exv10w2



 











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.



 









 





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(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).



 









 





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     (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



 









 





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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



 









 





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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



 









 





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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.




 









 





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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,



 









 






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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.



 









 





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     (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



 









 





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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.



 









 





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     (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



 









 






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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



 









 





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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



 









 




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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



 









 





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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.