Exhibit 10.2
WGL HOLDINGS, INC.
OMNIBUS INCENTIVE COMPENSATION PLAN,
SECTION 1
PURPOSE
Purpose. The purpose of this WGL Holdings, Inc. Omnibus Incentive Compensation
Plan (the “Plan”) of WGL Holdings, Inc., a Virginia corporation (the “Company”),
is to advance the interests of the Company and its shareholders by providing for
incentive compensation triggered by factors related to operational excellence,
customer service, utility reliability and others as a means to attract, retain
and reward officers and other key employees of, and consultants and other
service providers to, the Company and Subsidiaries and to enable such persons to
acquire or increase their interests in the Company and its success, thereby
promoting a closer identity of interests between such persons and the Company’s
shareholders. The Plan is intended to qualify certain compensation awarded under
the Plan as “performance-based compensation” under Code section 162(m) to the
extent deemed appropriate by the Committee. Further, the terms of the Plan are
intended to meet the requirements of Section 409A of the Code.
SECTION 2
GENERAL DEFINITIONS
Definitions. The definitions of awards under the Plan, including Options, SARs,
Restricted Stock, Deferred Stock, Stock granted as a bonus or in lieu of other
awards, Dividend Equivalents, Other Stock-Based Awards and Cash Awards, are set
forth in Section 6 of the Plan. Such awards, together with any other right or
interest granted to a Participant under the Plan, are termed “Awards.” For
purposes of the Plan, the following additional terms shall be defined as set
forth below:
     (a) “Award Agreement” means any written agreement, contract, notice or
other instrument or document evidencing or relating to an Award.
     (b) “Beneficiary” means the person, persons, trust or trusts which have
been designated by a Participant in his most recent written beneficiary
designation filed with the Committee to exercise the rights and receive the
benefits specified under an Award upon such Participant’s death or, if there is
no designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to exercise such rights and receive such benefits.

 

--------------------------------------------------------------------------------

 

- 2 -
(c) “Board” means the Board of Directors of the Company.
(d) “Change of Control” means for all purposes of this Plan the meaning ascribed
to such term in the Company’s Change in Control Severance Plan for Certain
Executives, dated December 15, 2006, or any successor to such plan.
     (e) “Code” means the Internal Revenue Code of 1986, as amended from time to
time. References to any provision of the Code shall be deemed to include the
regulations thereunder and successor provisions and regulations thereto.
     (f) “Committee” means the committee appointed by the Board to administer
the Plan or, if no committee is appointed, the Board.
     (g) “Effective Date” means the date that the Plan is approved by the
Company’s shareholders.
     (h) “Exchange Act” means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act shall be
deemed to include the rules thereunder and successor provisions and rules
thereto.
     (i) “Fair Market Value” means, on any given day, the closing price of one
share of Stock as reported on the New York Stock Exchange composite tape on such
day or, if the Stock was not traded on such day, then on the next preceding day
that the Stock was traded, all as reported by such source as the Committee may
select.
     (j) “ISO” means any Option intended to be and designated as an incentive
stock option within the meaning of Code section 422, or any successor provision.
     (k) “Participant” means a person who, at a time when eligible under
Section 5, has been granted an Award.
     (l) “Plan” means the WGL Holdings, Inc. Omnibus Incentive Compensation
Plan.
     (m) “Plan Year” means the Company’s fiscal year.
     (n) “Prior Plan” means the WGL Holdings, Inc. 1999 Incentive Compensation
Plan as Amended and Restated as of March 5, 2003.
     (o) “Rule 16b-3” means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
     (p) “Stock” means the common stock, no par value, of the Company and such
other securities as may be substituted for Stock or for such other securities
pursuant to Section 4(d).

 

--------------------------------------------------------------------------------

 

