IROQUOIS PIPELINE OPERATING COMPANY
PERFORMANCE SHARE PLAN
Iroquois Pipeline Operating Company hereby establishes a Performance Share Plan
for the benefit of its executive officers and certain key employees. This Plan
is effective as of January 1, 1999.
1. PURPOSE
The purpose of the Plan is to attract, retain and motivate executives
and key employees of the Company and its subsidiaries by providing such
executives and key employees with financial incentives based upon the long-term
performance of its parent, Iroquois Gas Transmission System, L.P. (the
"Partnership") and thereby to maximize the value of the Partnership. This Plan
is based upon "Performance Shares" designed to reflect growth in value of the
Partnership over a specified Performance Period.
2. DEFINITIONS
As used herein, the following terms have the meanings ascribed to them below:
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended. The term
"Affiliate" when used with reference to the Company or the Partnership includes,
without limitation, any employee benefit plan maintained or contributed to by
the Company or the Partnership.
"Board" means the board of directors of the Company.
"Book Value" per Performance Share in a given fiscal year means an
amount equal to (i) the Partner's Equity (i.e., assets of the Partnership minus
liabilities of the Partnership) of the Partnership at the end of such year
divided by (ii) 1,000,000 (i.e., the assumed number of shares (or Partnership
interests) deemed to be outstanding in any given year for purposes of this
Plan); provided, however, that if, during a fiscal year, any capital
contributions are made to the Partnership by its partners, the aforementioned
assumed number of shares (or Partnership interests) would be increased such that
the Partner's Equity per share as of the beginning of the applicable fiscal year
would remain unchanged ("Adjusted Assumed Number of Shares"). Book Value shall
be determined with reference to the Partnership's audited financial statements
for the applicable fiscal year.
"Cause" means the definition of "cause" as set forth in any written
employment agreement between the Participant and the Company or any Affiliate of
the Company employing the Participant, or if no such definition exists,
termination based upon (i) the willful failure by the Participant in the
reasonable discretion of the Board of Directors of the Participant's employer to
follow the reasonable directives of such Board of Directors or Participant's
supervisor; (ii) the knowing and willful engaging by the Participant in conduct
which is materially injurious to the Participant's employer, monetarily; (iii) a
conviction of, a plea of nolo contendere, a guilty plea or confession by the
Participant to an act of fraud, misappropriation or embezzlement or to a felony;
(iv) the Participant's habitual drunkenness or use of illegal substances; (v)
the material breach by the Participant of any material agreement with the
Company or any Affiliate of the Company; or (vi) repeated or continuous acts of
gross neglect or gross or willful misconduct that directly relate to the
business of the Company or any Affiliate of the Company which the Board of
Directors of the Participant's employer in its reasonable discretion deems to be
good and sufficient cause.
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"Change in Control" means that the Committee has determined that one of
the following has occurred with respect to the Company or the Partnership:
(a) any "person" within the meaning of Sections 13(d) of the
Securities and Exchange Act of 1934, as amended, other than the Partnership, any
group of existing partners or any Affiliate of the Partnership or the Company,
but including any single existing partner of the Partnership, becomes the
beneficial owner of (50%) or more of the combined voting power of the Company;
(b) any "person" within the meaning of Sections 13(d) of the
Securities and Exchange Act of 1934, as amended, other than the Partnership, any
group of existing partners or any Affiliate of the Partnership or the Company,
but including any single existing partner of the Partnership, becomes the
beneficial owner of a controlling interest in two or more Voting Blocks of the
Partnership (as defined in the Partnership's Partnership Agreement);
(c) the Partnership or the Company is merged or consolidated with
or into another corporation, partnership or other entity other than an Affiliate
of the Partnership or the Company and the Partnership or the Company is not the
surviving business entity or the Partnership or the Company sells or otherwise
disposes of all or substantially all of its assets (including a plan of
liquidation) to a person (defined as aforesaid) that is not an Affiliate of the
Partnership; or
(d) there is an underwritten public stock offering of more than
20% of the equity of the Partnership or the Company or any corporation into
which the Partnership is rolled into.
"Committee" means the Human Resources Committee of the Board of
Directors of the Company, any successor thereto or, if no such committee exists,
the board of directors of the Company.
"Company" means Iroquois Pipeline Operating Company.
