 and 8, subject to Article 11.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may from time to time select those Key Employees to whom
Awards shall be granted and determine the nature and amount of each
Award. No employee shall have any right to be granted an Award under
this Plan even if previously granted an Award.
ARTICLE 6 STOCK OPTIONS
-------------
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Participants at any time and from time to time
as shall be determined by the Committee. The maximum number of Shares
subject to Options granted to any individual Participant in any calendar
year shall be five hundred thousand (500,000) Shares. The Committee
shall have the sole discretion, subject to the requirements of the Plan,
to determine the actual number of Shares subject to Options granted to
any Participant. The Committee may grant any type of Option to purchase
Stock that is permitted by law at the time of grant, including, but not
limited to, ISO's and NSO's. However, no employee may receive an Award
of Incentive Stock Options that are
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Executive and Director Incentive Compensation Plan
first exercisable during any calendar year to the extent that the
aggregate Fair Market Value of the Stock (determined at the time the
options are granted) exceeds $100,000. Nothing in this Article 6 shall
be deemed to prevent the grant of NSO's in excess of the maximum
established by Section 422 of the Code. Unless otherwise expressly
provided at the time of grant, Options granted under the Plan will be
NSO's. Notwithstanding any other provision of the Plan, no ISO shall be
granted after May 1, 2008.
6.2 OPTION AGREEMENT. Each Option grant shall be evidenced by an Option
agreement that shall specify the type of Option granted, the Option
price, the duration of the Option, the number of Shares to which the
Option pertains, and such other provisions as the Committee shall
determine. The Option agreement shall specify whether the Option is
intended to be an Incentive Stock Option within the meaning of Section
422 of the Code, or a Nonqualified Stock Option whose grant is not
intended to be subject to the provisions of Code Section 422.
6.3 OPTION PRICE. The purchase price per share of Stock covered by an Option
shall be determined by the Committee but shall not be less than 100% of
the Fair Market Value of such Stock on the date the Option is granted.
An Incentive Stock Option granted to an Employee who, at the time of
grant, owns (within the meaning of Section 425(d) of the Code) Stock
possessing more than 10% of the total combined voting power of all
classes of stock of the Company, shall have an exercise price which is
at least 110% of the Fair Market Value of the Stock subject to the
Option.
6.4 DURATION OF OPTIONS. Each Option shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that
no Option shall be exercisable later than the tenth (10th) anniversary
date of its grant.
6.5 EXERCISE OF OPTIONS. Subject to Section 3.8 herein, Options granted
under the Plan shall be exercisable at such times and be subject to such
restrictions and conditions as the Committee shall in each instance
approve, which need not be the same for all Participants. All options
within a single grant need not be exercised at one time.
6.6 PAYMENT. Options shall be exercised by the delivery of a written notice
to the Company setting forth the number of Shares with respect to which
the Option is to be exercised, accompanied by full payment for the
Shares. The Option price upon exercise of any Option shall be payable to
the Company in full either:
(a) in cash or its equivalent;
(b) by tendering Shares of previously acquired Stock having a Fair
Market Value at the time of exercise equal to the total Option
price,
(c) by foregoing compensation under rules established by the
Committee,
(d) by delivery by the Participant of irrevocable instructions to
an approved broker to promptly deliver to the Company the
amount of the sale or loan proceeds to pay the exercise price,
or
(e) such other consideration as the Committee may deem
appropriate.
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Executive and Director Incentive Compensation Plan
The proceeds from such a payment shall be added to the general funds of
the Company and shall be used for general corporate purposes. As soon as
practicable, after the Company's receipt of written notification and
payment, the Participant shall receive either:
(i) stock certificates in an appropriate amount based upon the
number of Options exercised, issued in the Participant's name:
(ii) cash in an amount equal to the difference between the sale price
of such Shares and the Option price less taxes and
administrative expenses; or
(iii) a combination of the foregoing.
6.7 RESTRICTIONS ON STOCK TRANSFERABILITY. The Committee shall impose such
restrictions on any Shares acquired pursuant to the exercise of an
Option under the Plan as it may deem advisable, including, without
limitation, restrictions under applicable Federal securities law, under
the requirements of any stock exchange upon which such Shares are then
listed and under any blue sky or state securities laws applicable to
such Shares.
