Document:

Exhibit 10.5

 

EQUITABLE
RESOURCES, INC.

2005 EXECUTIVE PERFORMANCE INCENTIVE PROGRAM

 

EQUITABLE RESOURCES, INC. (the “Company”) hereby establishes this
EQUITABLE RESOURCES, INC. 2005 EXECUTIVE PERFORMANCE INCENTIVE PROGRAM (the “Program”)
as of this 23rd day of February, 2005, in accordance with the
terms provided herein.

 

WHEREAS, the Company maintains certain long-term incentive award plans
including the 1999 Equitable Resources, Inc. Long-Term Incentive Plan (the
“1999 Plan”) for the benefit of its employees and executives, of which the
Program is a subset; and

 

WHEREAS, in order to further align the interests of executives with the
interests of the shareholders, the Company desires to provide additional
long-term incentive benefits through the Program, in the form of awards
qualifying as “Performance Awards” under the 1999 Plan.

 

NOW, THEREFORE, the Company
hereby provides for additional incentive benefits for certain executive
employees of the Company and adopts the terms of the Program on the following terms
and conditions:

 

Section 1.  Incentive
Program Purpose. 
The main purpose of the Program is to provide additional long-term
incentive opportunities to key executives to further align their interests with
those of the Company’s shareholders and customers and with the strategic
objectives of the Company.  Awards
granted hereunder may be earned by achieving relative performance levels
against a pre-determined peer group and other absolute and relative performance
levels, and are forfeited if defined performance levels are not achieved.  By placing a portion of the executive’s
compensation at risk, the Company has an opportunity to reward exceptional
performance or reduce the compensation opportunity when performance does not
meet expectations.  The Program shall be
construed consistent with the provisions of the 1999 Plan with respect to
awards to Covered Employees, as such term is defined in the 1999 Plan, and the
deductibility of such awards under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the “Code”).

 

Section 2.  Effective Date.  The effective date of this Program is January 1,
2005.  The Program will remain in effect
until the earlier of December 31, 2008 or the closing date of a Change of
Control event defined in Section 5 unless otherwise amended or terminated
as provided in Section 18 (“Termination Date”).

 

Section 3.  Eligibility.  The Chief Executive
Officer of the Company (the “CEO”) shall, in his or her sole discretion, select
the employees of the Company who shall be eligible to participate in the
Program, up to a maximum of 40 employees. 
The CEO’s selections will become participants in the Program (the “Participants”)
only upon approval by the Compensation Committee of the Board of Directors (the
“Committee”), comprised in accordance with the requirements of the 1999
Plan.  In the event that an 

 

 

employee is hired by the Company during the
Performance Period, as defined below, the CEO shall, in his or her sole
discretion, determine whether the employee will be eligible to participate in
the Program, provided that the Committee must approve all new participants to
the Program.

 

Section 4.  Performance Incentive Share Unit Awards.  Upon being selected to participate in the
Program, each Participant shall be awarded a number of performance incentive
share units (the “Target Share Units”), the value of which is determined by
reference to the Company’s stock, which award shall be proposed by the CEO and
approved by the Committee.  For a new
Participant, the Target Share Units shall be proposed by the CEO and approved
by the Committee and will be pro-rated based on the employee’s hire date and
the contemplated ending date of the Program, which is December 31,
2008.  The Target Share Units, plus
accrued dividends (“Total Target Share Units”) may be increased by as much as
two and one-half (2.5) times the number awarded based solely on the achievement
of the objective performance criteria as described in Section 5, and the
Committee shall have no discretion to increase the Total Target Share Units
that would otherwise be due upon attainment of the Performance Condition.  The maximum number of Target Share Units that
may be awarded under the Program is 600,000, subject to adjustment as provided in
the preceding sentence and in Section 13.

 

The
Target Share Units shall be held in escrow by the Company subject to
satisfaction of the terms and conditions described below.  A Participant shall have no right to exchange
the Target Share Units for cash, stock or any other benefit and shall be a mere
unsecured creditor of the Company with respect to such share units and any
future rights to benefits.

 

Section 5.  Performance Condition of the Target Share
Units.  Subject to Section 8, the total number
of Target Share
Units that will be issued (“Awarded
Share Units”) to a Participant will be based on (i) the
Company’s total shareholder return relative to the peer group’s (Attachment A)
total shareholder return for the period described in (a) below, and (ii) the
Company’s average absolute return on total capital during the Performance
Period (collectively, the “Performance Condition”), for the Performance Period
of January 1, 2005 to the Termination Date (the “Performance Period”).  The Performance Condition with respect to the
Performance Period shall be established by the Committee within 90 days after
its commencement, but in no event later than the date on which 25% of the
Performance Period has elapsed, and before the outcome of the Performance
Condition is no longer substantially uncertain.

 

(a)                               Total Shareholder Return.  For
purposes of this Program, total shareholder return will be calculated as
follows:

 

Step 1

 

A “Beginning
Point” will be established for the Company and each company in the peer
group.  This Beginning Point will be
defined as one share of stock with a value equal to the average closing stock
price as reported in The Wall Street Journal
for the ten (10) business day period 

 

2

 

prior to approval of the
Program ending on and including the date of the Committee’s approval, for each
company.

 

Step 2

 

Dividends
paid for each company from the beginning of the Performance Period will be
cumulatively added to the Beginning Point as additional shares of such company’s
stock.  The closing price on the last
business day of the month in which the record date for the dividend occurs will
be used as the basis for determining the number of shares to be added.  The resulting total number of shares accumulated
during the Performance Period will be referred to as the Total Shares Held at
Ending Point.