- 3 -
     (q) “Subsidiary” or “Subsidiaries” means any corporation or corporations
which, together with the Company, would form a group of corporations described
in Code section 424(f). The term shall include the Utility. The term shall also
refer to any entity designated as such by the Board for purposes of the Plan.
     (r) “Utility” means Washington Gas Light Company.
SECTION 3
ADMINISTRATION
     (a) Authority of the Committee. The Plan shall be administered by the
Committee and the Committee shall make and administer all Awards in compliance
with the provisions of Section 409A of the Code, including, but not limited to,
rules related to the election, timing and deferral of Awards. The Committee
shall have full and final authority to take the following actions, in each case
subject to and consistent with the provisions of the Plan:
     (i) to select persons to whom Awards may be granted;
     (ii) to determine the type or types of Awards to be granted to each such
person;
     (iii) to determine the number of Awards to be granted, the number of shares
of Stock to which an Award will relate, the terms and conditions of any Award
(including, without limitation, any exercise price, any grant price or purchase
price, any restriction or condition, any schedule for lapse of restrictions or
conditions relating to transferability, forfeiture, exercisability or settlement
and any waivers or accelerations thereof and any performance conditions
(including, without limitation, any performance conditions relating to Awards
not intended to be governed by Section 7(e) and any waivers and modifications
thereof), based in each case on such considerations as the Committee shall
determine) and all other matters to be determined in connection with an Award;
     (iv) to determine whether, to what extent and under what circumstances an
Award may be settled, or the exercise price of an Award may be paid, in cash,
Stock, other Awards or other property, or an Award may be canceled, forfeited or
surrendered;
     (v) to determine whether, to what extent and under what circumstances cash,
Stock, other Awards or other property payable with respect to an Award will be
deferred either automatically, or at the election of the Committee or of the
Participant;
     (vi) to prescribe the form of each Award Agreement, which need not be
identical for each Participant;
     (vii) to adopt, amend, suspend, waive and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to

 

--------------------------------------------------------------------------------

 

- 4 -
administer the Plan;
     (viii) to correct any defect or omission or reconcile any inconsistency in
the Plan and to construe and interpret the Plan and any Award, rules and
regulations or Award Agreement; and
     (ix) to make all other decisions and determinations as may be required
under the terms of the Plan or as the Committee may deem necessary or advisable
for the proper administration of the Plan.
     Other provisions of the Plan notwithstanding, the Board may perform any
function of the Committee under the Plan, including, without limitation, for the
purpose of ensuring that transactions under the Plan by Participants who are
then subject to Section 16 of the Exchange Act in respect of the Company are
exempt under Rule 16b-3. In any case in which the Board is performing a function
of the Committee under the Plan, each reference to the Committee herein shall be
deemed to refer to the Board.
     (b) Manner of Exercise of Committee Authority. Any determination or action
of the Committee with respect to the Plan or any Award shall be taken in the
sole and absolute discretion of the Committee and shall be final, conclusive and
binding on all persons, including, without limitation, the Company, any
Subsidiary, any Participant, any person claiming any rights or interests under
the Plan or any Award from or through any Participant and the Company’s
shareholders, except to the extent that the Committee may subsequently modify,
or make a further determination or take further action not consistent with its
prior determination or action. If not specified in the Plan, the time at which
the Committee must or may make any determination or take any action shall be
determined by the Committee, and any such determination or action may thereafter
be modified by the Committee (subject to Sections 4(d) and 8(e)). The express
grant of any specific power to the Committee, the making of any determination or
the taking of any action by the Committee or the failure to make any
determination or take any action shall not be construed as limiting any power or
authority of the Committee. Except as provided in Section 7(e), the Committee
may delegate to officers or managers of the Company or any Subsidiary authority,
subject to such terms and conditions as the Committee shall determine, to
perform such functions as the Committee may determine, to the extent permitted
under applicable law.
     (c) Limitation of Liability. Each member of the Committee shall be entitled
to, in good faith, rely or act upon any report or other information furnished to
him by any officer or other employee of the Company or any Subsidiary, the
Company’s independent certified public accountants or any executive compensation
consultant, legal counsel or other professional retained by the Company to
assist in the administration of the Plan. No member of the Committee, nor any
officer or employee of the Company acting on behalf of the Committee, shall be
personally liable for any determination, action or interpretation taken or made
in good faith with respect to the Plan, and all members of the Committee and any
officer or employee of the Company acting on its behalf shall, to the extent
permitted by law, be fully indemnified and

 

--------------------------------------------------------------------------------

 

