EX-10.10 North American Coal 2006 Ann Incent Comp



 







Exhibit 10.10




THE NORTH AMERICAN COAL CORPORATION

2006 ANNUAL INCENTIVE COMPENSATION PLAN




SUMMARY




     This Incentive Compensation Plan (the “Plan”) offers a highly attractive incentive
compensation opportunity to senior managers of The North American Coal Corporation (the “Company”
or “NAC”) and its subsidiaries (the “Subsidiaries”) when specified performance objectives under
their control or influence are achieved. This is accomplished through a structure containing the
following elements:




	 	n	 	Each Participant is assigned an individual incentive target, stated as a percentage
of their base salary midpoint, that establishes the target incentive compensation Award
they may receive under the Plan when performance objectives are met.
	 
	 	n	 	The individual target Award is allocated among the following performance components:






	 	-	 	North American Coal (NAC) corporate performance.
	 
	 	-	 	Bellaire Corporation cash flow.
	 
	 	-	 	Business unit results.
	 
	 	-	 	Individual achievement.






	 	n	 	Percentage weightings are assigned to each component, based on the
Participant’s accountabilities and their impact on each component.
	 
	 	n	 	One or more performance objectives will be established at the
beginning of the Award Year for each performance component.
	 
	 	n	 	A performance range, which defines the acceptable level of
results, from threshold to maximum, is created for each
performance objective.
	 
	 	n	 	A payout range is defined, which provides for actual incentive
Award payments of up to 150 percent of the incentive target Award,
except to the extent the Committee elects to increase or decrease
the actual pool by up to 10 percent, as described below.
	 
	 	n	 	A performance/payout formula combines the two ranges into a matrix
that defines the level of incentive compensation payment that will
result from each level of performance.
	 
	 	n	 	After audited financials are available, actual Awards will be
calculated based on actual results against the established
objectives.
	 
	 	n	 	A final individual performance adjustment may be made, within a
range of +10 percent of the calculated Award, based on a judgment
of the Participant’s overall performance.
	 
	 	n	 	All Awards will be paid in cash, within two and one-half months
after the end of the Award Term.





     This Incentive Compensation Plan allows management and the Committee to establish, in advance,
the performance expectations and related incentive compensation potential that Plan Participants
can expect for the Award Year. At the end of the Award Year, the Plan focuses judgment of the
management team’s performance on predetermined objectives that should produce fairness in the
determination of Awards.



 









 





PLAN STRUCTURE



Individual Incentive Targets




     The primary focus of the Plan is the individual incentive compensation target Award. At the
beginning of each Award Term, each Participant is assigned a target Award, stated as a percentage
of the mid-point of base salary, which is payable under the Plan when all relevant performance
objectives are achieved. The Plan provides for payments above or below the target Award to reflect
acceptable variances from performance objectives.



Performance Goals




     The following four sets of performance goals apply for the 2006 Award Term:



Intentionally Omitted




Incentive Award Range




     Actual performance results attained probably will not match the established performance goals
exactly. Therefore, the Plan is designed to provide incentive compensation payouts of up to 150
percent of the target Award if actual results fall within a predetermined range of acceptable
performance.



     The Award range is defined as follows:



	 	 	 	 	 	 	 
	 	 	% of	 	 
	Award Level	 	Target	 	Description
	Maximum

	 	 	150	%	 	Highest level of incentive paid.
	 
	 	 	 	 	 	 
	Target

	 	 	100	%	 	Competitive incentive opportunity for
achieving all-important goals.
	 
	 	 	 	 	 	 
	Threshold

	 	25% to 50%
	 	Incentive paid when results meet minimum
acceptable standards.
	 
	 	 	 	 	 	 
	Below threshold

	 	 	0	%	 	Performance does not merit incentive
payment.