6.8 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT. In
the event the employment of a Participant is terminated by reason of
death, any of such Participant's outstanding Options shall become
immediately exercisable at any time prior to the expiration date of the
Options or within one year after such date of termination of employment,
whichever period is shorter, by such person or persons as shall have
acquired the Participant's rights under the Option pursuant to Article
12 hereof or by will or by the laws of descent and distribution.
In the event the employment of a Participant is terminated by reason of
disability or retirement, including early retirement, (as defined under
the then established rules of the Company or any of its Subsidiaries, as
the case may be), any of such Participant's outstanding Options shall
continue to vest per the vesting schedule of the Participant's Option
Agreement; provided, however, that if the Participant subsequently dies
with unexercised options, the vesting and exercisaeability will be
governed by the first sentence of 6.8.
Notwithstanding the foregoing to the contrary, the Committee may, in its
sole discretion, lengthen the exercise period up to the expiration date
for an individual participant if it deems this is in the best interest
of the Company. In the case of Incentive Stock Options, the favorable
tax treatment prescribed under Section 422 of the Internal Revenue Code
of l986, as amended, may not be available if the Options are not
exercised within the Code Section 422 prescribed time period after
termination of employment for death, disability, or retirement.
6.9 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of a
Participant shall terminate for any reason other than death, disability,
retirement (including early retirement) or for Cause, the Participant
shall have the right to exercise such Participant's outstanding Options
within 90 days after the date of his termination, but in no event beyond
the expiration of the term of the Options and only to the extent that
the Participant was entitled to exercise the Options at the date of his
termination of employment. In its sole discretion, the Committee may
extend the 90 days to up to one year but, however, in no event beyond
the expiration date of the Option.
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Executive and Director Incentive Compensation Plan
If the employment of the Participant shall terminate for Cause, all of
the Participant's outstanding Options shall be immediately forfeited
back to the Company.
6.10 NONTRANSFERABILITY OF OPTIONS. No Option granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, otherwise than by will or by the laws of descent and
distribution. Further, all Options granted to a Participant under the
Plan shall be exercisable during his lifetime only by such Participant.
ARTICLE 7 STOCK APPRECIATION RIGHTS
-------------------------
7.1 GRANT OF STOCK APPRECIATION RIGHTS. Subject to the terms and conditions
of the Plan, Stock Appreciation Rights may be granted to Participants,
at the discretion of the Committee, in any of the following forms:
(a) in lieu of Options;
(b) in addition to Options;
(c) independent of Options; or
(d) in any combination of (a), (b), or (c).
The maximum numbers of Shares subject to SARs granted to any individual
Participant in any calendar year shall be five hundred thousand
(500,000) Shares. Subject to the immediately preceding sentence, the
Committee shall have the sole discretion, subject to the requirements of
the Plan, to determine the actual number of Shares subject to SARs
granted to any Participant.
7.2 EXERCISE OF SARS IN LIEU OF OPTIONS. SARs granted in lieu of Options may
be exercised for all or part of the Shares subject to the related Option
upon the surrender of the related Options representing the right to
purchase an equivalent number of Shares. The SAR may be exercised only
with respect to the Shares of Stock for which its related Option is then
exercisable. Option Stock with respect to which the SAR shall have been
exercised may not be subject again to an Award under the Plan.
Notwithstanding any other provision of the Plan to the contrary, with
respect to a SAR granted in lieu of an Incentive Stock Option:
(i) the SAR will expire no later than the expiration of the
underlying Incentive Stock Option;
(ii) the SAR amount may be for no more than one hundred percent
(100%) of the difference between the exercise price of the
underlying Incentive Stock Option and the Fair Market Value of
the Stock subject to the underlying Incentive Stock Option at
the time the SAR is exercised; and
(iii) the SAR may be exercised only when the Fair Market Value of the
Stock subject to the Incentive Stock Option exceeds the
exercise price of the Incentive Stock Option.
7.3 EXERCISE OF SARS IN ADDITION TO OPTIONS. SARs granted in addition to
Options shall be deemed to be exercised upon the exercise of the related
Options. The deemed exercise of SARs granted in addition to Options
shall not necessitate a reduction in the number of related Options.
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Executive and Director Incentive Compensation Plan
7.4 EXERCISE OF SARS INDEPENDENT OF OPTIONS. Subject to Section 3.8 herein
and Section 7.5 herein, SARs granted independently of Options may be
exercised upon whatever terms and conditions the Committee, in its sole
discretion, imposes upon the SARs, including, but not limited to, a
corresponding proportional reduction in previously granted Options.
