TABLE OF CONTENTS
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Page
Objectives of the Plan 1
I. Plan Components 2
II. Common Stock Options Program 2
III. Dividend Rights Program 3
IV. Performance-Based Restricted Stock Program 4
V. Specific Guidelines 7
VI. Eligibility 8
VII. Issuance 8
VIII. Company Successors 9
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OBJECTIVES OF THE PLAN
. Improve financial and operational performance of the Company by focusing
executive attention on the long run total return to stockholders, including
competitive growth in market price and dividend yield.
. Align executive interest with stockholder interest in a balanced fashion
with predominant focus on long-term stock price appreciation and a strong
secondary focus on dividend security and growth and executive stock
ownership.
. Stimulate individual performance within the context of a team effort.
. Provide compensation levels that allow the Company to attract, retain, and
motivate highly competent executives.
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I. PLAN COMPONENTS
The Compensation Committee of the Board of Directors has the authority to
designate appropriate programs to carry out the objectives of the Long-Term
Incentive Plan. The Committee has broad authority to choose any
combination of stock options, stock appreciation rights, restricted stock,
performance units, performance shares, or other long-term programs to meet
these objectives.
Effective January 1, 1993, for the 1993 Plan Year and for awards and grants
made under the Long-Term Incentive Plan (the "Plan") thereafter, the
Compensation Committee has determined that given current tax laws and other
economic considerations, the Performance-Based Restricted Common Stock
Grants program is the appropriate program to be authorized under the Plan.
No amendment to the Plan shall be deemed to affect any award already
granted under the Plan for prior Plan Years.
II. COMMON STOCK OPTIONS PROGRAMS
This Program consists of Non-Qualified Stock Options encompassing the
following characteristics:
. Granted at fair market value on date of grant.
. Gain is solely a function of stock price increases above the initial
grant price.
. After a one-year holding period, 100% of the options are vested.
. Options are exercisable over a 10-year term or age 70, whichever is
earlier.
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. At termination other than through retirement, death or disability,
options that have been held less than one year are forfeited; options
that have been held for more than one year are "exercisable" but may
be exercised only for a period of three months from termination.
. Stock for stock swaps are permitted.
. For 1992, options to purchase shares of the Company's Common Stock
were granted at a level to produce 20% of the targeted competitive
gain. Effective January 1, 1993, no new options will be granted under
the Plan.
. Employees who retire within the calendar year when an option might be
granted may have their options prorated based on remaining active
employment, except as the Compensation Committee may otherwise decide.
III. DIVIDEND RIGHTS PROGRAM
The Dividend Rights Program consists of a Dividend Rights Account for each
participant encompassing the following characteristics:
. Dividends accrue to rights in an assigned account,
. Fixed date for payout is five years after date of grant.
. For 1992, Dividend Rights were granted at a level to produce 40% of
the targeted competitive gain. Effective January 1, 1993, no new
grants of Dividend Rights will be made under the Plan.
. Dividend Rights accounts do not accrue interest.
. Account balance is forfeited if participant's employment terminates
other than through retirement, death or disability before the date of
payout unless waived by the Compensation Committee. Payout is made at
time of retirement, death or disability.
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. Dividend Rights account balances payable prior to 1997 will be paid in
cash. Effective January 1, 1992, for the 1992 Plan Year and for
Dividend Rights granted thereafter (which Dividend Rights are payable
beginning in 1997), Dividend Rights account balances will be paid as
described herein. Subject to adjustment for fractional shares of
Common Stock, 75% of each Dividend Rights account balance due will be
paid to the participant in cash. 25% of cash Dividend Rights account
balance due will be paid to the participant in shares of the Company's
Common Stock, using, at the Company's option, either newly-issued or
open-market shares (or a combination thereof). The market value of
such shares of Common Stock will be determined at the close of trading
on the New York Stock Exchange on the first business day in February
following the date on which the Dividend Rights account balance
becomes payable. If the portion of a Dividend Rights account balance
to be paid in shares of the Company's Common Stock includes fractional
shares, the value of such fractional shares will be paid as part of
the cash payment made to the participant.
IV. PERFORMANCE-BASED RESTRICTED STOCK PROGRAM
The Performance-Based Restricted Stock Program will consist of conditional
grants, subject to forfeiture, of performance-based restricted shares of
the Company's Common Stock, using openmarket shares, encompassing the
following characteristics:
. Vesting of final awards of performance-based restricted common stock
shall occur, if at all, at the end of a four-year restriction period.
. The participant's ability to transfer or otherwise alienate or assign
performance-based restricted shares of the Company's Common Stock
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conditionally granted to him or her (as well as the ability to
transfer the right to vote or direct the voting of those shares and
receive dividend-related compensation) is restricted for a period of
four years.