- 5 -
protected by the Company with respect to any such determination, action or
interpretation.
SECTION 4
STOCK SUBJECT TO THE PLAN AND MAXIMUM AWARDS
     (a) Shares of Stock Reserved. Subject to adjustment as provided in
Section 4(d), the total number of shares of Stock reserved and available for
delivery pursuant to Awards shall be:
     (i) One million seven hundred thousand (1,700,000) shares of Stock; plus
     (ii) (A) the number of shares of Stock (not to exceed one hundred
twenty-five thousand (125,000)) which remained available for grant under the
Company’s Prior Plan as of the Effective Date; and (B) the number of shares of
Stock (not to exceed one million eight hundred forty-five thousand (1,845,000)),
subject to outstanding awards as of the Effective Date under the Prior Plan that
on or after the Effective Date cease for any reason to be subject to such awards
(other than by reason of exercise or settlement of the awards to the extent they
are exercised for or settled in vested and nonforfeitable shares of Stock).
     (b). Shares subject to any Award which is canceled, expired, forfeited,
settled in cash or otherwise terminated without delivery of fully tradeable
shares of Stock to the Participant (or Beneficiary), including, without
limitation, shares of Restricted Stock that are forfeited and shares of Stock
withheld or surrendered in payment of any exercise price of an Award or taxes
related to an Award, shall again be available for delivery pursuant to Awards.
Notwithstanding the foregoing, the number of shares that may be delivered upon
the exercise of ISOs shall be one million eight hundred twenty-five thousand
(1,825,000), subject to adjustment as provided in Section 4(d). Any shares of
Stock delivered pursuant to an Award may consist, in whole or in part, of
authorized and unissued shares, treasury shares or shares acquired by the
Company.
     (c) Annual Per-Participant Limitations. During any Plan Year, no
Participant may be granted Awards relating to more than 400,000 shares of Stock,
subject to adjustment as provided in Section 4(d). In addition, with respect to
Cash Awards, no Participant may be paid during any Plan Year cash or other
property relating to such Awards that exceeds the greater of the Fair Market
Value of the number of shares of Stock set forth in the preceding sentence or
five million dollars ($5,000,000), determined either at the date of grant or the
date of settlement, whichever is greater. This provision sets forth two separate
limitations, so that Awards that may be settled solely by delivery of Stock will
not operate to reduce the amount of Cash Awards, and vice versa. Awards that may
be settled either in Stock or in cash must not exceed either limitation during
the applicable Plan Year.
     (d) Adjustments. In the event that the Committee shall determine that any

 

--------------------------------------------------------------------------------

 

- 6 -
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Stock or other
securities, Stock dividend or other special, large and nonrecurring dividend or
distribution (whether in the form of cash, securities or other property),
liquidation, dissolution or other similar corporate transaction or event affects
the Stock such that an adjustment is appropriate in order to prevent dilution or
enlargement of the rights of Participants, then the Committee shall, in such
manner as it may deem equitable, adjust any or all of (i) the number and kind of
shares of Stock reserved and available for delivery pursuant to Awards under
Section 4(a), including, without limitation, the share limitations for
Restricted Stock and ISOs, (ii) the number and kind of shares of Stock specified
in the annual per-Participant limitations under Section 4(c), (iii) the number
and kind of shares of Stock relating to outstanding Restricted Stock or other
Awards in connection with which shares have been issued, (iv) the number and
kind of shares of Stock that may be issued in respect of any other outstanding
Awards and (v) the exercise price, grant price or purchase price relating to any
Awards (or, if deemed appropriate, the Committee may make provision for a cash
payment with respect to any outstanding Awards). In addition, the Committee is
authorized to make adjustments in the terms and conditions of, and the criteria
included in, Awards (including, without limitation, cancellation of unexercised
or outstanding Awards, or substitution of Awards using stock of a successor or
other entity) in recognition of unusual or nonrecurring events (including,
without limitation, events described in the preceding sentence and events
constituting a Change of Control) affecting the Company or any Subsidiary or the
financial statements of the Company or any Subsidiary, or in response to changes
in applicable laws, regulations or accounting principles. Notwithstanding
anything herein to the contrary, without the prior approval of the shareholders
of the Company, Options or SARs issued under this Plan will not be repriced,
replaced, repurchased for cash at any time or regranted through cancellation or
by lowering the exercise price, and no material amendment of this Plan shall be
made without shareholder approval if shareholder approval is required by law,
regulation, or stock exchange rule. The exercise price of a previously granted
Option or the grant prince of a previously issued SAR may not be lowered at any
time following the grant of such Option or SAR.
SECTION 5
ELIGIBILITY
     Executive officers and other key employees of the Company or of any
Subsidiary, including any member of the Board who is also such an employee, and
persons who provide consulting or other services to the Company or any
Subsidiary deemed by the Committee to be of substantial value, are eligible to
be granted Awards. In addition, persons who have been offered employment by the
Company or any Subsidiary, and persons employed by an entity that the Committee
reasonably expects to become a Subsidiary, are eligible to be granted Awards.