7.5 PAYMENT OF SAR AMOUNT. Upon exercise of the SAR, the holder shall be
entitled to receive payment of an amount determined by multiplying:
(a) The difference between the market price of a Share on the date
of exercise over the price fixed by the Committee at the date of
grant (which price shall not be less than 100% of the market
price of a Share on the date of grant) (the Exercise Price); by
(b) The number of Shares with respect to which the SAR is exercised.
7.6 FORM AND TIMING OF PAYMENT. Payment to a Participant, upon SAR
exercise, will be made in cash or stock, at the discretion of the
Committee, as soon as administratively possible after exercise.
7.7 TERM OF SAR. The term of an SAR granted under the Plan shall not exceed
ten years.
7.8 TERMINATION OF EMPLOYMENT. In the event the employment of a Participant
is terminated by reason of death, disability, retirement (including
early retirement), or any other reason, the exercisability of any
outstanding SAR granted in lieu of or in addition to an Option shall
terminate in the same manner as its related Option as specified under
Sections 6.8 and 6.9 herein. The exercisability of any outstanding SARs
granted independent of Options also shall terminate in the manner
provided under Sections 6.8 and 6.9 hereof.
7.9 NONTRANSFERABILITY OF SARS. No SAR granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further,
all SARs granted to a Participant under the Plan shall be exercisable
during his lifetime only by such Participant.
ARTICLE 8 RESTRICTED STOCK
----------------
8.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares
of Restricted Stock under the Plan to such Participants and in such
amounts, as it shall determine. The Committee may condition the vesting
or lapse of the Period of Restriction established pursuant to Section
8.3 upon the attainment of one or more of the performance goals utilized
for purposes of Performance Shares pursuant to Article 9 hereof. As
required for valuation of grants under the Plan, Restricted Stock will
be valued at its Fair Market Value. The maximum number of Shares subject
to issuance as Restricted Stock granted to any individual Participant in
any calendar year is two hundred fifty thousand (250,000) Shares.
8.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock agreement that shall specify the Period
of Restriction, or periods, the number of Shares of Restricted Stock
granted, and such other provisions as the Committee shall determine.
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Executive and Director Incentive Compensation Plan
8.3 TRANSFERABILITY. Except as provided in this Article 8 or in
Section 3.8 herein, the Shares of Restricted Stock granted hereunder
may not be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated until the termination of the applicable
Period of Restriction or for such period of time as shall be
established by the Committee and as shall be specified in the
Restricted Stock agreement, or upon earlier satisfaction of other
conditions (including any performance goals) as specified by the
Committee in its sole discretion and set forth in the Restricted Stock
agreement. All rights with respect to the Restricted Stock granted to
a Participant under the Plan shall be exercisable during his lifetime
only by such Participant.
8.4 OTHER RESTRICTIONS. The Committee shall impose such other restrictions
on any Shares of Restricted Stock granted pursuant to the Plan as it may
deem advisable including, without limitation, vesting or forfeiture
restrictions under applicable Federal or state securities laws, and the
Committee may legend certificates representing Restricted Stock to give
appropriate notice of such restrictions.
8.5 CERTIFICATE LEGEND. In addition to any legends placed on certificates
pursuant to Section 8.4 herein, each certificate representing Shares of
Restricted Stock granted pursuant to the Plan shall bear the following
legend:
"The sale or other transfer of the shares of stock represented
by this certificate, whether voluntary, involuntary, or by
operation of law, is subject to certain restrictions on
transfer set forth in the Executive and Director Incentive
Compensation Plan of FirstEnergy Corp., in the rules and
administrative procedures adopted pursuant to such Plan, and
in a Restricted Stock Agreement dated __________. A copy of
the Plan, such rules and procedures, and such Restricted Stock
agreement may be obtained from the Secretary of FirstEnergy
Corp."
8.6 REMOVAL OF RESTRICTIONS. Except as otherwise provided in this Article,
Shares of Restricted Stock covered by each Restricted Stock grant made
under the Plan shall become freely transferable by the Participant after
the last day of the Period of Restriction. Once the Shares are released
from the restrictions, the Participant shall be entitled to have the
legend required by Section 8.5 removed from his Stock certificate.
