U.S. ENERGY SYSTEMS, INC.
2000 EXECUTIVE BONUS PLAN
SECTION 1. Purpose.
The purpose of this Plan is to establish a program of incentive compensation for
designated executive officers and key employees of the Company and its
subsidiaries that is directly related to the achievement of goals for the
Company.
SECTION 2. Definitions.
As used in this Plan, the following capitalized terms shall have the following
meanings:
a. "Acquisition" shall mean the acquisition of an Eligible New Business
operations by the Company, whether by stock or asset purchase, merger
or any other means.
b. "Acquisition Multiple" shall mean, with respect to any Acquisition, the
quotient of (i) the purchase price paid in connection with such
Acquisition over (ii) the Adjusted EBITDA of the acquired business for
the 12-month period ending on the last day of the acquired company's
most recently completed fiscal quarter ended prior to the date of the
execution of the definitive agreement relating to such Acquisition.
c. "Adjusted EBITDA" for any Plan Year or other referenced period shall
mean the operating income for each respective Eligible New Business,
for such Plan Year or other referenced period, as reflected on its
consolidated audited financial statements, adjusted to exclude the
impact of:
1. depreciation and amortization expenses;
2. any amounts accrued pursuant to management bonus plans
including, but not limited
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to, this Plan, and related employer payroll taxes for the
applicable period;
3. any discretionary or matching contributions to the Company's
401 (k) Plan and other deferred compensation plans for the
applicable period;
4. all items of gain, loss or expense determined to be
extraordinary or unusual in nature or infrequent in occurrence
or related to the disposal of a segment of a business or
related to a change in accounting principles, all as
determined in accordance with standards established by opinion
No. 30 of the Accounting Principles Board (APB Opinion No.
30);
5. all items of gain, loss or expense related to restructuring
charges of subsidiaries whose operations are not included in
operating income for the applicable period;
6. all items of gain, loss or expense related to discontinued
operations that do not qualify as a segment of a business as
defined under APB Opinion No. 30;
7. the reduction in carrying value of long-lived assets, in
accordance with FASB Pronouncement No. 121; and
8. all items of expense related to equity-based compensation
determined in accordance with the standards established by
Opinion No. 25 of the Accounting Principles Board or FASB
Pronouncement No. 123.
9. allocation of corporate G&A costs and other corporate
allocations that are in excess of full marginal cost for
services used by an Eligible New Business. Each Eligible New
Business shall, for the purpose of this Plan, be charged the
full marginal cost for services provided by the Company, such
as G&A costs. The full marginal cost of such services will be
determined for each Eligible New Business to be costs that are
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specifically incurred with respect to such Eligible New
Business, plus an allocated portion of the remainder of the
corporate G&A costs. G&A costs that are not specifically
incurred with respect to the Company's businesses or other
activities will be allocated based on the employees'
allocation of time to each of the Company's businesses and
other activities, and the associated charges of salary,
benefits and overhead costs. The employees' allocation of time
will be based on time sheets, signed by respective employees.
Each hour charged will be charged at a rate that will include
the employee's hourly salary, plus associated benefit costs,
plus a prorated portion of corporate G&A costs that are not
specifically incurred for a business activity of the Company,
such that the Company's total G&A costs that are not
specifically incurred for a business activity of the Company
are spread over the total amount of hours worked (40hrs/wk) by
all employees.
d. "Annual Bonus" shall have the meaning ascribed to it in Section 2(b)
(ii).
e. "Board" or "Board of Directors" shall mean the Board of Directors of
the Company, as constituted from time to time.
f. "Bonus Period" shall mean the five consecutive 365 day years from the
later of the date the applicable Eligible New Business is acquired in
the case of an Acquisition or the date such Eligible New Business
commences commercial operation in the case of a development project or
business.
g. "Capital Charge" shall mean the Cost of Capital multiplied by
Incremental Capital for the applicable Plan Year.
h. "Code" shall mean the Internal Revenue Code of 1986, as amended.
i. "Company" shall mean US Energy Systems, Inc. a Delaware corporation, or
any successor corporation.