 

Step 3

 

Except as
provided in the following sentence, an “Ending Point” will be defined as Total
Shares Held at Ending Point for each company times the average closing stock
price as reported in The Wall Street Journal for
the last ten (10) business days of the Performance Period for each
company.  In the event of a change of
control as then defined in the 1999 Plan (“Change of Control”), the Ending
Point will be defined as the Total Shares Held at Ending Point times the
average of the closing price as reported in The Wall Street Journal for
the ten (10) business days preceding the closing of the Change of Control
transaction.

 

Step 4

 

Total
Shareholder Return (“TSR”) will be expressed as a percentage and is calculated
by dividing the Ending Point by the Beginning Point and then subtracting 1 from
the result.  Each company including the
Company will be ranked in descending order by the TSR so calculated.

 

The Committee
may determine to exclude a member of the peer group if such member ceases to
exist during the Performance Period due to a cash merger or tender offer, to
the extent such determination is consistent with Treas. Reg. §1.162-27(e)(2).

 

(b)                               Average Absolute Return on Total Capital.  For
purposes of this Program, average absolute
return on total capital will be calculated for each completed calendar
quarter within the Performance Period as follows:

 

Net Income After Tax +
(Interest x (1 - Effective Tax Rate)), with such sum divided by (Debt + Preferred
Stock + Book Equity - Cash).

 

The average of those
amounts, calculated by dividing the sum by the number of whole completed
quarters in the Performance 

 

3

 

Period, shall equal the
average absolute return on total capital for the Performance Period.

 

The above amounts shall
be calculated as reported on the Company’s financial statements.

 

In the event of a Change
of Control or other Termination Date occurring after the end of a calendar
quarter, the immediately preceding calendar quarter shall be the final quarter
considered for purposes of the above calculation.

 

(c)                                Application of Performance Condition.  The
Total Target Share Units for each Participant will be multiplied by the payout
factor identified on the payout matrix (Attachment B) that corresponds to (i) the
Company’s relative TSR ranking on the payout matrix for the period specified
herein combined with (ii) the Company’s average absolute return on total
capital performance on the payout matrix for the Performance Period.  The result of the calculation is the number of Awarded
Share Units.  Pursuant to such calculation, Awarded Share Units will
equal:

 

(i)                       100 percent of the Total Target Share Units for (x) median
relative TSR performance, provided average absolute return on capital is
greater than 8% and less than 9%, or (y) for TSR performance in the top
66.67% of all performers, provided average absolute return on capital is
greater than 9% and less than 10%,

 

(ii)                    250 percent of the Total Target Share Units for TSR
performance at the top 13.5% of all performers, provided average absolute
return on capital is greater than or equal to 10%,

 

(iii)                 0 percent of the Total Target Share Units for TSR
performance below the top 60% of all performers if average absolute return on
capital is also less than 8%, and

 

(iv)                for performance levels between those performance
levels identified above, the percent of Total Target Share Units will be
determined in stepped increments.

 

Payments under the
Program are expressly contingent upon achievement of the Performance Condition
and may not exceed the value of the Participant’s Total Target Share Units and
other limits provided herein, subject to adjustment as provided in
Sections 4 and 13.

 

Section 6.  Issuance and
Distribution. 
Subject to Section 8, each Participant will be issued the number of
Awarded Share Units calculated according to Section 5(c) as of the
last day of the Performance Period. 
Except as provided in the remainder of this Section 6, such share
units will be distributed in cash, the amount of which shall be calculated
based upon each Awarded Share Unit being equal in value to a corresponding 

 

4

 

share of Company stock as of
the last day of the Performance Period, as soon as practicable following the
end of the Performance Period on the date determined in the Company’s
discretion, but in no event later than two and one-half months after the end of
the Performance Period.  Notwithstanding
the foregoing sentence, the Participant may elect to receive payment in the
form of Company stock and the Committee may determine, in its discretion, that
Awarded Share Units will be issued in the form of Company stock; provided,
further, that if the Participant has not satisfied any mandatory or voluntary
stock ownership guidelines of the Company as then in effect, such Awarded Share
Units shall be issued in the form of Company stock to the extent as may be
necessary toward satisfaction of such stock ownership guidelines.  Subject to Section 8, in the event of a
Change of Control, the value of such issued share units will be distributed in
cash on the closing date of the transaction, which shall be calculated based
upon the average of the closing price of the Company’s stock for the ten (10) business
days preceding the Change of Control transaction as reported in The Wall Street Journal; provided that to the extent
required under Section 409A of the Code or the regulations thereunder, no
distributions may be made earlier than the time permitted under such
regulations to any affected Participant. 
The maximum amount payable to any one Participant under the Program in
any one calendar year within the Performance Period shall be the amount set
forth and as calculated in the 1999 Plan, as approved by shareholders of the
Company.

 

Section 7.  Dividends.  Each Target Share Unit will be cumulatively
credited with dividends that are paid on the Company’s common stock in the form
of additional share units.  These
additional share units shall be deemed to have been purchased on the last
business day of the month in which the record date for the dividend occurs
using the closing stock price for the Company as reported in The Wall Street Journal and shall be subject to all the same
conditions and restrictions as provided in this Program, including the
Performance Condition, applicable to Target Share Units, Total Target Share
Units and Awarded Share Units.