8.7 VOTING RIGHTS. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to those Shares.
8.8 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder shall
be entitled to receive all dividends and other distributions paid with
respect to those Shares while they are so held. If any such dividends or
distributions are paid in Shares, the Shares shall be subject to the
same restrictions on transferability as the Shares of Restricted Stock
with respect to which they were paid.
8.9 TERMINATION OF EMPLOYMENT DUE TO RETIREMENT (including early
retirement). In the event that a Participant terminates his employment
with the Company or any of its Subsidiaries because of retirement (as
defined under the then established rules of the Company or
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FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
any of its Subsidiaries, as the case may be), the Committee in its
sole discretion (subject to Section 3.8 herein) may waive or modify
the restrictions remaining on any or all Shares of Restricted Stock as
it deems appropriate.
8.10 TERMINATION OF EMPLOYMENT DUE TO DEATH OR DISABILITY. In the event a
Participant's employment is terminated because of death or disability
(as defined under the then established rules of the Company or any of
its Subsidiaries, as the case may be) during the Period of Restriction,
any remaining Period of Restriction applicable to the Restricted Stock
shall automatically terminate and, except as otherwise provided in
Section 8.4. herein, the Shares of Restricted Stock shall thereby be
free of restrictions and be fully transferable.
8.11 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a
Participant terminates his employment with the Company or any of its
Subsidiaries for any reason other than for death, disability, or
retirement (including early retirement), as set forth in Sections 8.9
and 8.10 herein, during the Period of Restriction, then any Shares of
Restricted Stock still subject to restrictions as of the date of such
termination shall automatically be forfeited and returned to the
Company; provided, however, that in the event of a termination of the
employment of a Participant by the Company or any of its Subsidiaries
other than for Cause, the Committee, in its sole discretion (subject to
Section 3.8 herein), may waive or modify the automatic forfeiture of any
or all such Shares as it deems appropriate.
ARTICLE 9 PERFORMANCE SHARES
------------------
9.1 GRANT OF PERFORMANCE SHARES. Subject to the terms and provisions of the
Plan, Performance Shares may be granted to Participants at any time and
from time to time as shall be determined by the Committee. The maximum
number of Shares that may be issued to any Participant in a calendar
year shall not exceed two hundred fifty thousand (250,000), subject to
adjustment as provided in Section 4.3.
9.2 VALUE OF PERFORMANCE SHARES. The Committee shall set performance goals
over certain periods to be determined in advance by the Committee
("Performance Periods"). Prior to each grant of Performance Shares, the
Committee shall establish an initial number of Shares for each
Performance Share granted to each Participant for that Performance
Period. Prior to each grant of Performance Shares, the Committee also
shall set the performance goals that will be used to determine the
extent to which the Participant receives a payment of the number of
Shares for the Performance Shares awarded for such Performance Period.
These goals will be based on the attainment by the Company or its
Subsidiaries of certain objective performance measures, which may
include, but are not limited to one or more of the following: total
shareholder return, return on equity, return on capital, earnings per
share, market share, stock price, sales, costs, net income, cash flow,
retained earnings, results of customer satisfaction surveys, aggregate
product price and other product price measures, safety record, service
reliability, demand-side management (including conservation and load
management), operating and maintenance cost management, and energy
production availability performance measures. Such performance goals
also may be based upon the attainment of specified levels of performance
of the Company or one or more Subsidiaries under one or more of the
measures described above, relative to the performance of
14
FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
other corporations. The Committee may provide for the crediting of
dividend equivalents during the performance period. With respect to each
such performance measure utilized during a Performance Period, the
Committee shall assign percentages to various levels of performance
which shall be applied to determine the extent to which the Participant
shall receive a payout of the number of Performance Shares awarded. With
respect to Covered Employees, all performance goals shall be objective
performance goals satisfying the requirements for "performance-based
compensation" within the meaning of Section 162(m)(4) of the Code, and
shall be set by the Committee within the time period prescribed by
Section 162(m) of the Code and related regulations.