 

--------------------------------------------------------------------------------

 

- 7 -
SECTION 6
SPECIFIC TERMS OF AWARDS
     (a) General. Awards may be granted on the terms and conditions set forth in
this Section 6. In addition, the Committee may impose, in connection with any
Award, such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including, without
limitation, terms requiring forfeiture of Awards in the event of termination of
employment or service of the Participant. Except as provided in Section 6(f),
6(h) or 7(a), or to the extent required to comply with requirements of
applicable law, only services may be required as consideration for the grant
(but not the exercise) of any Award.
     (b) Options. The Committee is authorized to grant options to purchase Stock
on the following terms and conditions (“Options”):
     (i) Option Grants. Options may be granted to Participants in such number,
and upon such terms, and at any time and from time to time as shall be
determined by the Committee, in its sole discretion.
     (ii) Exercise Price. The exercise price per share of Stock purchasable
under an Option shall be determined by the Committee and specified in the Award
Agreement; provided, however, that except as provided in Section 7(a), the
exercise price shall be not less than the Fair Market Value on the date of
grant.
     (iii) Time and Method of Exercise. Each Option shall be exercisable during
and over such period ending not later than ten years from the date it was
granted, as may be determined by the Committee and stated in the Award
Agreement. The Committee shall determine the time or times at which an Option
may be exercised in whole or in part, the methods by which the exercise price
may be paid or deemed to be paid, the form of such payment, including, without
limitation, cash, Stock, other Awards or other property (including, without
limitation, awards granted under other Company plans and through “cashless
exercise” arrangements, to the extent permitted by applicable law) and the
methods by which Stock will be delivered or deemed to be delivered to
Participants.
     (iv) ISOs. The terms and conditions of any ISOs shall comply in all
respects with the requirements of Code section 422. Notwithstanding anything to
the contrary herein, no term of the Plan or of any Award Agreement relating to
ISOs shall be interpreted, amended or altered, nor shall any discretion or
authority granted hereunder be exercised, so as to cause the ISOs to fail to
qualify as such under Code section 422, unless such result is mutually agreed to
by the Company and the Participant.
     (v) Termination of Employment or Service. Unless otherwise determined by
the Committee, upon termination of a Participant’s employment or service, as
applicable, with the Company and all Subsidiaries, such Participant may exercise
any Options during the three-month period following such termination of
employment or service,

 

--------------------------------------------------------------------------------

 

- 8 -
but only to the extent that such Option was exercisable as of such termination
of employment or service. Notwithstanding the foregoing, if the Committee
determines that such termination is for cause, all Options held by the
Participant shall terminate as of the termination of employment or service.
     (c) Stock Appreciation Rights. The Committee is authorized to grant Stock
appreciation rights on the following terms and conditions (“SARs”):
     (i) Right to Payment. An SAR shall confer on the Participant to whom it is
granted a right to receive, upon exercise thereof, the excess of (A) the Fair
Market Value on the date of exercise (or, if the Committee shall so determine in
the case of any such right other than one related to an ISO, the Fair Market
Value at any time during a specified period before or after the date of
exercise), over (B) the grant price of the SAR as determined by the Committee as
of the date of grant of the SAR, which, except as provided in Section 7(a),
shall be not less than the Fair Market Value on the date of grant.
     (ii) Other Terms. The Committee shall determine the time or times at which
an SAR may be exercised in whole or in part, the method of exercise, method of
settlement, form of consideration payable in settlement, method by which Stock
will be delivered or deemed to be delivered to Participants, whether or not an
SAR shall be in tandem with any other Award, and any other terms and conditions
of any SAR. The terms and conditions relating to any SAR will be set forth in an
Award Agreement that is in compliance with the provisions of Section 409A of the
Code.
     (d) Restricted Stock. The Committee is authorized to grant restricted
shares of Stock on the following terms and conditions (“Restricted Stock”):
     (i) Grant and Restrictions. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions, if any, as the Committee
may impose, which restrictions may lapse separately or in combination at such
times, under such circumstances, in such installments or otherwise, as the
Committee may determine. Except to the extent restricted under the terms of the
Plan and any Award Agreement relating to the Restricted Stock, a Participant
granted Restricted Stock shall have all of the rights of a shareholder,
including, without limitation, the right to vote the Restricted Stock and the
right to receive dividends thereon.
     (ii) Forfeiture. Except as otherwise determined by the Committee, upon a
Participant’s termination of employment or service (as determined under criteria
established by the Committee) during the applicable restriction period,
Restricted Stock that is at that time subject to restrictions shall be forfeited
and reacquired by the Company; provided, however, that the Committee may
provide, by rule or regulation or in any Award Agreement, or may determine in
any individual case, that restrictions or forfeiture conditions relating to
Restricted Stock shall be waived in whole or in part in the event of termination
resulting from specified causes.