. The number of shares conditionally granted to a participant are
subject to forfeiture or increase, depending on how the total return
for Delmarva shareholders compares to a peer group of electric
utilities at the end of the four-year restriction period, as follows:
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Delmarva's Total
Shareholder Return Percent of Conditional
Percentile Grant Earned
(4-year cumulative)* (no interpolation)
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90% to 100% 150%
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75% to 89.9% 130%
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60% to 74.9% 115%
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50% to 59.9% 100%
----------------------------------------------------
40% to 49.9% 50%
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35% to 39.9% 25%
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less than 35% 0%
====================================================
*This column represents Delmarva's actual percentile ranking based on
the peer group comparison at the end of the four-year restriction
period. There is no interpolation between steps.
. The participant receives compensation measured by dividends and may
vote or direct the voting of performance-based restricted shares of
Common Stock during the four-year restriction period. No portion of
such compensation paid to the participant during the restriction
period will be forfeited if the performance criterion is not met. No
additional dividends will be paid, however, to the participant for
prior periods if shares of Common Stock actually earned by and vested
in the participant at the end of the four-year
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restriction period exceed the number of performance-based restricted
shares initially granted to the participant.
. For 1992, awards of performance-based restricted shares of Common
Stock were granted at a level to produce 40% of the potential gain.
Effective January 1, 1993, awards of performance-based restricted
shares of Common Stock are granted at a level to produce 100% of the
targeted competitive gain.
. Conditional grants of performance-based restricted shares of Common
Stock are forfeited in the event of termination, other than for
reasons of retirement, death, or disability, unless the forfeiture is
waived by the Compensation Committee.
. Restrictions on shares of Common Stock conditionally granted to
participants who then become retired or disabled will lapse at the end
of the four-year restriction period. The participant's shares will be
subject to forfeiture or increase at that time, on a pro rata basis,
depending on the total return for Delmarva's shareholders over the
four-year restriction period.
. In the event of a participant's death (including his or her death
while retired or disabled), restrictions on his or her performance-
based restricted shares of Common Stock will lapse, on a pro rata
basis, immediately, without regard to whether the performance
criterion is met at the end of the four-year restriction period.
. For purposes of this program, "pro rata" means the difference between
the time a grant is made and the date of retirement, disability, or
death as that period relates to the four-year restriction period.
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V. SPECIFIC GUIDELINES
Regardless of programs selected by the Compensation Committee, the
following guidelines apply.
The overall potential gains from the Plan are intended to be sufficient,
when combined with other forms of compensation, to attract and retain
highly competent executives and to motivate high levels of performance from
individuals with the knowledge, skills and abilities to build long-run
total return for shareholders, consistent with the Company's customer
objectives for reliable energy supply at competitive prices. The Company
will analyze surveys of long-term incentive plans to determine recommended
target and grant levels. Annually, the Compensation Committee will approve
target and grant levels designed to accomplish this objective.
The Compensation Committee will exercise its discretion to increase or
decrease general grant levels depending upon its evaluation of management
performance and its desire to provide additional individual incentive for
future performance.
However, it is assumed that in order to receive any grant, the eligible
executive must be performing at a competent level. Recommended adjustments
for the Chairman and Chief Executive Officer will be made by the Chairman
of the Compensation Committee.
VI. ELIGIBILITY
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Employees in jobs core graded at salary grade level 19 and above are
eligible for participation in the Long-Term Incentive Plan including
employees in the entry grade 18 to a job core graded 19.
VII. ISSUANCE
Grants under the Long-Term Incentive Plan will be considered on a yearly
basis subject to recommendation of senior management and approval of the
Compensation Committee of the Board of Directors. At its discretion, the
Compensation Committee may discontinue issuance of grants as it deems
appropriate and may alter the Plan pursuant to authority granted by the
stockholders.
Upon recommendation by senior management, the Compensation Committee may
also award grants for newly promoted or hired employees at any time.
Appropriate grant instruments will be issued to participants for their
review and execution.
VIII. COMPANY SUCCESSORS
In the event the Company becomes a party to a merger, consolidation, sale
of substantially all of its assets, or any other corporate reorganization
in which the Company will not be the surviving corporation or in which the
holders of Company stock will receive securities of another corporation,
the Company, prior to such merger, consolidation, sale of assets or
reorganization, shall make payment of all dividends in the Dividend Rights
Accounts or at the participants' option the ongoing obligation to make such
payments shall be assumed by the surviving corporation. In
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the event that the change in ownership of the Company through the purchase
by an individual or group of individuals acting in concert of at least 25%
of the voting securities of the Company takes place, all dividends in the
Dividend Rights Account will be immediately paid or, at the employees
option, the ongoing obligation to make such payments will continue.
All rights with respect to options granted and vested will likewise remain
exercisable for their ten-year lives in the event of reorganizations or
changes in ownership as outlined in this Section.
Likewise, in the event of reorganizations or changes in ownership as
outlined in this Section, all restrictions on performance-based restricted
shares of Common Stock will lapse immediately, without regard to
performance criterion then or at the end of any four-year Performance
Period, and shares of Common Stock free of any restrictive legend shall be
issued to the participant or his legal representative.
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