9.3 PAYMENT OF PERFORMANCE SHARES. After a Performance Period has ended, the
holder of a Performance Share shall be entitled to receive the value
thereof as determined by the Committee. The Committee shall make this
determination by first determining the extent to which the performance
goals set pursuant to Section 9.2 have been met. It will then determine
the applicable percentage (which may exceed 100%) to be applied to, and
will apply such percentage to, the number of Performance Shares to
determine the payout to be received by the Participant. In addition,
with respect to Performance Shares granted to any Covered Employee, no
payout shall be made hereunder except upon written certification by the
Committee that the applicable performance goal or goals have been
satisfied to a particular extent. The amount payable in cash in a
calendar year to any Participant with respect to any Performance Period
pursuant to any Performance Share award shall not exceed $2,000,000.
9.4 COMMITTEE DISCRETION TO ADJUST AWARDS. Subject to Section 3.2 regarding
Awards to Covered Employees, the Committee shall have the authority to
modify, amend or adjust the terms and conditions of any Performance
Share award, at any time or from time to time, including but not limited
to the performance goals.
9.5 FORM AND TIMING OF PAYMENT. The payment described in Section 9.3 herein
shall be made in cash, Stock, or a combination thereof as determined by
the Committee. Payment may be made in a lump sum or installments as
prescribed by the Committee. If any payment is to be made on a deferred
basis, the Committee may provide for the payment of dividend equivalents
or interest during the deferral period. Any stock issued in payment of a
Performance Share shall be subject to the restrictions on transfer in
Section 3.8 herein.
9.6 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT
(including early retirement). In the case of death, disability, or
retirement (each of disability and retirement as defined under the
established rules of the Company or any of its Subsidiaries, as the case
may be), the holder of a Performance Share shall receive a prorated
payment based on the Participant's number of full months of service
during the Performance Period, further adjusted based on the achievement
of the performance goals, as computed by the Committee. The Committee
may require that a Participant have a minimum number of full months of
service during the Performance Period to qualify for an Award payout.
9.7 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a
Participant terminates employment with the Company or any of its
Subsidiaries for any reason other than death, disability, or retirement
(including early retirement), all Performance Shares shall be
15
FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
forfeited; provided, however, that in the event of a termination of the
employment of the Participant by the Company or any of its Subsidiaries
other than for Cause, the Committee in its sole discretion may waive the
automatic forfeiture provisions.
9.8 NONTRANSFERABILITY. No Performance Shares granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution until the termination of the applicable Performance Period.
All rights with respect to Performance Shares granted to a Participant
under the Plan shall be exercisable during his/her lifetime only by such
Participant.
ARTICLE 10 CASH AWARDS
-----------
10.1 GRANT OF CASH AWARD. Subject to the terms of this Plan, Cash Awards may
be made to Participants at any time and from time to time as shall be
determined by the Committee. The Committee shall have complete
discretion in the determining the form of the Cash Awards granted to
Participants
10.2 CASH AWARD PERFORMANCE CRITERIA. All Cash Awards made under this Plan
shall be subject to pre-established, objective, business-related
Performance Measures. The performance measures shall be approved for use
by the Committee and the Committee shall certify their attainment and
the resulting payout of Cash Awards. Performance Measures for Cash
Awards may be measurable for periods of one year to five years (allowing
for prorated periods for new Participants). The Performance Measures may
include, but shall not be limited to: operational measures (e.g.
attaining merger milestones, customer satisfaction, service reliability,
safety and tactical objectives), financial measures (e.g. expense
control, revenue, margins and shareholder value added levels "SVA") and
individual measures. Performance Measures can be made on overlapping
cycles, (i.e. one-year cycles could emphasize operational measures and
three-year cycles could emphasize SVA Performance Measures.) Each cycle
of Performance Measures could have a distinct Cash Award associated with
it.
10.3 PAYOUT OF CASH AWARDS. Payouts of Cash Awards are made in relationship
to a target payout level determined prior to each cycle on a per
Participant basis. Target levels under multiple cycles will be
calibrated to provide, in total, an annualized level of incentives
consistent with the Company's compensation philosophy as set by the
Committee. Actual payouts of Cash Awards will vary with performance
results as follows: actual payouts based upon operational or individual
Performance Measures will vary from 50% (if threshold performance is
attained) to 150% of the target level; actual payouts based upon Company
SVA and other corporate financial measures will vary from 50% (if
threshold performance is attained) up to 200% of the target level. The
maximum Cash Award payable in a calendar year to any Participant with
respect to any Performance Period shall not exceed $2,000,000.
10.4 CONVERSION OF CASH AWARD PAYOUT TO RESTRICTED STOCK. At the request of
the Participant, but subject to the discretion of the Committee, any
Cash Award payout may be converted to Restricted Stock at a discount.