 

--------------------------------------------------------------------------------

 

- 9 -
     (iii) Certificates for Stock. Restricted Stock may be evidenced in such
manner as the Committee shall determine. If certificates representing Restricted
Stock are registered in the name of the Participant, such certificates may bear
an appropriate legend referring to the terms, conditions and restrictions
applicable to the Restricted Stock, the Company may retain physical possession
of the certificates and the Participant may be required to deliver a stock power
to the Company, endorsed in blank, relating to the Restricted Stock.
     (iv) Dividends. Dividends paid on Restricted Stock shall be either paid at
the dividend payment date in cash or in shares of unrestricted Stock having a
Fair Market Value equal to the aggregate amount of such dividends, or the
payment of such dividends shall be deferred and/or the amount or value thereof
automatically reinvested in additional shares of Restricted Stock, other Awards
or other property, as the Committee shall determine or permit the Participant to
elect. Stock distributed in connection with a Stock split or Stock dividend, and
other property distributed as a dividend, shall be subject to restrictions and a
risk of forfeiture to the same extent as the Restricted Stock with respect to
which such Stock or other property has been distributed, unless otherwise
determined by the Committee. Notwithstanding the foregoing, the terms and
conditions relating to any deferred dividends payable with respect to Restricted
Stock will be set forth in an Award Agreement that is in compliance with the
provisions of Section 409A of the Code.
     (e) Deferred Stock. The Committee is authorized to grant deferred shares of
Stock subject to the following terms and conditions (“Deferred Stock”):
     (i) Award and Restrictions. Delivery of Deferred Stock shall occur upon
expiration of the deferral period specified in the Award Agreement by the
Committee or, if permitted by the Committee, as elected by the Participant. In
addition, Deferred Stock shall be subject to such restrictions as the Committee
may impose, if any, which restrictions may lapse at the expiration of the
deferral period or at other specified times, separately or in combination at
such times, under such circumstances, in installments or otherwise, as the
Committee may determine.
     (ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment or service (as determined under criteria established
by the Committee) during the applicable deferral period or portion thereof to
which restrictions or forfeiture conditions apply, all Deferred Stock that is at
that time subject to such restrictions or forfeiture conditions shall be
forfeited; provided, however, that the Committee may provide, by rule or
regulation or in any Award Agreement, or may determine in any individual case,
that restrictions or forfeiture conditions relating to Deferred Stock shall be
waived in whole or in part in the event of termination resulting from specified
causes.
     (f) Bonus Stock and Awards in Lieu of Cash Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of Company obligations to pay cash or other property, under other plans or

 

--------------------------------------------------------------------------------

 