"Growth Rate Multiplier" means the multiplier that is applied to the
aggregate number of Performance Shares granted to a Participant in accordance
with Schedule B to this Plan in order to determine the number of Performance
Shares that were actually earned by such Participant as of a specified vesting
date. Such Growth Rate Multiplier shall be determined by the annualized rate of
growth in average bCF system levels between the year immediately preceding the
Performance Period and the last year of the Performance Period.
"Market Value" means the value determined in good faith by the
Committee that is equal to either (a) the actual sales price of the entire
Partnership where all of the equity interests in the Partnership are sold
(regardless of the structure of any such sale) or all or substantially all of
the assets of the Partnership are sold, (b) the actual sales price that would be
attributable to the sale of the entire Partnership based upon the value of
either a portion of equity interests in the Partnership that are sold
(regardless of the structure of any such sale) or a portion of the assets of the
Partnership that are sold or (c) with respect to a Change in Control that
relates to the Company and not the Partnership, the Book Value of the
Partnership after giving effect to the receipt by the Partnership of the
proceeds attributable to the Change in Control; provided, however, that number
obtained under clause (a) and (b) above shall be divided by 1,000,000 (i.e., the
assumed number of shares (or Partnership interests) deemed to be outstanding in
any given year for purposes of this Plan) and provided, further, that if, during
a fiscal year, any capital contributions are made to the Partnership by its
partners, the aforementioned assumed number of shares (or Partnership interests)
would be increased such that the Partner's Equity per share as of the beginning
of the applicable fiscal year would remain unchanged.
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"Payout Amount" has the meaning set forth in Section 4 of the Plan.
"Performance Factor" means the performance factor that is applied to
Book Value in order to value a Performance Share in accordance with Schedule A
to this Plan. The Performance Factor is based upon the average return on rate
based equity of the Partnership for the Performance Period.
"Performance Period" means (a) with respect to all grants of
Performance Shares other than Start Up Performance Share grants, the five (5)
year period commencing at the beginning of the fiscal year in which the
applicable Performance Share grant is made and (b) with respect to Start Up
Performance Share grants, the three (3) or four (4) year period, as determined
by the Committee, commencing at the beginning of the fiscal year in which the
Start Up Performance share grant is made.
"Performance Share" means any performance share granted to a
Participant pursuant to this Plan, which share represents a phantom interest in
the Partnership which is payable only in cash.
"Performance Share Dividends" means any dividends or other
distributions payable in respect of Partnership interests during the Performance
Period divided by the Adjusted Assumed Number of Shares.
"Performance Share Grant Agreement" means the agreement described in
Section 6 hereof.
"Partnership" means Iroquois Gas Transmission System, L.P., the owner
of all of the issued and outstanding capital stock of the Company.
"Plan" means the Iroquois Pipeline Operating Company Performance Share
Plan as set forth herein.
"Vested Performance Shares" means the number of Performance Shares that
have vested in accordance with Section 7 hereof as of the date that the Payout
Amount is calculated minus any vested Performance Shares that were included in
determining previous Payout Amounts.
3. ELIGIBILITY
The executive officers of the Company and those key employees of the
Company or any subsidiary of the Company, whose efforts may have an effect upon
the long-term growth and performance of the Partnership and who are selected to
participate in the Plan by the Committee, shall participate in this Plan (each,
a "Participant"). Except as otherwise provided in Section 7(c) and (d) hereof,
in order to receive a Payout Amount a Participant must be an employee of the
Company or any subsidiary of the Company (or, if approved by the Committee, an
employee of the Partnership or an Affiliate of the Partnership) on the date that
Performance Shares relating to such Payout Amount vest.
4. PERFORMANCE SHARE GRANTS AND CALCULATION OF PAYOUT AMOUNT GENERALLY
Performance Shares may be granted to Participants in accordance with
Section 6 of the Plan. Performance Shares shall vest in accordance with the
vesting schedule specified in Section 7 of the Plan and the applicable Payout
Amount shall be paid at the time specified in Section 7 of the Plan.
The "Payout Amount" is an amount in cash equal to the product of
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(A) the sum of
(i) the product of the Book Value attributable to a
Performance Share at the end of the Performance
Period multiplied by the Performance Factor and
(ii) the aggregate value of all Performance Share
Dividends paid during the applicable Performance
Period, multiplied by
(B) the product of
(i) the aggregate number of Vested Performance Shares
multiplied by
(ii) the Growth Rate Multiplier.