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j. "Cost of Capital" shall mean 10%.
k. "Covered Employee" shall mean a Participant who is a "covered employee"
within the meaning of Section 162(m) of the Code.
l. "Designated Beneficiary" shall mean the beneficiary or beneficiaries
designated in accordance with Section 4(f) hereof to receive the
amount, if any, payable under the Plan on the Participant's death.
m. "Economic Profit" with respect to any Plan Year shall be calculated for
each Eligible New Business and shall mean (i) Adjusted EBITDA for each
Eligible New Business for such Plan Year minus (ii) Capital Charges for
each Eligible New Business for such Plan Year.
Economic Profit may be positive or negative.
n. "Eligible New Business" shall mean a New Business with respect to which
either (i) a definitive agreement respecting the acquisition or
development o f such New Business is fully executed while such
Participant is employed by the Company or (ii) in the case of a New
Business where no definitive agreement is executed (such as an
internally developed business), substantial action has been taken by
the Company to implement such New Business while the Participant is
employed by the Company and, in the case of either (i) or (ii) the Plan
Year for which the Formula Bonus Award is being calculated includes a
portion of the Bonus Period respecting such New Business.
o. "FASB" shall mean the Financial Accounting Standards Board.
p. "Formula Bonus Award" shall mean the award payable to a Participant
pursuant to Section 2(b)(i) of the Plan.
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q. "Incremental Capital" for any Plan Year shall mean the sum of (i) Net
Stock Issued in such Plan Year and invested in any respective Eligible
New Business plus (ii) New Net Debt in such Plan Year invested in any
respective Eligible New Business. Incremental Capital may be positive
or negative, but shall exclude any Net Stock Issued or New Net Debt
that are associated with construction of an Eligible New Business until
such construction has been completed and the Eligible New Business
related to such construction is placed into commercial operation.
r. "Improvement Bonus" shall have the meaning ascribed to it in Section
3(b)(3).
s. "Improvement in Economic Profit" with respect to any Plan Year shall
mean the excess, if any, of (i) the Economic Profit for such Plan Year
with respect to the Eligible New Business over (ii) the greater of (A)
zero or (B) the Economic Profit for such Eligible New Business for the
preceding Plan Year.
t. "Net Debt" shall mean (i) all debt recorded on the audited consolidated
balance sheet of the Company with respect to any respective Eligible
New Business, including current maturities of long term debt, minus
(ii) cash, cash equivalents, short term investments and long term
investments, all for any respective Eligible New Business in the amount
that such assets are carried on such balance sheet, and as adjusted to
fair value for any assets carried at other than fair value.
u. "Net Stock Issued" shall mean the Value of Stock Issued minus the Value
of Stock Repurchased. Net Stock Issued may be positive or negative.
v. "New Business" shall mean any new activity, in which the Company
engages, such as a business segment, business, project or acquisition.
w. "New Net Debt" shall mean the increase (decrease) in Net Debt with
respect to any
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respective Eligible New Business since the effective date of this Plan.
New Net Debt may be positive or negative.
x. "Participant" shall mean each person designated to participate in the
Plan pursuant to Sections 3(a).
y. "Plan" shall mean this 2000 Executive Bonus Plan.
z. "Plan Year" shall mean the accounting fiscal year of the Company for
financial accounting purposes, provided that the 2000 Plan Year shall
exclude the first three fiscal months thereof (i.e. through May 4,
2000).