- 10 -
compensatory arrangements.
     (g) Dividend Equivalents. The Committee is authorized to grant dividend
equivalents entitling the Participant to receive cash, Stock, other Awards or
other property equal in value to dividends paid with respect to a specified
number of shares of Stock (“Dividend Equivalents”). Dividend Equivalents may be
awarded on a free-standing basis or in connection with another Award. The
Committee may provide that Dividend Equivalents shall be paid or distributed
when accrued or shall be deemed to have been reinvested in additional Stock,
Awards or other property, and shall be subject to such restrictions on
transferability and risks of forfeiture, as the Committee may determine.
Notwithstanding the foregoing, the terms and conditions relating to Dividend
Equivalents will be set forth in an Award Agreement that is in compliance with
the provisions of Section 409A of the Code.
     (h) Other Stock-Based or Cash Awards. The Committee is authorized, subject
to limitations under applicable law, to grant such other Awards that may be
denominated or payable in, valued in whole or in part by reference to or
otherwise based on or related to Stock and factors that may influence the value
of Stock, as deemed by the Committee to be consistent with the purposes of the
Plan, including, without limitation, performance shares, convertible or
exchangeable debt securities, other rights convertible or exchangeable into
Stock, purchase rights for Stock, Awards with a value or payment contingent upon
performance of Stock (or any other factors designated by the Committee) and
Awards valued by reference to the book value of Stock or the value of securities
of or the performance of specified Subsidiaries (“Other Stock-Based Awards”).
The Committee shall determine the terms and conditions of such Awards. Stock
issued pursuant to an Other Stock-Based Award in the nature of a purchase right
granted under this Section 6(h) shall be purchased for such consideration, paid
for at such times, by such methods and in such forms, including, without
limitation, cash, Stock, other Awards or other property, as the Committee shall
determine. Awards that may be settled in whole or in part in cash or other
property (not including Stock) may also be granted pursuant to this Section 6(h)
(“Cash Awards”). The Committee shall determine the terms and conditions of such
Cash Awards.
SECTION 7
CERTAIN PROVISIONS APPLICABLE TO AWARDS
     (a) Stand-Alone, Additional, Tandem and Substitute Awards. Awards may be
granted either alone or in addition to, in tandem with or in substitution for
any other Award or any award granted under any other plan of the Company, any
business entity to be acquired by the Company or any Subsidiary, or any other
right of a Participant to receive payment from the Company or any Subsidiary.
Awards granted in addition to or in tandem with other Awards or awards may be
granted either as of the same time or as of a different time from the grant of
such other Awards or awards.

 

--------------------------------------------------------------------------------

 

- 11 -
     (b) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee; provided, however, that in no event shall the
term of any ISO or any SAR granted in tandem therewith exceed the period
permitted under Code section 422.
     (c) Form of Payment Under Awards. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or any Subsidiary
upon the grant, exercise or settlement of an Award may be made in such forms as
the Committee shall determine, including, without limitation, cash, Stock, other
Awards or other property, and may be made in a single payment or transfer, in
installments or on a deferred basis. Such payments may include, without
limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend
Equivalents in respect of installment or deferred payments denominated in Stock.
     (d) Legal Compliance.
     (i) Compliance with Code Section 162(m). It is the intent of the Company
that Options, SARs and other Awards designated as such constitute
“performance-based compensation” within the meaning of Code section 162(m).
Except for the automatic acceleration and payout resulting from a Change of
Control under Section 7(f), if any provision of the Plan or of any Award
Agreement relating to such an Award does not comply or is inconsistent with the
requirements of Code section 162(m), such provision shall be construed or deemed
amended to the extent necessary to conform to such requirements, and no
provision shall be deemed to confer upon the Committee or any other person
discretion to increase the amount of compensation otherwise payable in
connection with any such Award upon attainment of the performance goals.
     (ii) Section 16 Compliance. With respect to a Participant who is then
subject to Section 16 of the Exchange Act in respect of the Company, the
Committee shall implement transactions under the Plan and administer the Plan in
a manner that will ensure that each transaction by such a Participant is exempt
from liability under Rule 16b-3, except that such a Participant may be permitted
to engage in a nonexempt transaction under the Plan if written notice has been
given to the Participant regarding the nonexempt nature of such transaction. The
Committee may authorize the Company to repurchase any Award or shares of Stock
resulting from any Award in order to prevent a Participant who is subject to
Section 16 of the Exchange Act from incurring liability under Section 16(b).
Unless otherwise specified by the Participant, equity securities, including,
without limitation, derivative securities, acquired under the Plan which are
disposed of by a Participant shall be deemed to be disposed of in the order
acquired by the Participant.
     (iii) Compliance with Code Section 409A. The terms and conditions of any
Awards will comply in all applicable respects with the requirements of Code
section 409A. Notwithstanding anything to the contrary herein, no term of the
Plan or of any

 

--------------------------------------------------------------------------------

 

