EXHIBIT 10-40
ENERGY EAST CORPORATION
ANNUAL EXECUTIVE INCENTIVE PLAN
I. Plan Objective
The objective of the Annual Executive Incentive Plan (the "Plan")
is to provide certain key employees of Energy East Corporation
(the "Company") with the opportunity to earn annual incentive
compensation through superior management performance.
Exceptional performance will promote the future growth and
success of the Company and enhance the linkage between employee
and shareholder interests.
II. Definitions
Wherever used in the Plan, unless the context clearly indicates
otherwise, the following words and phrases shall have the
meanings set forth below:
A. "Plan" shall mean the Energy East Corporation Annual
Executive Incentive Plan as embodied herein and as amended
from time to time.
B. "Participant" shall mean an individual who has satisfied the
eligibility requirements of Article IV hereof.
C. "Performance Period" shall mean the period commencing
January 1 and ending December 31 of the same calendar year
for which performance is being measured.
D. "Earnings Per Common Share (Earnings)" shall mean the
Company's annual net income reduced by preferred stock
dividends and divided by the average common shares
outstanding during the year.
E. "Threshold Earnings Level" shall mean the minimum level of
Earnings Per Common Share at which an award may be earned.
F. "Maximum Earnings Level" shall mean the level of Earnings
Per Common Share at which a maximum award may be earned.
G. "Level of Achievement" shall mean the Participant's
achievement of a Participant's individual objective for the
Performance Period expressed as a percentage, ranging from
zero to 100%.
H. "Board" shall mean the Board of Directors of the Company.
III. Administration
The Plan shall be administered by the Executive Compensation and
Succession Committee (the "Committee") of the Board composed of
such members as shall be appointed from time to time by the
Board. No member of the Committee while serving as such shall be
eligible for participation in the Plan.
Except as otherwise provided in this Plan, decisions and
determinations by the Committee shall be final and binding upon
all parties. The Committee shall have the authority to interpret
the Plan, to establish and revise rules and regulations relating
to the Plan, and to make any other determinations that it
believes necessary or advisable for the administration of the
Plan.
IV. Eligibility
Eligibility for participation in the Plan is limited to officers
of the Company holding the positions set forth below, plus any
other employee of the Company who is approved for participation
by the Chairman. Persons who are participants in any other
annual incentive compensation plan provided by the Company or any
of its affiliates are not eligible to participate in the Plan.
Participants shall be grouped as follows:
Group I Chairman
Group II Executive Vice Presidents
Group III Senior Vice Presidents
Group IV Vice Presidents and Other Executives
In the event that, during the Performance Period, an employee
becomes eligible for participation in the Plan, incentive awards
payable under the Plan will be determined based on length of
participation in the Plan measured retroactively from the first
day of the month in which the employee becomes eligible for
participation in the Plan provided, however that if an employee
is participating in the Plan on December 31, 1999, he shall be
deemed to have participated in the Plan for all of 1999.
In the event that, during the Performance Period a Participant
changes from one eligibility group to another, incentive awards
payable under the Plan will be prorated based on length of
participation in each eligibility group measured from the first
day of the month coinciding with or following the Participant's
change in eligibility.
If during any Performance Period a Participant ceases to be an
employee of the Company for any reason, other than disability,
retirement or death, such Participant shall not be entitled
to receive an award for such Performance Period unless otherwise
determined by the Committee in its sole discretion. In the event
that, during a Performance Period a Participant ceases to be an
employee of the Company by reason of a transfer of employment to
a subsidiary of the Company, such Participant will be eligible to
receive a prorated award for such Performance Period based on the
number of full months of participation as an employee of the
Company. In the event of disability, retirement or death, the
Participant (or his or her successor in interest) shall be
entitled to a prorated award based on the number of full months
of participation.
Participation in the Plan precludes a Participant's eligibility
in any other annual incentive compensation plan provided by the
Company and its subsidiaries. Individuals entering the Plan
during a Performance Period remain eligible to receive prorated
awards under other annual incentive compensation plans provided
by the Company and its subsidiaries for periods prior to their
participation in the Plan.
V. Performance Measurement and Criteria
The Plan uses the financial performance measure of Earnings Per
Common Share (Earnings) in determining whether incentive awards
may be earned by Participants. A Threshold Earnings Level, a
Maximum Earnings Level and individual objectives for each
Participant will be established for each Performance Period. The
Threshold Earnings Level must be achieved by the Company in order
for Participants to be eligible for incentive awards. The actual
Earnings level achieved at or above Threshold Level will then be
used to determine the Participant's Incentive Level Percentage in
accordance with the provisions of Article VII. A Participant's
actual award will also depend on the Participant's Level of
Achievement of the Participant's individual objectives for the
Performance Period, as further set forth in Article VII.