5. ADMINISTRATION
The Plan will be administered by the Committee, whose construction and
interpretation of the terms and provisions of the Plan shall be final and
conclusive. The Committee shall consist of two or more directors of the Board.
No member of the Committee shall be eligible to participate in the Plan. It is
intended that the Directors designated to serve on the Committee shall be
"disinterested persons" (within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended) and "outside directors" (within the
meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended);
provided, however, that the mere fact that a Committee member shall fail to
qualify under either of these requirements shall not invalidate any award made
by the Committee which award is otherwise validly made under the Plan.
The Committee may in its sole discretion grant Performance Shares to
Participants. The Committee shall have absolute authority, subject to the
express provisions of the Plan, to construe the Performance Share Grant
Agreements and the Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, to determine the terms and provisions of Performance Share
Grant Agreements, which need not be identical, and to make all other
determinations in the judgment of the Committee necessary or desirable for the
administration of the Plan. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Performance Share
Grant Agreement in the manner and to the extent it shall deem expedient to carry
the Plan into effect and it shall be the sole and final judge of such
expediency. No director or person acting pursuant to authority delegated by the
Committee shall be liable for any action or determination under the Plan made in
good faith. Any director to whom Performance Shares are awarded shall be
ineligible to vote upon his or her Performance Share grant, but such Performance
Share grant may be awarded to any such director by a vote of the remainder of
the directors. Notwithstanding anything to the contrary herein, the Board of
Directors of the Company, other than directors who are participants under the
Plan or who are otherwise not "disinterested persons" or "outside directors,"
may, in its sole discretion, at any time or from time to time, administer the
Plan, in which case, the term "Committee" as used herein shall be deemed to mean
the Board of Directors.
6. GRANT OF ANNUAL AND START UP PERFORMANCE SHARES
(a) Annual Performance Share Grants. The Committee may grant
Performance Shares to Participants at the beginning of each fiscal year of the
Company in such amounts as it determines. The Committee may also grant
Performance Shares to a Participant at the time that such Participant is first
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employed by the Company or any of its subsidiaries or first becomes eligible to
participate in this Plan due to a promotion or otherwise regardless of the
extent to which the Performance Period has expired.
The Committee may grant Performance Shares using the form of
Performance Share Grant Agreement attached hereto as Exhibit A. Each Performance
Share Grant Agreement shall specify:
(1) The number of Performance Shares being granted to
the Participant;
(2) The Performance Period applicable to the Performance
Shares;
(3) The method for calculating Payout Amounts and the
timing of the payment of Payout Amounts;
(4) That except as otherwise provided in Section 7(d) of
the Plan, any unvested Performance Shares held by a Participant shall be
forfeited upon the termination of such Participant's employment with the Company
or any of its subsidiaries for any reason other than death, disability or
retirement;
(5) That a Participant's unvested Performance Shares
shall automatically vest if (A) after a Change in Control and prior to January
1, 2002, such Participant is terminated without Cause or (B) such Participant is
terminated without Cause within one year after a Change in Control that occurs
on or after January 1, 2002, and in either case, the applicable Payout Amount
shall be paid to the Participant as soon as practicable after such termination;
and
(6) Such additional terms that are not inconsistent with
this Plan as the Committee may determine are appropriate.
(b) Start Up Performance Share Grants. In fiscal year 1999 the
Committee may grant to Participants, in addition to any other Performance Share
grants that it makes to such Participants in fiscal year 1999, Performance
Shares that have Performance Periods of either three years or four years as
determined by the Committee and begin to vest in the fiscal year 1999. Except
for the shorter Performance Period and accelerated vesting schedule described in
the immediately preceding sentence, the Start Up Performance Shares shall be
identical to Performance Shares and the Payout Amount relating to such Start Up
Performance Shares shall be calculated in the same manner as the Payout Amount
relating to Performance Shares. The form of Performance Share Grant Agreement
used for Performance Share grants shall also be used to grant Start Up
Performance Shares, except that any such agreement shall specify that (i) the
Performance Period for a Start Up Performance Share grant is either three or
four years, as determined by the Committee, (ii) the Start Up Performance Shares
have accelerated vesting schedules as described above and (iii) the phantom
interests being granted are Start Up Performance Shares.