- 12 -
Award Agreement will be interpreted or amended, nor shall any discretion or
authority granted hereunder be exercised, so as to cause such Awards to violate
the provisions of Code section 409A.
     (e) Performance-Based Awards. The Committee may designate any Award, the
exercisability, vesting, payment or settlement of which is subject to the
attainment of one or more preestablished performance goals, as a
performance-based Award intended to qualify as “performance-based compensation”
within the meaning of Code section 162(m). The performance goals for an Award
subject to this Section 7(e) shall consist of one or more business criteria,
identified below, and a targeted level or levels of performance with respect to
such criteria, as specified by the Committee. Performance goals shall be
objective and shall otherwise meet the requirements of Code section
162(m)(4)(C). The following business criteria for the Company, on a consolidated
basis, and/or for specified Subsidiaries or business units of the Company, shall
be used by the Committee in establishing performance goals for such Awards: (i)
earnings; (ii) net income; (iii) net income applicable to Stock; (iv) revenue
(v) cash flow; (vi) return on assets; (vii) return on net assets; (viii) return
on invested capital; (ix) return on equity; (x) profitability; (xi) economic
value added; (xii) operating margins or profit margins; (xiii) income before
income taxes; (xiv) income before interest and income taxes; (xv) income before
interest, income taxes, depreciation and amortization; (xvi) total return on
Common Stock; (xvii) book value; (xviii) expense management; (xix) capital
structure and working capital; (xx) strategic business criteria, consisting of
one or more objectives based on meeting specified revenue, gross profit, market
penetration, geographic business expansion, cost targets or goals relating to
acquisitions or divestitures; (xxi) costs; (xxii) employee morale or
productivity; (xxiii) customer satisfaction or loyalty; (xxiv) customer service;
(xxv) compliance programs; (xxvi) gas delivered; (xxvii) system reliability;
(xxviii) adequacy and security of gas supply; and (xxix) safety. The levels of
performance required with respect to such business criteria may be expressed in
absolute or relative terms, including, without limitation, per share amounts and
comparisons to the performance of a published or special index deemed applicable
by the Committee, such as the Standard & Poor’s 500 Stock Index or the
performance of one or more comparator companies. In establishing the levels of
performance to be attained, the Committee may disregard or offset the effect of
such factors as extraordinary and/or nonrecurring events as determined by the
Company’s independent certified public accountants in accordance with generally
accepted accounting principles and changes in or modifications to accounting
standards as may be required by the Financial Accounting Standards Board.
Achievement of performance goals with respect to such Awards shall be measured
over a period of not less than one year nor more than five years, as the
Committee may specify. Performance goals may differ for Awards to different
Participants. The Committee shall specify the weighting to be given to each
business criterion for purposes of determining the final amount payable with
respect to any such Award. The Committee may reduce the amount of a payout
otherwise to be made in connection with an Award subject to this Section 7(e),
but may not exercise its discretion to increase such amount, and the Committee
may consider other performance criteria in exercising such negative discretion.
All determinations by the Committee as to the attainment of performance goals
shall be in

 

--------------------------------------------------------------------------------

 

- 13 -
writing. The Committee may not delegate any responsibility with respect to an
Award that is intended to qualify as “performance-based compensation” within the
meaning of Code section 162(m).
     (f) Acceleration and Payout upon a Change of Control. Notwithstanding
anything contained herein to the contrary, all conditions and/or restrictions
relating to the continued performance of services and/or the achievement of
performance goals with respect to the exercisability, vesting, payment or
settlement of an Award granted prior to December 15, 2006, shall immediately
lapse upon a Change of Control, and all such Awards shall be immediately paid or
settled; provided, however, that such lapse shall not occur if the Committee
determines that such lapse shall not occur. Awards granted on or after
December 15, 2006, will vest upon a Change in Control in accordance with the
terms of the WGL Holdings, Inc./Washington Gas Light Company Change in Control
Policy.
SECTION 8
GENERAL PROVISIONS
     (a) Compliance with Laws and Obligations. The Company shall not be
obligated to issue or deliver Stock in connection with any Award or to take any
other action under the Plan in a transaction subject to the requirements of any
applicable securities law, any requirement under any listing agreement between
the Company and any national securities exchange or automated quotation system
or any other law, regulation or contractual obligation until the Company is
satisfied that such laws, regulations and other obligations have been complied
with in full. Certificates representing shares of Stock issued under the Plan
may be subject to such stop-transfer orders and other restrictions as may be
applicable under such laws, regulations and other obligations, including,
without limitation, any requirement that a legend or legends be placed thereon.
     (b) Limitations on Transferability. Awards and other rights or benefits
under the Plan shall not be transferable by a Participant except by will or the
laws of descent and distribution or to a Beneficiary in the event of the
Participant’s death, shall not be pledged, mortgaged, hypothecated or otherwise
encumbered, or otherwise be subject to the claims of creditors and, in the case
of ISOs and SARs in tandem therewith, shall be exercisable during the lifetime
of a Participant only by such Participant or his guardian or legal
representative; provided, however, that Awards and other rights (other than ISOs
and SARs in tandem therewith) may be transferred to one or more transferees
during the lifetime of the Participant to the extent and on such terms and
conditions as may then be permitted by the Committee.
     (c) No Right to Continued Employment or Service. Neither the Plan nor any
action taken hereunder shall be construed as giving any employee or any person
the right to be retained in the employ or service, as applicable, of the Company
or any