 

Section 8.  Change of
Status; Overall Limit. 
In making decisions regarding employees’ participation in the Program
and the extent to which awards are payable in the case of an employee who
terminates employment during the Performance Period, the Committee may consider
any factors that they may consider relevant. 
The following guidelines are provided as general information about the
effect of employee status changes prior to payment.

 

(a)                                  Retirement and
Resignation.  Share units are
forfeited.

 

(b)                                 Death and
Disability.  Participants who are
employed at the commencement of the Performance Period, but who die or become
Disabled, as defined below, before the end of the Performance Period, will be
issued Awarded Share Units for the Performance Period, contingent upon
achievement of the Performance Condition set forth in Section 5, as follows:

 

5

 

	
  Date of Death or Disability

  	
   

  	
  Percent Vested

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Prior to December 31, 2005

  	
   

  	
  0

  	
  %

  
	
  January 1, 2006 – December 31,
  2006

  	
   

  	
  50

  	
  %

  
	
  January 1, 2007 – December 31,
  2007

  	
   

  	
  75

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  January 1, 2008 and thereafter

  	
   

  	
  100

  	
  %

  

 

“Disabled” means a Participant is “disabled” as defined in Section 409A(a)(2)(C) of
the Code.

 

(c)                                  Termination.  Share units are forfeited and no award shall
be paid to any employee whose services are terminated prior to the payment of Awarded
Share Units for reasons of misconduct, failure to perform, or other cause.  If the termination is due to reasons such as
reorganization, and not due to the fault of the employee, the employee will
receive payment for Awarded Share Units following the termination of the
Performance Period, contingent upon achievement of the Performance Condition
set forth in Section 5, as follows:

 

	
  Termination Date

  	
   

  	
  Reduction in Awarded Share Units

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Prior to January 1, 2007

  	
   

  	
  100

  	
  %

  
	
  January 1, 2007 – December 31,
  2007

  	
   

  	
  75

  	
  %

  
	
  January 1, 2008 – December 31,
  2008

  	
   

  	
  50

  	
  %

  

 

Section 9.  Responsibilities of the Committee.  The Committee has responsibility for all
aspects of the Program’s administration, including:

 

·                  Determining and certifying in writing the extent to which
the Performance Condition has been achieved prior to any payments under the
Program,

 

·                  Ensuring that the Program is administered in accordance with
its provisions,

 

·                  Approving Program Participants,

 

·                  Authorizing Target Share Unit awards to Participants,

 

·                  Adjusting Target Share Unit grants and issuance requirements
to account for extraordinary events consistent with the terms of the Program,

 

·                  Ruling on any disagreement between Program Participants,
Company management, Program administrators, and any other interested parties to
the Program, and

 

·                  Maintaining final authority to modify or terminate the
Program at any time.

 

6

 

The interpretation and
construction by the Committee of any provisions of the Program or of any
Awarded Share Units shall be final.  No
member of the Committee shall be liable for any action or determination made in
good faith on the Program or any Awarded Share Units thereunder.  The Committee may designate another party to
administer the Program, including Company management or an outside party.  All conditions of the Target Share Units must
be approved by the Committee.  As early
as practicable prior to or during the Performance Period, the Committee shall
approve the number of Target Share Units to be awarded to each
Participant.  The associated terms and
conditions of the Program will be communicated to Participants as close as
possible to the date an award is made. 
The Participant will sign and return a participant agreement to the
Committee.

 

Section 10.  Tax Consequences to Participants.  It is intended that: (i) until the
Performance Condition is satisfied, a Participant’s right to an award under
this Program shall be considered to be subject to a substantial risk of
forfeiture in accordance with those terms as defined or referenced in Sections
83(a) and 3121(v)(2) of the Internal Revenue Code of 1986, as
amended, (the “Code”); (ii) the Awarded Share Units shall be subject to
employment taxes only upon the satisfaction of the Performance Condition; and (iii) until
the Awarded Share Units are actually paid to the Participant, the Participants
shall have merely an unfunded, unsecured promise to be paid the benefit, and
such unfunded promise shall not consist of a transfer of “property” within the
meaning of Code Section 83.  It is
further intended that, because a Participant cannot actually or constructively
receive the Target Share Units prior to payment, the Participant will not be in
actual or constructive receipt of the Target Share Units within the meaning of
Code Section 451 until they are actually received as Awarded Share Units.

 

Section 11.  Nonassignment.  A Participant shall not be permitted to
assign, alienate or otherwise transfer his or her Target Share Units and any
attempt to do so shall be void.

 

Section 12.  Impact on
Benefit Plans. 
Payments under the Program shall not be considered as earnings for
purposes of the Company’s qualified retirement plans or any such retirement or
benefit plan unless specifically provided for and defined under such
plans.  Nothing herein shall prevent the
Company from maintaining additional compensation plans and arrangements,
provided however that no payments shall be made under such plans and
arrangements if the effect thereof would be the payment of compensation
otherwise payable under this Program regardless of whether the Performance
Condition was attained.

 

Section 13.  Successors;
Changes in Stock.  The
obligation of the Company under the Program shall be binding upon the successors and assigns of the Company.  If a dividend or other distribution shall be
declared upon the Company’s common stock payable in shares of Company common
stock, the Total Target Share Units and the shares of Company Common Stock on
which the Performance Condition is based shall be adjusted by adding thereto
the number of shares of Company common stock which would have been
distributable thereon if such shares and Total Target Share Units had been actual
Company shares and outstanding on the date fixed for determining the 

 

7

 

shareholders
entitled to receive such stock dividend or distribution.  In the event of any spin-off, split-off or
split-up, or dividend in partial liquidation, dividend in property other than
cash, or extraordinary distribution to shareholders of the Company’s common
stock, the Total Target Share Units and the shares of Company common stock on
which the Performance Condition is based shall be appropriately adjusted to
prevent dilution or enlargement of the rights of Participants which would
otherwise result from any such transaction, provided such adjustment shall be
consistent with Code Section 162(m).