7. VESTING OF PERFORMANCE SHARES AND PAYMENT OF THE PAYOUT AMOUNT
(a) General. Except for Startup Performance Shares granted under
Section 6(b), Performance Shares shall vest according to the following vesting
schedule:
(i) 50% of the Performance Shares granted to a
Participant shall vest as of the last day of Year 3;
(ii) an additional 25% of the Performance Shares granted
to a Participant shall vest as of the last day of
Year 4; and
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(iii) an additional 25% of the Performance Shares granted
to a Participant shall vest as of the last day of
Year 5.
"Year 3," Year 4" and "Year 5," respectively mean the third, fourth and fifth
consecutive fiscal years following "Year 1," which is the fiscal year in which
the applicable Performance Share grant is made and "Year 2," the fiscal year
immediately following Year 1.
(b) Payment of Payout Amount. The Company shall pay a Participant
the Payout Amount with respect to Performance Shares that have vested in
accordance with Section 7(a) in cash no later than thirty (30) days after the
Committee receives audited annual financial statements of the Partnership for
the fiscal year in which vesting has occurred.
(c) Effect of Termination of Employment. Except as otherwise set
forth in Section 7(d) below, if, before a Participant's Performance Shares or
any part thereof vest, such Participant ceases to be employed by the Company or
the Partnership or any Affiliate of the Company or the Partnership for any
reason other than death, disability or retirement such unvested Performance
Shares shall be forfeited and no Payout Amount shall be paid with respect to
such forfeited Performance Shares. In the event of a Participant's death,
disability or retirement prior to the full vesting of such Participant's
Performance Shares, the Committee may provide in its sole and absolute
discretion for the vesting (and related payment of Payout Amounts) of such
unvested Performance Shares upon an equitable basis reflecting the performance
of the Partnership during the period beginning on the date when such Participant
was granted Performance Shares and ending upon the date of disability, death or
retirement.
(d) Effect of a Change in Control.
(i) If (A) after a Change in Control and prior to
January 1, 2002, a Participant is terminated without Cause or (B) a
Participant is terminated without Cause within one year after a Change
in Control that occurs on or after January 1, 2002, then all of such
Participant's unvested Performance Shares shall immediately vest and
the Payout Amount (calculated as set forth in Section 7(d)(ii)) shall
be paid to such Participant in cash as soon as practicable after such
Participant's termination.
(ii) The Payout Amount in connection with a Change of
Control is an amount in cash equal to the product of
(A) the sum of
(i) the product of the Book Value
attributable to a Performance Share
on the date of the employee
termination multiplied by the
Performance Factor determined for
the period commencing at the
beginning of the fiscal year in
which the applicable Performance
Share grant is made and ending on
the date of the employee termination
and
(ii) the aggregate value of all
Performance Share Dividends paid
during the period commencing at the
beginning of the fiscal year in
which the applicable Performance
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Share grant is made and ending on
the date of the employee
termination, multiplied by
(B) the product of
(i) the aggregate number of Vested
Performance Shares multiplied by
(ii) the Growth Rate Multiplier
determined for the period commencing
at the beginning of the fiscal year
in which the applicable Performance
Share grant is made and ending on
the date of the employee
termination.
8. ADJUSTMENTS
The Committee may make adjustments from time to time in the number of
Performance Shares granted to a Participant or the Book Value or Growth Rate
Multiplier in such reasonable manner as the Committee may determine to reflect:
(a) Any increase or decrease in the number of issued and
outstanding shares (or partnership interests) in the Partnership resulting from
a subdivision or consolidation of such shares (or partnership interests) or any
other capital adjustment, or other increases or decreases in such shares (or
partnership interests) effected without receipt of consideration by the
Partnership; or
(b) Material changes in the Partnership's accounting practices or
principles; or
(c) Material acquisitions or dispositions, the effect of which
would be to distort earnings, Book Value, Growth Rate Multiplier or Performance
Share Dividends; or
(d) Any other material change relating to the Partnership where
the Committee determines in good faith that an adjustment is necessary or
appropriate.
9. AMENDMENT OR TERMINATION OF PLAN
The Board may amend, suspend or terminate this Plan at any time or from
time to time, provided, however, that no amendment, suspension or termination
may affect the terms of any then outstanding Performance Shares except with the
written consent of the holder thereof and that no amendment may be made which
shall materially modify the requirements for eligibility to participate in the
Plan.
The Board may, from time to time, amend or modify the schedules hereto,
which are used to calculate the value of the Payout Amount. However, no change
may be made which would affect the value of any Performance Shares which have
previously been granted but which are not yet vested or paid out.