The conversion to Restricted Stock will occur by multiplying the Cash
Award by a premium, but in no event more than 120% and dividing the
16
FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
product by the Fair Market Value of the Restricted Stock on the date of
conversion, which shall be chosen by the Committee at least 10 days in
advance, to determine the number of shares of Restricted Stock that will
be provided as full settlement of the Cash Award. The shares of
Restricted Stock provided to Participants in settlement of Cash Awards
shall be Restricted Stock subject to Article 8.
Article 11 Directors' Awards
-----------------
11.1 GRANT OF DIRECTORS' AWARDS. In lieu of a portion of their retainer,
Directors' Awards can be made in the form of Stock Options or Restricted
Stock under Articles 6 and 8 respectively. No other Awards may be made
to Directors under the Plan.
11.2 CONVERSION OF RETAINER TO STOCK. At the request of a Director but
subject to the election of the Committee, a Director may convert any
retainer otherwise due to be paid by the Company in cash to an aggregate
equivalent value of either Stock Options, Restricted Stock or both.
11.3 CONVERSION OF RETAINER TO RESTRICTED STOCK. Retainer, otherwise payable
in cash may be converted to Restricted Stock under Article 8. The
conversion to Restricted Stock will occur by multiplying the retainer by
a premium, but in no event more than 120% and dividing the product by
the Fair Market Value of the Restricted Stock on the date of conversion,
which shall be chosen by the Committee at least 10 days in advance, into
the amount of the retainer to determine the number of shares of
Restricted Stock that will be provided as full settlement of the
retainer.
11.4 CONVERSION OF RETAINER TO STOCK OPTIONS. Retainer otherwise due to be
paid in cash may be converted to Stock Options under Article 6 at the
request of the Participant but subject to the election of the Committee.
Retainer shall be converted by multiplying the retainer by a premium,
but in no event more than 120% and dividing the product by the amount
equal to the Black-Scholes Value of the Stock Option on the date of
conversion. The quotient of which is the number of Stock Options that
shall be awarded.
ARTICLE 12 BENEFICIARY DESIGNATION
-----------------------
Each Participant under the Plan may, from time to time, name any beneficiary or
beneficiaries (who may be named contingently or successively and who may include
a trustee under a will or living trust) to whom any benefit under the Plan is to
be paid in case of his/her death before he receives any or all of such benefit.
Each designation will revoke all prior designations by the same Participant,
shall be in a form prescribed by the Committee, and will be effective only when
filed by the Participant in writing with the Committee during his lifetime. In
the absence of any such designation or if all designated beneficiaries
predecease the Participant, benefits remaining unpaid at the Participant's death
shall be paid to the Participant's estate.
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FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
ARTICLE 13 RIGHTS OF EMPLOYEES
-------------------
13.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any way
the right of the Company or any of its Subsidiaries to terminate any
Participant's employment at any time, nor confer upon any Participant
any right to continue in the employ of the Company or any of its
Subsidiaries.
13.2 PARTICIPATION. No employee shall have a right to be selected as a
Participant, or, having been so selected, to be selected again as a
Participant.
13.3 NO IMPLIED RIGHTS; RIGHTS ON TERMINATION OF SERVICE. Neither the
establishment of the Plan nor any amendment thereof shall be construed
as giving any Participant, beneficiary, or any other person any legal or
equitable right unless such right shall be specifically provided for in
the Plan or conferred by specific action of the Committee in accordance
with the terms and provisions of the Plan. Except as expressly provided
in this Plan, neither the Company nor any of its Subsidiaries shall be
required or be liable to make any payment under the Plan.
13.4 NO RIGHT TO COMPANY ASSETS. Neither the Participant nor any other person
shall acquire, by reason of the Plan, any right in or title to any
assets, funds or property of the Company or any of its Subsidiaries
whatsoever including, without limiting the generality of the foregoing,
any specific funds, assets, or other property which the Company or any
of its Subsidiaries, in its sole discretion, may set aside in
anticipation of a liability hereunder. Any benefits which become payable
hereunder shall be paid from the general assets of the Company or the
applicable subsidiary. The Participant shall have only a contractual
right to the amounts, if any, payable hereunder unsecured by any asset
of the Company or any of its Subsidiaries. Nothing contained in the Plan
constitutes a guarantee by the Company or any of its Subsidiaries that
the assets of the Company or the applicable subsidiary shall be
sufficient to pay any benefit to any person.