 

In the case of a Change of Control, any
obligation under the Program
shall be handled in accordance with the terms of Section 6 hereof.  In any case not constituting a Change of
Control in which the Company’s common stock is changed into or becomes
exchangeable for a different number or kind of shares of stock or other
securities of the Company or another corporation, or cash or other property,
whether through reorganization, reclassification, recapitalization, stock
split-up, combination of shares, merger or consolidation, then (i) the value
of the performance share units constituting an award shall be calculated based
on the closing price of such common stock on the closing date of the
transaction on the principal market on which such common stock is traded, (ii) there
shall be substituted for each performance share units constituting an award,
the number and kind of shares of stock or other securities (or cash or other
property) into which each outstanding share of the Company’s common stock shall
be so changed or for which each such share shall be exchangeable, and (iii) the
share of Company common stock on which the Performance Condition is based shall
be appropriately and equitably adjusted. 
In the case of any such adjustment, the Total Target Share Units shall
remain subject to the terms of the Program.

 

Section 14.  Dispute Resolution.  The Participant may make a claim to the
Committee with regard to a payment of benefits provided herein.  If the Committee receives a claim in writing,
the Committee must advise the Participant of its decision on the claim in
writing in a reasonable period of time after receipt of the claim (not to
exceed 120 days).  The notice shall set
forth the following information:

 

(a)                                  The specific basis for its decision,

 

(b)                                 Specific reference to pertinent Program
provisions on which the decision is based,

 

(c)                                  A description of any additional material or
information necessary for the Participant to perfect a claim and an explanation
of why such material or information is necessary, and

 

(d)                                 An explanation of the Program’s claim review
procedure.

 

Section 15.  Applicable Law.  This Program shall be governed by and
construed under the laws of the Commonwealth of Pennsylvania without regard to
its conflict of law provisions.

 

Section 16.  Severability.  In the event that any one or more of the
provisions of this Program shall be held to be invalid, illegal or
unenforceable, the validity, legality or 

 

8

 

enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.

 

Section 17.  Headings.  The descriptive headings of the Sections of
this Program are inserted for convenience of reference only and shall not
constitute a part of this Program.

 

Section 18.  Amendment or Termination of this Program.  This
Program may be amended, suspended or terminated by the Company at any time upon
approval by the Committee and following a determination that the Program is no
longer meaningful in relation to the Company’s strategy.  Any suspension or termination shall
automatically cause a Termination Date effective as of the date of the
Committee’s approval.  Notwithstanding
the foregoing, (i) no amendment, suspension or termination shall adversely
affect a Participant’s rights to his or her award after the date of the award,
provided however that to the extent an award is determined with respect to a
Termination Date, including a Termination Date pursuant to the preceding
sentence, Participants’ rights to awards are deemed not to be adversely
affected thereby, and (ii) no amendment may be made following a Change of
Control.

 

9

 

Attachment A

 

2005 Executive Performance
Incentive Program

 

Peer Group

 

AGL Resources
Inc.

ATMOS Energy
Corporation

Cascade
Natural Gas Corporation

CMS Energy
Corporation

Dynegy
Incorporated

El Paso
Corporation

Energen
Corporation

Keyspan
Corporation

Kinder Morgan
Incorporated

Laclede Group, Inc.

MDU Resources
Group Incorporated

National Fuel
Gas Company

New Jersey
Resources Corporation

NICOR, Inc.

NISOURCE
Incorporated

Northwest
Natural Gas Company

OGE Energy
Corporation

ONEOK Inc.

Peoples Energy
Corporation

Piedmont
Natural Gas Company, Inc.

Questar
Corporation

Sempra Energy

Southern Union
Company

Southwest Gas
Corporation

Southwestern Energy
Company

UGI
Corporation

Westar Energy
Inc. (formerly Western Gas Resources Incorporated)

WGL Holdings, Inc.

Williams
Industries, Incorporated

 

10

 

Attachment B

 

2005 EPIP Payout Matrix

 

Payout Factor

 

Average Absolute Return on Total Capital

 

	
  Greater than or equal to 10%

  	
   

  	
  0.75

  	
   

  	
  0.90

  	
   

  	
  1.10

  	
   

  	
  1.25

  	
   

  	
  1.50

  	
   

  	
  1.75

  	
   

  	
  2.00

  	
   

  	
  2.25

  	
   

  	
  2.50

  	
   

  
	
  Greater than or equal to 9% but less than
  10%

  	
   

  	
  0.40

  	
   

  	
  0.60

  	
   

  	
  0.80

  	
   

  	
  1.00

  	
   

  	
  1.20

  	
   

  	
  1.40

  	
   

  	
  1.60

  	
   

  	
  1.80

  	
   

  	
  2.00

  	
   

  
	
  Greater than or equal to 8% but less than 9%

  	
   

  	
  0.00

  	
   

  	
  0.40

  	
   

  	
  0.60

  	
   

  	
  0.80

  	
   

  	
  1.00

  	
   

  	
  1.20

  	
   

  	
  1.30

  	
   

  	
  1.40

  	
   

  	
  1.50

  	
   