VI. Objective Setting
A. Corporate
Performance objectives will be established annually (or for an
individual who becomes eligible to participate in the Plan while
a Performance Period is in progress in accordance with Item C
below) upon a recommendation of the Chairman which recommendation
shall be reviewed by the Committee and approved by the Board.
Notwithstanding paragraph C below, the Board may establish
additional or substitute performance objectives at any time
during a Performance Period; provided that such objectives shall
not reduce any awards to which the Participant may be entitled in
connection with previously established objectives without the
Participant's consent.
B. Adjustments
The Committee may adjust the size of incentive awards in its
discretion for extraordinary events if it determines that such
adjustment is necessary for the benefit of the Company. All
determinations of the Committee pursuant to this Article VI,
Section B shall be submitted to the Board for approval.
C. Timing
The Threshold and Maximum Earnings Levels and the individual
objectives for each Participant for the yearly Performance Period
are to be established not later than the end of February,
retroactive to the first of that year. Performance objectives
for individuals who become eligible to participate in the Plan
while the yearly Performance Period is in progress are to be
established at such time as the Committee determines it necessary
for the benefit of the Company.
VII. Determination of Incentive Award
At the conclusion of each Performance Period a determination will
be made by the Committee as to the Earnings level achieved by the
Company. The achievement of an Earnings level at or above the
Threshold Earnings Level is the first step in qualifying
Participants for an incentive award.
Each Participant has Threshold and Maximum Incentive Level
Percentages assigned to the Participant's Group, as defined in
Article IV, based on that Group's potential impact on the
Company's performance. The Threshold and Maximum Incentive
Level Percentages by Group are as follows:
Threshold Incentive Maximum Incentive
Group Level Percentages Level Percentages
I 100% 200%
II 70% 125%
III 55% 90%
IV 45% 65%
A Participant's Incentive Level Percentage will depend on the
Earnings level achieved by the Company for each Performance
Period. If only the Threshold Earnings Level is achieved, the
Participant's Incentive Level Percentage will be the Threshold
Incentive Level Percentage for the Participant's Group. If the
Maximum Earnings Level is met or exceeded, the Participant's
Incentive Level Percentage will be the Maximum Incentive Level
Percentage for the Participant's Group. When the Earnings level
achieved by the Company is greater than the Threshold Earnings
Level but less than Maximum Earnings Level, the Participant's
Incentive Level Percentage will be calculated based on a
corresponding interpolation between Threshold and Maximum
Incentive Level Percentages for the Participant's Group.
Each Participant will be assigned individual objectives for
the Performance Period which will be used to measure individual
performance. Each individual objective will also be assigned a
relative weight, which in the aggregate will total 100%. To
determine the Incentive Award Percentage to be used in
calculating a Participant's Incentive Award, the weight of each
individual objective will be multiplied by the Participant's
Level of Achievement for that objective with the product further
multiplied by the Participant's Threshold Incentive Level
Percentage. The resultant Incentive Award Percentages for each
individual objective will then be aggregated to determine the
Participant's Incentive Award Percentage. The following is an
example of the calculation of an Incentive Award Percentage for a
Group III Participant at the Threshold Incentive Level
Percentage:
Objective Level of Threshold Incentive Incentive Award
Weight Achievement Level Percentage Percentage
Individual Objective 1 40% x 100% x 55% = 22%
Individual Objective 2 40% x 50% x 55% = 11%
Individual Objective 3 20% x 0% x 55% = 0%
100 % 33%
To calculate an Incentive Award for a Participant, the
Participant's cumulative Incentive Award Percentage will be
multiplied by the Participant's annual base salary as of the last
day of the Performance Period. The Incentive Award will be
rounded to the nearest whole dollar amount.
The Committee's determination of incentive awards will be
submitted to the Board for approval. Final determination of
incentive awards will be made by the Board not later than the end
of February following the end of each Performance Period.
Distribution of incentive awards will be made as soon thereafter
as practical.
VIII. Incentive Award
Incentive awards will be granted in cash. Participants may
elect, during the year preceding the performance period, to defer
up to 100% of any potential incentive award pursuant to the
Company's Deferred Compensation Plan for Salaried Employees.
Incentive awards payable under the Plan will not be considered as
a component of regular earnings or base compensation for any
purpose.
IX. Effective Date
This Plan shall be effective as of January 1, 1999.