ARTICLE 14 CHANGE IN CONTROL
-----------------
14.1 STOCK BASED AWARDS. Notwithstanding any other provisions of the Plan, in
the event of a Change in Control, all Stock based awards granted under
this Plan shall immediately vest 100% in each Participant (subject to
Section 3.8 herein), including Incentive Stock Options, Nonqualified
Stock Options, Stock Appreciation Rights, and Restricted Stock.
14.2 ALL AWARDS OTHER THAN STOCK BASED AWARDS. Notwithstanding any other
provisions of the Plan, in the event of a Change in Control, all Awards
other than Stock Based Awards granted under this Plan shall be
immediately paid out in cash, including Performance Shares. The amount
of the payout shall be based on the higher of: (i) the extent, as
determined by the Committee, to which performance goals, established for
the Performance Period then in progress have been met up through and
including the effective date of the Change in Control or (ii) 100% of
the value on the date of grant of the number of Performance Shares.
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FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
ARTICLE 15 AMENDMENT, MODIFICATION, AND TERMINATION
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15.1 AMENDMENT, MODIFICATION, AND TERMINATION. At any time and from time to
time, the Board or Committee may terminate, amend, or modify the Plan.
However, without the approval of the stockholders of the Company if
required by the Code, by the insider trading rules of Section 16 of the
Exchange Act, by any national securities exchange or system on which the
Stock is then listed or reported, or by any regulatory body having
jurisdiction with respect hereto, no such termination, amendment, or
modification may:
(a) Increase the total amount of Stock which may be issued under this
Plan, except as provided in Section 4.3 herein; or
(b) Change the class of Employees eligible to participate in the
Plan;
(c) Materially increase the cost of the Plan or materially increase
the benefits to Participants; or
(d) Extend the maximum period after the date of grant during which
Options or Stock Appreciation Rights may be exercised.
15.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment or modification of
the Plan other than pursuant to Section 4.3 hereof shall in any manner
adversely affect any Award theretofore granted under the Plan, without
the written consent of the Participant.
15.3 DEFERRAL OF PAYMENTS AND DISTRIBUTIONS. Cash Awards pursuant to Article
10 may be eligible for deferral by any plan(s) offered by the company,
subject to the approval of the Committee and any administrative
requirements imposed by the Committee.
ARTICLE 16 WITHHOLDING AND DEFERRAL
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16.1 TAX WITHHOLDING. The Company and any of its Subsidiaries shall have the
power and the right to deduct or withhold, or require a Participant to
remit to the Company or any of its Subsidiaries, an amount sufficient to
satisfy Federal, state and local taxes (including the Participant's FICA
obligation) required by law to be withheld with respect to any grant,
exercise, or payment made under or as a result of this Plan.
16.2 STOCK DELIVERY OR WITHHOLDING. With respect to withholding required upon
the exercise of Stock Options, or upon the lapse of restrictions on
Restricted Stock, participants may elect, subject to the approval of the
Committee, to satisfy the withholding requirement, in whole or in part,
by tendering to the Company Shares of previously acquired Stock or by
having the Company withhold Shares of Stock, in each such case in an
amount having a Fair Market Value equal to the amount required to be
withheld to satisfy the tax withholding obligations described in Section
16.1. The value of the Shares to be tendered or withheld is to be based
on the Fair Market Value of the Stock on the date that the amount of tax
to be withheld is to be determined.
All Stock withholding elections shall be irrevocable and made in
writing, signed by the Participant on forms approved by the Committee in
advance of the day that the transaction becomes taxable.
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FirstEnergy Corp.
Executive and Director Incentive Compensation Plan
Stock withholding elections made by Participants who are subject to the
short-swing profit restrictions of Section 16 of the Exchange Act must
comply with the additional restrictions of Section 16 and Rule 16b-3 in
making their elections.
ARTICLE 17 SUCCESSORS
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All obligations of the Company under the Plan, with respect to Awards granted
hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the business
and/or assets of the Company.
ARTICLE 18 REQUIREMENTS OF LAW
-------------------
18.1 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares
of Stock under this Plan shall be subject to all applicable laws, rules,
and regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required.
18.2 GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of
Ohio without giving effect to the principles of the conflicts of laws.
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