  
	
  Less than 8%

  	
   

  	
  0.00

  	
   

  	
  0.00

  	
   

  	
  0.00

  	
   

  	
  0.00

  	
   

  	
  0.40

  	
   

  	
  0.50

  	
   

  	
  0.60

  	
   

  	
  0.70

  	
   

  	
  0.80

  	
   

  
	
   

  	
   

  	
  30 – 27

  	
   

  	
  26 – 24

  	
   

  	
  23 – 21

  	
   

  	
  20 – 18

  	
   

  	
  17 – 14

  	
   

  	
  13 – 11

  	
   

  	
  10 – 8

  	
   

  	
  7 – 5

  	
   

  	
  4 – 1

  	
   

  
	
  Total
  Shareholder Return Rank

  	
   

  

 

11Exhibit 10.6

 

EQUITABLE RESOURCES, INC.

2008 EXECUTIVE PERFORMANCE INCENTIVE PROGRAM

 

EQUITABLE RESOURCES, INC. (the “Company”) hereby establishes this
EQUITABLE RESOURCES, INC. 2008 EXECUTIVE PERFORMANCE INCENTIVE PROGRAM (the “Program”),
in accordance with the terms provided herein.

 

WHEREAS, the Company maintains certain long-term incentive award plans
including the 1999 Equitable Resources, Inc. Long-Term Incentive Plan (the
“1999 Plan”) for the benefit of its employees and executives, of which the Program
is a subset; and

 

WHEREAS, in order to further align the interests of executives with the
interests of the shareholders, the Company desires to provide additional
long-term incentive benefits through the Program, in the form of awards
qualifying as “Performance Awards” under the 1999 Plan.

 

NOW, THEREFORE, the Company hereby provides for additional incentive
benefits for certain executive employees of the Company and adopts the terms of
the Program on the following terms and conditions:

 

Section 1.  Incentive
Program Purpose. 
The main purpose of the Program is to provide additional long-term
incentive opportunities to key executives to further align their interests with
those of the Company’s shareholders and customers and with the strategic
objectives of the Company.  Awards
granted hereunder may be earned by achieving relative performance levels
against a pre-determined peer group, are forfeited if defined performance
levels are not achieved and are subject to negative adjustment if other
absolute and relative performance measures are not attained.  By placing a portion of the executive’s
compensation at risk, the Company has an opportunity to reward exceptional
performance or reduce the compensation opportunity when performance does not
meet expectations.  The Program shall be
construed consistent with the provisions of the 1999 Plan with respect to
awards to Covered Employees, as such term is defined in the 1999 Plan, and the
deductibility of such awards under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the “Code”).

 

Section 2.  Effective Date.  The effective date of this Program is July 1,
2008.  The Program will remain in effect
until the earlier of December 31, 2011 or the closing date of a Change of
Control event defined in Section 5 unless otherwise amended or terminated
as provided in Section 18 (“Termination Date”).

 

Section 3.  Eligibility.  The Chief Executive Officer of the Company
(the “CEO”) shall, in his or her sole discretion, select the employees of the
Company who shall be eligible to participate in the Program from those
individuals eligible to participate in the 1999 Plan.  The CEO’s selections will become participants
in the Program (the “Participants”) only upon approval by the Compensation
Committee of the Board of

 

 

Directors (the “Committee”), comprised in accordance with the
requirements of the 1999 Plan, to the extent such individuals are, or are
expected to be, “covered employees” as defined in Section 162(m) of
the Code (“Covered Employees”).  In the
event that an employee is hired by the Company during the Performance Period,
as defined below, the CEO shall, in his or her sole discretion, determine
whether the employee will be eligible to participate in the Program, provided
that the Committee must approve all new participants to the Program who are
Covered Employees; provided further that, individuals who are Covered Employees
may only become eligible during the first 90 days of the Performance Period.

 

Section 4.  Performance
Incentive Share Unit Awards.  Upon being selected to participate in the
Program, each Participant shall be awarded a number of performance incentive
share units (the “Target Share Units”), which may be expressed as a dollar
amount and converted into share units using the closing price of the Company’s
stock on the date of grant.  The awards
shall be proposed by the CEO and approved by the Committee in the case of
individuals who are Covered Employees. 
For a new Participant, the Target Share Units shall be proposed by the
CEO and approved by the Committee and will be pro-rated based on the employee’s
hire date and the contemplated ending date of the Program, which is December 31,
2011.  The Target Share Units, plus
accrued dividends (“Total Target Share Units”) may be increased by as much as
three (3.0) times the number awarded based solely on the achievement of the
objective performance criteria as described in Section 5, and the
Committee shall have no discretion to increase the Total Target Share Units
that would otherwise be due upon attainment of the Performance Condition.  The maximum number of Target Share Units that
may be awarded under the Program is 150,000, subject to adjustment as provided
in the preceding sentence and in Section 13.

 

The Target Share Units shall be held in escrow by the Company subject
to satisfaction of the terms and conditions described below.  A Participant shall have no right to exchange
the Target Share Units for cash, stock or any other benefit and shall be a mere
unsecured creditor of the Company with respect to such share units and any
future rights to benefits.