aa. "Value of Stock Issued" shall mean the gross proceeds received for any
equity issued that is invested in respective Eligible New Business
under this Plan. Notwithstanding the above, the Value of Stock Issued
in connection with an Acquisition shall be deemed to be no greater than
(i) ten times the acquired company's Adjusted EBITDA for the 12-month
period ending on the last day of the acquired company's most recently
completed fiscal quarter ended prior to the date of the execution of
the definitive agreement relating to such Acquisition less the sum of
((ii) any debt assumed in connection with the acquisition plus (iii)
any consideration as part of the purchase price, not paid in the form
of equity).
bb. "Value of Stock Repurchased" shall mean the purchase price paid for any
equity repurchased by the Company with respect to any Eligible New
Business (including for this purpose, the value of equity distributed
to the Company's shareholders in connection with a spinoff of an
Eligible New Business which is not consolidated with the Company
immediately following such distribution, such value to be determined by
the closing price of such equity on its primary public market on the
effective date of such distribution).
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SECTION 3. Formula Bonus Awards
a. Eligibility. Participants eligible for a Formula Bonus Award shall
consist of Goran Mornhed and Larry Schneider.
b. Formula Bonus Awards. Formula Bonus Awards to Participants under the
Plan are potential awards that are based on the Economic Profit of
Eligible New Businesses of the Company.
1. Formula Bonus Awards. For each Plan Year, each Participant under the
Plan chosen as eligible pursuant to Section 3(a) above shall be
entitled to a Formula Bonus Award which shall include Annual Bonuses
and Improvement Bonuses (each as defined below) for the Bonus Period.
Participant shall have no financial obligation to the Company in the
event the Economic Profit or Improvement in Economic Profit is negative
in a Plan Year.
2. Annual Bonus. In each Plan Year for each of the years of each Formula
Bonus Award, each Participant shall be eligible for an Annual Bonus in
an amount equal to two percent (2%) of the aggregate Economic Profit
for such Plan Year for all Eligible New Businesses with respect to such
Participant, subject to adjustments as provided for in Subsections (4),
(5), (6) and (7) hereof. In the event the aggregate Economic Profit for
such Plan Year for a Participant is a negative number, no Annual Bonus
shall be paid to such Participant for such Plan Year.
3. Improvement Bonus. In each Plan Year for each of the years of each
Formula Bonus Award, each Participant shall be eligible for an
Improvement Bonus equal to twelve and one-half percent (12 1/2%) of the
aggregate Improvement in Economic Profit respecting Eligible New
Businesses with respect to such Participant for such Plan Year, subject
to adjustments as provided for in Subsections (4), (5) and (6) below,
and provided that if in any Plan Year the aggregate Improvement in
Economic Profit respecting Eligible New Businesses
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under an award is negative, no Improvement Bonuses will be paid in
respect of such Plan Year nor with respect to any subsequent Plan Year
until Economic Profit for a Plan Year (included in whole or in part
during the Bonus Period) for (Eligible New Businesses) is greater than
it was for the Plan Year with respect to which an Improvement Bonus was
last paid. For example, if Economic Profit of Eligible New Businesses
in fiscal 2001 is $15 million and Economic Profit for Eligible New
Businesses in fiscal 2002 is $14 million, no Improvement Bonus for
Eligible New Businesses will be payable to any Participant for 2002
unless Economic Profit for Eligible New Businesses exceeds $15 million.
If Economic Profit for Eligible New Businesses is $16 million in 2003,
the Improvement Bonus payable in respect to 2003 will be $125,000
(12.5% of $1 million). Notwithstanding anything to the contrary herein,
any Improvement Bonus accruing after the Participant's employment with
the Company has been terminated for any reason shall only be measured
with respect to Eligible New Businesses whose Economic Profit improves
after such termination directly as a result of contractual terms and
conditions which (i) existed prior to such termination and (ii)
specifically provide for automatic improvements in the Company's
Adjusted EBITDA relating to such Eligible New Business.