X. Miscellaneous
The Board may at any time suspend, terminate, modify or amend
this Plan.
No Participant shall have any claim or right to be granted an
award under this Plan. Participation in the Plan shall not be
deemed an employment contract.
The Company shall have the right to deduct from the cash
incentive awards made pursuant to this Plan any taxes required by
law to be withheld with respect to such cash payments.
In the case of a Participant's death, an incentive award shall be
made to his or her designated beneficiary, or in
the absence of such designation, by will or the laws of descent
and distribution.
Except as set forth in the preceding paragraph, a Participant's
rights and benefits under the Plan shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, charge, garnishment, attachment, execution
or levy of any kind, either voluntary or involuntary, including
any such liability which arises from the Participant's bankruptcy
or for the support of a spouse or former spouse or for any other
relative of the Participant prior to the incentive award actually
being received by the person eligible to benefit under the Plan.
Any attempt at such prohibited anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, charge, garnishment,
attachment, execution or levy, shall be void and unenforceable
except as otherwise provided by law.
XI. Payments Upon a Change in Control
A. Calculation of Payments
Notwithstanding any other provisions hereof (including, without
limitation, Article VIII hereof), if a Change in Control (as
defined in Section B of this Article XI) shall occur, the
following shall be paid, in cash, no later than the tenth (10th)
day following such Change in Control:
i) all incentive awards for any completed fiscal year of the
Company which preceded the Change in Control, which awards have
been finally determined but not yet either (x) distributed or (y)
deferred pursuant to the Company's Deferred Compensation Plan for
Salaried Employees,
ii) if, at the time of the Change in Control, the Board has not
yet finally determined the incentive awards with respect to the
fiscal year of the Company immediately preceding the fiscal year
in which the Change in Control occurs, an incentive award with
respect to such fiscal year, determined by the Board in
accordance with the provisions of the preceding Articles hereof,
and
iii) an incentive award with respect to the fiscal year of the
Company in which the Change in Control occurs which shall be
calculated by (x) assuming that the Threshold Earnings Level for
such fiscal year has been achieved and that a Participant's Level
of Achievement for each individual objective is one hundred
percent, and (y) multiplying the result so obtained by a fraction
the numerator of which is the number of days elapsed from the
beginning of such fiscal year until the Change in Control and the
denominator of which is three hundred and sixty-five (365).
Notwithstanding anything contained herein to the contrary,
following a Change in Control, the Plan shall continue in full
force and effect, and a Participant shall be entitled to receive
an additional incentive award with respect to the fiscal year in
which the Change in Control occurs, equal to the excess (if any)
of the amount of the incentive award for such year, determined in
accordance with Article VII hereof, over the amount paid pursuant
to the preceding provision of this paragraph (iii).
B. Definition of a Change in Control
A "Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall
have been satisfied:
i) any Person (as defined in this Section B) is or becomes the
Beneficial Owner (as defined in this Section B), directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its affiliates)
representing 25% or more of the combined voting power of the
Company's then outstanding securities; or
ii) during any period of two consecutive years (not including any
period prior to May 1, 1998), individuals who at the beginning of
such period constitute the Board and any new director (other than
a director designated by a Person who has entered into an
agreement with the Company to effect a transaction described in
paragraph (i), (iii) or (iv) of this Change in Control definition
or a director 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 solicitations of proxies or consents by or on behalf
of a Person other than the Board) whose election by the Board or
nomination for election by the Company's stockholders was
approved by a vote of at least two thirds (2/3) of the directors
then still in office who either were directors at the beginning
of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a
majority thereof; or
iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than (x) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving
entity), in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan
of the Company or any of its affiliates, at least 75% of the
combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger
or consolidation, or (y) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no Person acquires more than 50% of the
combined voting power of the Company's then outstanding
securities; or
iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
For purposes of the definition of Change in Control in this
Section B:
"Beneficial Owner" shall have the meaning defined in Rule 13d-3
under the Exchange Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Person" shall have the meaning given in Section 3(a) (9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof; however, a Person shall not include (i) the Company or
any of its affiliates, (ii) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any
of its affiliates, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their
ownership of stock of the Company.
XII. Plan Administration After a Change in Control
Notwithstanding any other provisions of the Plan (including,
without limitation, Articles VI (B) and X hereof), upon and after
the occurrence of a Change in Control, neither the Board, nor the
Committee shall be authorized to, and no termination, suspension,
modification or amendment of the Plan shall be permitted to,
amend or modify the terms and provisions (including, without
limitation, the payment provisions) of any incentive awards
theretofore made to Participants in any way which adversely
affects the rights of such Participants.