Component Weightings




     Participants’ potential incentive Awards will be allocated between performance components
based on their individual impact on results. The allocations allow for Awards to be earned based
on the achievement of the performance objectives over which each Participant has the most control.
Weightings will be stated as a percentage and total 100 percent for each Participant. The
weightings will be established at the beginning of each Award Year to reflect current
organizational accountabilities and the relative importance of the various performance components.
The applicable weightings for the 2006 Award Year are as follows:



Intentionally Omitted




     When there is more than one goal for a performance component, further percentage weightings
may be assigned, within the overall weightings, to reflect the relative priority of each goal. For
example, if the individual component has a 40 percent weighting and there are five individual
goals, each individual goal might be assigned a priority weighting of 20 percent.



 









 





Performance Range




     A range of performance acceptable for incentive compensation payment will be established for
each performance objective. For quantitative goals, the range may be set as a percentage of the
objective. For goals that cannot be quantified, the range will be defined in narrative form.



     The following general definitions will apply. The percentage ranges indicated are only
guidelines; specific percentage ranges or narrative descriptions will be determined for each goal
based on the definitions.



	 	 	 	 	 	 	 
	Performance	 	Performance Percentage	 	 
	Level	 	Guideline	 	Definition
	Threshold

	 	 	75	%	 	Minimum acceptable results
justifying payment of
incentives.
	 
	 	 	 	 	 	 
	Objective

	 	 	100	%	 	Results meet high
performance demands
justifying fully
competitive rewards.
	 
	 	 	 	 	 	 
	Maximum

	 	 	125	%	 	Highest foreseeable level
of performance.






Performance/Payout Formula




     Combining the performance and payout ranges yields a performance/payout formula as in the
following example:



	 	 	 	 	 	 	 	 	 	 	 	 	 
	Performance	 	Definition	 	Results	 	Award Levels	 	Payout
	Threshold

	 	Minimum
	 	 	75	%	 	Threshold
	 	 	50	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Objective

	 	On plan
	 	 	100	%	 	Target
	 	 	100	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Maximum

	 	Exceeding expectations
	 	 	125	%	 	Maximum
	 	 	150	%






     This formula is applied separately to the results of each established performance element to
determine the incentive amount earned in accordance with assigned weightings. Performance that
falls between the defined levels would result in proportionally adjusted payouts, which may be
calculated mathematically or determined judgmentally.



Corporate Performance Threshold




     Notwithstanding any provision of the Plan to the contrary, no incentive compensation Awards
will be earned under the Plan in any Award Year unless the threshold level of the corporate
performance component is achieved. Once the corporate performance threshold is attained, each
performance objective is separate and distinct. This means that partial Awards can be earned for
the attainment of one performance objective even if another is not sufficient to generate a payout.




 









 






Individual Adjustment Factor




     Each individual Award, as calculated above, may be adjusted upward or downward by as much as
10 percent of the total Award, based on management’s perceptions of each individual’s overall
performance.



Partial Awards




     Executives who are hired or promoted during an Award Year to positions eligible for
participation in the Plan may be included in the Plan on a prorata basis (as determined by the
Committee, in its sole discretion). Unless otherwise determined by the Committee, a Participant
must be employed by an Employer on December 31 of the Award Term in order to be entitled to receive
an Award hereunder.



Committee Discretion




     It is the intent of the Plan that the total incentive compensation, as determined above, will
be the final total corporate incentive compensation to be paid under the Plan. However, the
Committee, in its sole discretion, may increase or decrease, by up to 10 percent, the total
incentive compensation Award pool or may approve incentive compensation Award payments where
normally there would be no payment, due to corporate performance which is below the criteria
established for the Award Year.



     This Plan shall be administered by the Committee. The Committee shall have complete authority
to interpret all provisions of this Plan consistent with law, to prescribe the form of any
instrument evidencing any Award granted or paid under this Plan, to adopt, amend and rescind
general and special rules and regulations for its administration, and to make all other
determinations necessary or advisable for the administration of this Plan. A majority of the
Committee shall constitute a quorum, and the action of members of the Committee present at any
meeting at which a quorum is present or acts unanimously approved in writing, shall be the act of
the Committee. All acts and decisions of the Committee with respect to any questions arising in
connection with the administration and interpretation of this Plan, including the severability of
any or all of the provisions hereof, shall be conclusive, final and binding upon the Employers and
all present and former Participants and employees and their respective descendants, successors and
assigns. No member of the Committee shall be liable for any such act or decision made in good
faith.