 

--------------------------------------------------------------------------------

 

- 14 -
Subsidiary, nor shall it interfere in any way with the right of the Company or
any Subsidiary to terminate any employee’s employment or any person’s service at
any time.
     (d) Taxes. The Company and any Subsidiary is authorized to withhold from
any Award granted or exercised, vested, paid or settled any delivery of cash,
Stock, other Awards or other property, or from any payroll or other payment to a
Participant, amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and the
Participant to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include,
without limitation, authority to withhold or receive Stock, other Awards or
other property, and to make cash payments in respect thereof, in satisfaction of
a Participant’s tax obligations.
     (e) Changes to the Plan and Awards. The Board may amend, alter, suspend,
discontinue or terminate the Plan or the Committee’s authority to grant Awards
under the Plan without the consent of the Company’s shareholders or
Participants, except that any such Board action shall be subject to the approval
of the Company’s shareholders at or before the next annual meeting of
shareholders for which the record date is after such Board action if such Board
action increases the number of shares of Stock subject to the Plan or if such
shareholder approval is required by any federal or state law or regulation or
the rules of any stock exchange or automated quotation system on which the Stock
may then be listed or quoted, and the Board may otherwise, in its discretion,
determine to submit other such changes to the Plan to shareholders for approval;
provided, however, that, without the consent of an affected Participant, no such
action may materially impair the rights or benefits of such Participant under
any Award theretofore granted to him (as such rights and benefits are set forth
in the Plan and the Award Agreement). The Committee may waive any terms or
conditions under, or amend, alter, suspend, discontinue or terminate any Award
theretofore granted and any Award Agreement relating thereto; provided, however,
that, without the consent of an affected Participant, no such action may
materially impair the rights or benefits of such Participant under such Award
(as such rights or benefits are set forth in the Plan and the Award Agreement).
     (f) No Rights to Awards; No Shareholder Rights. No Participant, employee or
eligible person shall have any claim to be granted any Award, and there is no
obligation for uniformity of treatment of Participants, employees or eligible
persons. No Award shall confer on any Participant any of the rights or benefits
of a shareholder of the Company unless and until Stock is duly issued or
transferred and delivered to the Participant in accordance with the terms of the
Award or, in the case of an Option, the Option is duly exercised.
     (g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
constitute an “unfunded” plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in

 

--------------------------------------------------------------------------------

 

- 15 -
the Plan or any Award Agreement shall give any such Participant any rights or
benefits that are greater than those of a general creditor of the Company;
provided, however, that the Committee may authorize the creation of trusts or
make other arrangements to meet the Company’s obligations under the Plan to
deliver cash, Stock, other Awards or other property pursuant to any Award, which
trusts or other arrangements shall be consistent with the “unfunded” status of
the Plan unless the Committee otherwise determines with the consent of an
affected Participant.
     (h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the Company’s shareholders for approval shall be
construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the Plan, and
such arrangements may be either applicable generally or only in specific cases.
     (i) No Fractional Shares. No fractional shares of Stock shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards or other property shall be issued or paid in lieu of
such fractional shares, or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
     (j) Gender; Singular and Plural. All masculine pronouns shall be deemed to
include their feminine counterparts. As the context may require, the singular
may be read as the plural and vice versa.
     (k) Governing Law. The validity, construction and effect of the Plan or any
Award Agreement and any rules and regulations relating to the Plan or any Award
Agreement shall be determined in accordance with the laws of the Commonwealth of
Virginia, without giving effect to principles of conflicts of laws, and
applicable federal law.
     (l) Effective Date; Plan Termination. The Plan shall become effective as of
the date of its approval by the Company’s shareholders, and shall continue in
effect for ten (10) years from the Effective Date, unless sooner terminated by
the Board.