4. The Acquisition Adjustment. In the event that the Company makes an
Acquisition and the Acquisition Multiple is greater than the quotient
of (i) one over (ii) the Cost of Capital (the "Base Multiple"), then
the Capital Charge relating to such Acquisition will be adjusted for
the first two Plan Years following such Acquisition by multiplying the
Capital Charge attributable to such Acquisition by a fraction, the
numerator of which is the Base Multiple and the denominator of which is
the Acquisition Multiple.
5. Partial Year. For purposes of calculating Formula Bonus Awards under
section 3(b)(2) in the event the Bonus Period with respect to any
Eligible New Business commences or terminates in the middle of a Plan
Year or if the Participant's employment commences in the middle of a
Plan Year, the Annual Bonus shall only be calculated with respect to
Economic Profit accruing with respect to such Eligible New Businesses
during that portion of the Plan
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Year falling within the Bonus Period or the portion of the Plan Year in
which the Executive is employed (a "Partial Year"). For purposes of
calculating the Improvement Bonus under Section 3(b)(3) if one of the
Plan Years included in the calculation of the Improvement Bonus is a
Partial Year, the Improvement in Economic Profit respecting such
Eligible New Business shall be determined by comparing the Economic
Profit accruing during such Partial Year with the Economic Profit
accruing during the comparable period during the previous Plan Year
included in the calculation of Improvement of Economic Profit.
Notwithstanding the above, unless otherwise specified in an employment
agreement between the Company (or the applicable subsidiary of the
Company) and a Participant, a Participant who is employed by the
Company or a subsidiary on the last day of a Plan Year shall be
entitled to receive Formula Bonus Awards in respect of such Plan Year
notwithstanding a subsequent termination of the Participant's
employment.
6. Partial Ownership. In the event an Eligible New Business is partially
owned by Company for purposes of calculating the Formula Bonus Awards,
the Economic Profit and Improvement In Economic Profit respecting such
partially owned Eligible New Business shall be the product of (i) 100%
of the Economic Profit or Improvement In Economic Profit relating to
such Eligible New Business respectively and (ii) the percentage of the
Economic Profit allocated to the Company's ownership share.
7. Unconsummated Acquisitions. In the event (i) a definitive agreement
respecting the acquisition of a Eligible New Business is executed while
the Participant is employed by the Company but such Acquisition is not
actually consummated until after the Participant's employment has
terminated, or (ii) in the case of an Eligible New Business where no
definitive agreement is executed, substantial action has been taken by
the Company to implement such Eligible New Business while the
Participant is Employed by the Company but such Eligible New Business
which is not subject to a definitive agreement is not put into
commercial operation until after the Participant's employment has
terminated, for purposes of calculating a Formula Bonus Award hereunder
, the Economic Profit respecting such Eligible New
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Business shall be discounted by 50%.
c. Form and Time of Determination of Award Payments and Caps. As soon as
practicable following the end of the applicable Plan Year, the Company
shall
1. determine the Formula Bonus Awards for each Participant
eligible for a Formula Bonus Award for such Plan Year;
2. calculate and certify the amounts of Economic Profit and
Improvement In Economic Profit for such Plan Year for each
Annual Bonus and Improvement Bonus then payable under each
Formula Bonus Award (the Compensation Committee of the Board
shall oversee and approve such calculations). Annual Bonuses
and Improvement Bonuses shall for each Plan Year be paid
within 90 days after the end of such Plan Year, following the
Board's certification and determination of the amounts payable
to each eligible Participant and following the delivery of the
audited consolidated financial statements of the Company with
respect to such Plan Year. Payment of Formula Bonus Awards
shall be made in the form of cash provided that the Company
shall have the right to defer a portion of such Formula Bonus
Awards for a Plan Year if, during such Plan Year a) the
Company's EBITDA less the regularly scheduled current portion
of long-term debt is less than all Formula Bonus Awards due
under this Plan for such Plan Year, and b) as a result the
Company lacks the cash to pay such Formula Bonus Awards in
full. Such deferral shall not be made for more than 2 years.