10. NO RIGHT OF CONTINUED EMPLOYMENT
Nothing in this Plan nor in the Performance Share Grant Agreement shall
confer any right on a Participant to continue in the employ of the Company or
any subsidiary of the Company (or the
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Partnership or any Affiliate of the Partnership) or shall interfere in any way
with the right of the Company or any of its subsidiaries to terminate a
Participant's employment at any time.
11. TERMS AND CONDITIONS
Performance Share grants shall be subject to the following additional terms and
conditions:
(a) Subject to the provisions of this Plan and the Performance
Share Grant Agreement, Performance Shares may not be sold, assigned,
transferred, pledged or otherwise encumbered without the prior written consent
of the Committee, which consent may be withheld in the Committee's sole
discretion.
(b) Except to the extent otherwise provided herein or any
applicable written employment agreement, if a Participant's employment is
involuntarily terminated (other than for cause (as determined in good faith by
the Committee)), the Committee shall have the discretion to waive in whole or in
part any or all remaining payment limitations with respect to any or all of such
participant's Performance Shares.
(c) This Plan shall be governed by the laws of the State of
Connecticut without giving effect to the conflict of laws principles thereof.
12. BINDING EFFECT
The provisions of this Plan shall be binding upon the legal
representatives, successors and assigns of the Company.
13. GUARANTY.
By executing this Plan in the space provided below, the Partnership
hereby guaranties the performance by the Company of all of the Company's
obligations set forth herein and in any Performance Share Grant Agreement
entered into by the Company in accordance with this Plan.
THE IROQUOIS PIPELINE OPERATING COMPANY
By:
-----------------------------------------------
Its President and Chief Executive Officer
By:
-----------------------------------------------
Its Vice President and Chief Financial Officer
GUARANTEED BY:
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
By:
-----------------------------------------------
Name:
Title:
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SCHEDULE A
PERFORMANCE FACTORS
Average Return on Rate Base Equity over the Performance Period
<TABLE>
<CAPTION>
Below 12.4 to 13.0 to 13.4 to 14.5 to 15.5 to 16.5 to 17 to Above
12.4% 12.9% 13.4% 14.4% 15.4% 16.4% 16.9% 17.5% 17.5%
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Performance
Factor to value a 0 1.0X 1.3X 1.6X 2.0X 2.3X 2.7X 3.0X 3.0X
Performance Share
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
o Average return on rate base equity is calculated by dividing the sum of
the after tax profits of the Partnership for each year in the Performance
Period by the sum of the average rate base equity amounts for the years
in the Performance Period.
o Performance Factors are not interpolated and rates are rounded up or down
to the nearest tenth of a percentage point.
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SCHEDULE B
GROWTH RATE MULTIPLIER TO DETERMINE THE NUMBER OF PERFORMANCE SHARES EARNED
------------------------------------
Multiplier
Annualized ------------------------------------
0% 0.8X
Growth to 2.5%
------------------------------------
Rate 2.6% 0.9X
to 3.5%
in bCF ------------------------------------
3.6% 1.0X
over the to 5.0%
------------------------------------
Performance 5.1% 1.1X
to 6.0%
Period ------------------------------------
6% 1.2X
and above
------------------------------------
o bCF is measured as the average of the volumes entering and leaving the
Company's system.
o Growth Rate Multipliers are not interpolated and growth rates are rounded
up or down to the nearest tenth of a percentage point.
<PAGE>
SCHEDULE C
EXAMPLE OF PERFORMANCE SHARE UNIT VALUATION CALCULATIONS
At Performance Share Payment Date (5 Years from Grant):
Performance Shares Granted: 100
Annualized Growth Rate in bCF over the Performance Period: 3.4%
Average Return on Rate Base Equity over the Performance Period: 15.5%
Book Value per Performance Share: $185
<TABLE>
<S> <C>
Payment Calculation:
Value of a Performance Share:
-----------------------------
185 x 2.3 = $425
(Book Value) (Performance Factor from Schedule A)
Performance Share Dividends: = $160
---------------------------
Total Value of a Performance Share: = $585
-----------------------------------
Number of Performance Shares Earned in the Performance Period:
--------------------------------------------------------------
100 x .9 = 90 Performance Shares
(Targeted Number of Shares) (Multiplier from Schedule B) Earned
Total Payout Amount at the End of the Performance Period:
---------------------------------------------------------
$585 x 90 = $52,650
</TABLE>