 

Section 5.  Performance
Condition of the Target Share Units.  Subject to Section 8, the total number
of Target Share Units that will be issued (“Awarded Share Units”) to a
Participant will be based on the Company’s total shareholder return relative to
the peer group’s (Attachment A) total shareholder return calculated as
described in (a) below (the “Performance Condition”), for the Performance Period
of July 1, 2008 to the Termination Date (the “Performance Period”), and
subject to the Committee’s negative discretion based upon the Company’s
revenues calculated as described in (b) below.  The Performance Condition with respect to the
Performance Period shall be established by the Committee within 90 days after
its commencement, but in no event later than the date on which 25% of the
Performance Period has elapsed, and before the outcome of the Performance
Condition is no longer substantially uncertain.

 

(a)          Total Shareholder
Return.  For purposes of this
Program, total shareholder return will be calculated as follows:

 

2

 

Step 1

 

A “Beginning Point” will be established for
the Company and each company in the peer group. 
This Beginning Point will be defined as one share of stock with a value
equal to the average closing stock price as reported in The Wall
Street Journal for the ten (10) business day period immediately
prior to commencement of the Performance Period ending on and including the
date of the commencement of the Performance Period, for each company.

 

Step 2

 

Dividends paid for each company from the
beginning of the Performance Period will be cumulatively added to the Beginning
Point as additional shares of such company’s stock.  The closing price on the last business day of
the month in which the record date for the dividend occurs will be used as the
basis for determining the number of shares to be added.  The resulting total number of shares accumulated
during the Performance Period will be referred to as the Total Shares Held at
Ending Point.

 

Step 3

 

Except as provided in the following sentence,
an “Ending Point” will be defined as Total Shares Held at Ending Point for each
company times the average closing stock price as reported in The Wall Street Journal for the last ten (10) business
days of the Performance Period for each company.  In the event of a change of control as then
defined in the 1999 Plan (“Change of Control”), the Ending Point will be
defined as the Total Shares Held at Ending Point times the average of the
closing price as reported in The Wall Street Journal
for the ten (10) business days preceding the closing of the Change of
Control transaction.

 

Step 4

 

Total Shareholder Return (“TSR”) will be
expressed as a percentage and is calculated by dividing the Ending Point by the
Beginning Point and then subtracting 1 from the result.  Each company including the Company will be
ranked in descending order by the TSR so calculated.

 

In accordance with rules established
within 90 days of the commencement of the Performance Period, the Committee may
determine to exclude a member of the peer group if such member ceases to exist
during the Performance Period due to a cash merger or tender offer, to the
extent such determination is consistent with Treas. Reg. §1.162-27(e)(2).

 

3

 

(b)         Revenues.  For purposes of this Program, revenues shall
be measured as the Sales Price multiplied by the aggregate Total Sales Volume
for the twelve (12) calendar quarters within the Performance Period beginning October 1,
2008 and ending September 30, 2011.

 

(i)                                     Sales
Price shall equal $4.82/mcf.  Total
Sales Volume for each quarter equals the sum of the production total sales
volumes (mmcfe) reported in the applicable Form 10-Q for each quarter and,
in the case of the fourth quarter of any year, the volumes calculated for the
fourth quarter by reducing the annual total sales volume reported in the Form 10-K
by the quarterly total sales volumes reported in the Form 10-Q for the
first three quarters of such year.  For
the avoidance of doubt, (a) Total Sales Volume is determined solely by the
volumes reported, regardless of any subsequently identified prior period
adjustment, (b) Total Sales Volume represents the Company’s interest in
gas and oil sales during the applicable period and (c) gathered volumes
are not included.  Total Sales Volume
shall be measured on a basis consistent with current practice on the date of
adoption of the Program.

 

(c)   Application
of Performance Condition and Negative Adjustment.  The Total Target Share Units for each
Participant will be multiplied by the payout factor (the “Payout Multiple”)
identified on the payout matrix (Attachment B) that corresponds to the
Company’s relative TSR ranking on the payout matrix for the Performance Period,
provided, however, that the Committee retains the discretion to reduce the
corresponding Payout Multiple by up to .75 if the Company does not attain the
revenue target specified on the payout matrix; provided, however, that if the
Company’s relative TSR ranking is median or above, the Payout Multiple shall
not be decreased below 1.00.  The result
of the calculation is the number of Awarded Share Units.  Pursuant to such calculation, Awarded Share
Units will equal:

 

(i)             100 percent of the Total Target Share
Units for median relative TSR performance,

 

(ii)          300 percent of the Total Target Share Units
for TSR performance at the top 14.5% of all performers, subject to negative
adjustment attributable to the Committee’s discretion as described herein,

 

(iii)       0 percent of the Total Target Share Units for
TSR performance at the bottom 14.5% of all performers,

 

(iv)      for performance levels between those performance
levels identified above, the percent of Total Target Share Units will be
determined in 

 

4

 

accordance with the payout matrix and subject
to negative adjustment attributable to the Committee’s discretion as described
herein.

 

Payments under the Program are expressly contingent upon achievement of
the Performance Condition and may not exceed the value of the Participant’s
Total Target Share Units and other limits provided herein, subject to
adjustment as provided in Sections 4 and 13.