PAYMENT DATE/TAXES




     Promptly following the Committee’s approval of the final Awards, the Company shall pay the
amount of such Awards to the Participants in cash, subject to all withholdings and deductions
described in the following sentence; provided, however, that (i) no Award shall be payable to a
Participant except as determined by the Committee and (ii) in no event shall the Awards be paid
later than two and one-half months after the close of the Award Term. Any Award paid to a
Participant under this Plan shall be subject to all applicable federal, state and local income tax,
social security and other standard withholdings and deductions.



DEFINITIONS




     (a) “Award” means cash paid to a Participant under the Plan for the Award Term in an amount
determined in accordance with the Plan.



     (b) “Award Term” means the period from January 1, 2006 through December 31, 2006.



     (c) “Employer” means the Company and the Subsidiaries.



     (d) “Participant” means any person who is classified by an Employer as a salaried employee,
who in the judgment of the Committee occupies a key position in which his efforts may significantly
contribute to the profits or growth of the Employers; provided, however, that the Committee may
select any employee who is expected to contribute, or who has contributed, significantly to the
Employers’



 









 







profitability to participate in the Plan and receive an Award hereunder; and further
provided, however, that following the end of the Award Term the Committee may make one or more
discretionary Awards to employees of the Employers who were not previously designated as
Participants. Directors of the Company who are also employees of the Employers are eligible to
participate in the Plan. The Committee shall have the power to add Participants at any later date
in the Award Term if individuals
subsequently become eligible to participate in the Plan. Each Participant shall be notified
that he is eligible to receive an Award and the amount of his target Award. If a Participant
receives a change in salary midpoint, such Participant shall be notified of any resulting change in
his target Award.



GENERAL PLAN PROVISIONS




     (a) No Right of Employment. Neither the adoption or operation of this Plan, nor any
document describing or referring to this Plan, or any part thereof, shall confer upon any employee
any right to continue in the employ of an Employer, or shall in any way affect the right and power
of the Employer to Terminate the employment of any employee at any time with or without assigning a
reason therefor to the same extent as the Employer might have done if this Plan had not been
adopted.



     (b) Governing Law. The provisions of this Plan shall be governed by and construed in
accordance with the laws of the State of Texas.



     (c) Miscellaneous. Headings are given to the sections of this Plan solely as a
convenience to facilitate reference. Such headings, numbering and paragraphing shall not in any
case be deemed in any way material or relevant to the construction of this Plan or any provisions
thereof. The use of the masculine gender shall also include within its meaning the feminine. The
use of the singular shall also include within its meaning the plural, and vice versa.



     (d) American Jobs Creation Act. It is intended that this Plan be exempt from the
requirements of Section 409A of the Internal Revenue Code, as enacted by the American Jobs Creation
Act.



     (e) Limitation on Rights of Participants; No trust. No trust has been created by the
Employers for the payment of Awards granted under this Plan; nor have the Participants been granted
any lien on any assets of the Employers to secure payment of such benefits. This Plan represents
only an unfunded, unsecured promise to pay by the Participant’s Employer and a Participant
hereunder is a mere unsecured creditor of his Employer.



     (f) Payment to Guardian. If an Award is payable to a minor, to a person declared
incompetent or to a person incapable of handling the disposition of his property, the Committee may
direct payment of such Award to the guardian, legal representative or person having the care and
custody of such minor, incompetent or person. The Committee may require such proof of
incompetency, minority, incapacity or guardianship as it may deem appropriate prior to the
distribution of such Award. Such distribution shall completely discharge the Company and the
Subsidiaries from all liability with respect to such Award.



     (g) Effective Date. This Plan shall become effective as of January 1, 2006.



2006 PERFORMANCE TARGETS




     The performance targets for the Plan are attached as an Addendum to this document.