Deferred payments shall accrue interest at 16% per annum,
compounded annually. Such deferral shall not reduce the
amount of the Formula Bonus Award otherwise payable under this
Agreement. Deferred payments under this Section 3(c)(2) shall
not be subject to the Cap and time limits set forth in section
3(c)(3) below. As between various Participants, to the extent
Formula Bonus Awards are deferred in part, they shall be
deferred on a non-discriminatory pro-rata basis.
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3. Notwithstanding anything to the contrary set forth in this
Agreement (but except for deferrals described in section 3(c)
(2) above), in no event shall the sum of the Annual Bonus and
the Improvement Bonus paid to any Participant under this Plan
exceed $1.2 million in any one Plan Year whether or not the
Company possesses sufficient funds to pay such Bonus (the
"Cap") Any excess Annual Bonus or Improvement Bonus earned but
not paid in any one year due to the Cap shall be carried over
to and paid the following year, without interest, subject to
the same maximum payment as the previous year; provided that
the obligation of the Company to carry over and pay any Annual
Bonus or Improvement Bonus which is not paid due to the Cap
shall cease after the fifth full Plan Year after such Bonus
was earned after which time the Participant shall have no
further right to receive such payments.
SECTION 4. Miscellaneous.
a. Taxes. The Company shall have the right to deduct from all awards paid
under the Plan any federal, state or local taxes required by law to be
withheld with respect to such payments.
b. Non -Transferability. No award made hereunder may be assigned, pledged
or transferred, except, in the event of death of a Participant, by will
or the laws of descent and distribution, and any attempt to assign,
pledge or transfer such rights shall be void.
c. Relationship to Other Benefits. No payment under the Plan shall be
taken into account in determining any benefits under any pension,
profit sharing, group insurance or other benefit plan of the Company or
any of its Subsidiaries.
d. Governing Law. This Plan shall be governed by and construed in
accordance with laws of the State of New York applicable to agreements
made and to be performed entirely within such state (without regard to
any conflict of law provisions that might indicate the applicability of
any other laws). The parties hereby agree to submit any and all
disputes
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arising out of or in connection with this Agreement to binding
arbitration in accordance with the commercial rules of the American
Arbitration Association. Such arbitration shall be held in New York
City. Each party shall select one arbitrator and the two such selected
arbitrators shall select a third arbitrator. Notwithstanding anything
to the contrary in 4(d) this Section, such parties may seek in any
court of competent jurisdiction any injunctive relief relating to any
dispute arising out of or in connection with this Agreement.
e. Successors and Assigns. This Plan and the obligations hereunder shall
be binding upon and inure to the benefit of any successors in interest
to the business of the Company and may be assigned to any company which
acquires substantially all the business operations or assets of the
Company provided that such successor assumes the obligations hereunder.
f. Designation and Change of Beneficiary. Each Participant may designate
one or more persons as the Designated Beneficiary who shall be entitled
to receive his or her Formula Bonus Award, if any, payable under the
Plan upon the death of the Participant. Such designation shall be in
writing to the Company. A Participant may, from time to time, revoke or
change his or her Designated Beneficiary without the consent of any
prior Designated Beneficiary by filing a written designation with the
Committee. The last such designation received by the Company shall be
controlling; provided, however, that no designation, or change or
revocation thereof, shall be effective unless received by the Company
prior to the Participant's death, and in no event shall it be effective
as of a date prior to such receipt.
g. Unfunded Plan. Participants shall have no right, title, or interest
whatsoever in or to any investments, which the Company may make to aid
it in meeting its obligations under the Plan. Nothing contained in the
Plan, and no action taken pursuant to its provisions, shall create or
be construed to create a trust of any kind, or a fiduciary relationship
between the Company and any Participant, beneficiary, legal
representative or any other person. To the extent that any person
acquires a right to receive payments from the Company under the Plan,
such right shall be no greater than the right of an unsecured general
creditor of the Company. All
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