 

Section 6.  Issuance and
Distribution. 
Subject to Section 8, each Participant will be issued the number of
Awarded Share Units calculated according to Section 5(c) as of the
last day of the Performance Period. 
Except as provided in the remainder of this Section 6, such share
units will be distributed in cash, the amount of which shall be calculated
based upon each Awarded Share Unit being equal in value to a corresponding
share of Company stock as of the last day of the Performance Period.  Payment shall be made following the end of
the Performance Period, and in no event later than two and one-half months
after the end of the year in which the Performance Period ends.  Notwithstanding the second sentence of this Section 6,
the Participant may elect to receive payment in the form of Company stock in
accordance with rules established by the Committee and the Committee may
determine, in its discretion and for any reason, that Awarded Share Units will
be issued in whole or in part in the form of Company stock including without
limitation if the Participant has not satisfied any mandatory or recommended
stock ownership guidelines of the Company as then in effect.  Subject to Section 8, in the event of a
Change of Control, the value of such issued share units will be distributed in
cash on the closing of the Performance Period, which shall be calculated based
upon the average of the closing price of the Company’s stock for the ten (10) business
days preceding the Change of Control transaction as reported in The Wall Street Journal. 
The maximum amount payable to any one Participant under the Program in
any one calendar year within the Performance Period shall be the amount set
forth and as calculated in the 1999 Plan, as approved by shareholders of the
Company.  No elections shall be permitted
with respect to the timing of any payments.

 

Section 7.  Dividends.  Each Target Share Unit will be cumulatively
credited with dividends that are paid on the Company’s common stock in the form
of additional share units.  These
additional share units shall be deemed to have been purchased on the last
business day of the month in which the record date for the dividend occurs
using the closing stock price for the Company as reported in The Wall Street Journal and shall be subject to all the same
conditions and restrictions as provided in this Program, including the
Performance Condition, applicable to Target Share Units, Total Target Share
Units and Awarded Share Units.

 

Section 8.  Change of
Status; Overall Limit. 
In making decisions regarding employees’ participation in the Program
and the extent to which awards are payable in the case of an employee who
terminates employment during the Performance Period, the Committee may consider
any factors that they may consider relevant. 
The following guidelines are provided as general information about the
effect of employee status changes prior to payment.

 

5

 

(a)          Retirement and
Resignation.  Share units are
forfeited.

 

(b)         Death and Disability.  Participants who are employed at the
commencement of the Performance Period, but who die or become Disabled, as
defined below, before the end of the Performance Period, will be issued Awarded
Share Units for the Performance Period, contingent upon achievement of the
Performance Condition set forth in Section 5, as follows, and any
remainder shall be forfeited:

 

	
  Date of Death or Disability

  	
   

  	
  Percent Issued

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Prior to July 1, 2009

  	
   

  	
  0

  	
  %

  
	
  July 1, 2009 – December 31, 2010

  	
   

  	
  50

  	
  %

  
	
  January 1, 2011 – December 31,
  2011

  	
   

  	
  75

  	
  %

  

 

“Disabled” means a Participant is “disabled” as defined in Section 409A(a)(2)(C) of
the Code.

 

(c)          Termination.  Share units are forfeited and no award shall
be paid to any employee whose services are terminated prior to the payment of
Awarded Share Units for reasons of misconduct, failure to perform, or other
cause.  If the termination is due to
reasons such as reorganization, and not due to the fault of the employee, the
employee will receive payment for Awarded Share Units following the termination
of the Performance Period, contingent upon achievement of the Performance
Condition set forth in Section 5, as follows, and any remainder shall be
forfeited:

 

	
  Termination Date

  	
   

  	
  Percent Issued

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Prior to July 1, 2009

  	
   

  	
  0

  	
  %

  
	
  July 1, 2009 – December 31, 2010

  	
   

  	
  25

  	
  %

  
	
  January 1, 2011 – December 31,
  2011

  	
   

  	
  50

  	
  %

  

 

(d)         Change of Position.  Participants whose position within the
Company changes to a non-Program eligible position during the Performance
Period as determined by the Company but who remain employed throughout the
entire Performance Period will receive payment for Awarded Share Units
following termination of the Performance Period, contingent upon achievement of
the Performance Condition set forth in Section 5, as follows, and any
remainder shall be forfeited:

 

	
  Change of Position Date

  	
   

  	
  Percent Issued

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Prior to July 1, 2009

  	
   

  	
  0

  	
  %

  
	
  July 1, 2009 – December 31, 2010

  	
   

  	
  25

  	
  %

  
	
  January 1, 2011 – December 31,
  2011

  	
   

  	
  50

  	
  %

  

 

6

 

In such events, any Awarded Share Units that become vested at the end
of the Performance Period shall be payable at the time specified in Section 6
except that, in the event such amounts are conditioned upon a separation from
service and not compensation the Participant could receive without separating
from service, then no such payments may be made to a Participant who is a “specified
employee” under Section 409A of the Code until the first day following the
six-month anniversary of the Participant’s separation from service.  Notwithstanding any other provisions of the
Program, Participants shall have no vested rights to any Awarded Share Units
prior to the end of the Performance Period.

 

Section 9.  Responsibilities
of the Committee. 
The Committee has responsibility for all aspects of the Program’s administration,
including:

 

·                  Determining and,
in the case of Covered Employees, certifying in writing, the extent to which
the Performance Condition has been achieved prior to any payments under the
Program,

 

·                  Ensuring that
the Program is administered in accordance with its provisions,

 

·                  Approving
Program Participants who are or are expected to be Covered Employees,

 

·                  Authorizing
Target Share Unit awards to Participants,

 

·                  Adjusting Target
Share Unit grants and issuance requirements to account for extraordinary events
consistent with the terms of the Program,

 

·                  Ruling on any
disagreement between Program Participants, Company management, Program
administrators, and any other interested parties to the Program, and

 

·                  Maintaining
final authority to amend, modify or terminate the Program at any time.

 

The interpretation and construction by the Committee of any provisions
of the Program or of any Awarded Share Units shall be final.  No member of the Committee shall be liable
for any action or determination made in good faith on the Program or any
Awarded Share Units thereunder.  The
Committee may designate another party to administer the Program, including
Company management or an outside party to the extent permitted under Code Section 162(m).  All conditions of the Target Share Units must
be approved by the Committee.  As early
as practicable prior to or during the Performance Period, the Committee shall
approve the number of Target Share Units to be awarded to each Participant.  The associated terms and conditions of the
Program will be communicated to 

 

7

 

Participants as close as possible to the date an award is made.  The Participants will sign and return a
participant agreement to the Committee.

 

Section 10.  Tax
Consequences to Participants.  It is intended that:  (i) until the Performance Condition is
satisfied, a Participant’s right to an award under this Program shall be
considered to be subject to a substantial risk of forfeiture in accordance with
those terms as defined or referenced in Sections 83(a), 409A and 3121(v)(2) of
the Code; (ii) the Awarded Share Units shall be subject to employment
taxes only upon the satisfaction of the Performance Condition; and (iii) until
the Awarded Share Units are actually paid to the Participant, the Participants
shall have merely an unfunded, unsecured promise to be paid the benefit, and
such unfunded promise shall not consist of a transfer of “property” within the
meaning of Code Section 83.  It is
further intended that, because a Participant cannot actually or constructively
receive the Target Share Units prior to payment, the Participant will not be in
actual or constructive receipt of the Target Share Units within the meaning of
Code Section 451 until they are actually received as Awarded Share Units.

 

Section 11.  Nonassignment.  A Participant shall not be permitted to
assign, alienate or otherwise transfer his or her Target Share Units and any
attempt to do so shall be void.

 

Section 12.  Impact on
Benefit Plans.  Payments
under the Program shall not be considered as earnings for purposes of the
Company’s qualified retirement plans or any such retirement or benefit plan
unless specifically provided for and defined under such plans.  Nothing herein shall prevent the Company from
maintaining additional compensation plans and arrangements, provided however
that no payments shall be made under such plans and arrangements if the effect
thereof would be the payment of compensation otherwise payable under this
Program regardless of whether the Performance Condition was attained.

 

Section 13.  Successors;
Changes in Stock. 
The obligation of the Company under the Program shall be binding upon
the successors and assigns of the Company. 
If a dividend or other distribution shall be declared upon the Company’s
common stock payable in shares of Company common stock, the Total Target Share
Units and the shares of Company Common Stock on which the Performance Condition
is based shall be adjusted by adding thereto the number of shares of Company
common stock which would have been distributable thereon if such shares and
Total Target Share Units had been actual Company shares and outstanding on the
date fixed for determining the shareholders entitled to receive such stock
dividend or distribution.  In the event
of any spin-off, split-off or split-up, or dividend in partial liquidation,
dividend in property other than cash, or extraordinary distribution to
shareholders of the Company’s common stock, the Total Target Share Units and
the shares of Company common stock on which the Performance Condition is based
shall be appropriately adjusted to prevent dilution or enlargement of the
rights of Participants which would otherwise result from any such transaction,
provided such adjustment shall be consistent with Code Section 162(m).

 

8

 

In the case of a Change of Control, any obligation under the Program
shall be handled in accordance with the terms of Section 6 hereof.  In any case not constituting a Change of
Control in which the Company’s common stock is changed into or becomes
exchangeable for a different number or kind of shares of stock or other
securities of the Company or another corporation, or cash or other property,
whether through reorganization, reclassification, recapitalization, stock
split-up, combination of shares, merger or consolidation, then (i) the
value of the performance share units constituting an award shall be calculated
based on the closing price of such common stock on the closing date of the
transaction on the principal market on which such common stock is traded, (ii) there
shall be substituted for each performance share units constituting an award,
the number and kind of shares of stock or other securities (or cash or other
property) into which each outstanding share of the Company’s common stock shall
be so changed or for which each such share shall be exchangeable, and (iii) the
share of Company common stock on which the Performance Condition is based shall
be appropriately and equitably adjusted. 
In the case of any such adjustment, the Total Target Share Units shall
remain subject to the terms of the Program.

 

Section 14.  Dispute
Resolution.  The
Participant may make a claim to the Committee with regard to a payment of
benefits provided herein.  If the
Committee receives a claim in writing, the Committee must advise the
Participant of its decision on the claim in writing in a reasonable period of
time after receipt of the claim (not to exceed 120 days).  The notice shall set forth the following
information:

 

(a)          The specific basis for
its decision,

 

(b)         Specific reference to
pertinent Program provisions on which the decision is based,

 

(c)          A description of any
additional material or information necessary for the Participant to perfect a
claim and an explanation of why such material or information is necessary, and

 

(d)         An explanation of the
Program’s claim review procedure.

 

Section 15.  Applicable Law.  This Program shall be governed by and
construed under the laws of the Commonwealth of Pennsylvania without regard to
its conflict of law provisions.

 

Section 16.  Severability.  In the event that any one or more of the
provisions of this Program shall be held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

 

Section 17.  Headings.  The descriptive headings of the Sections of
this Program are inserted for convenience of reference only and shall not
constitute a part of this Program.

 

9

 

Section 18.  Amendment or
Termination of this Program.  This Program may be amended, suspended or
terminated by the Company at any time upon approval by the Committee and
following a determination that the Program is no longer meaningful in relation
to the Company’s strategy.  Any
suspension or termination shall automatically cause a Termination Date
effective as of the date of the Committee’s approval.  Notwithstanding the foregoing, (i) no
amendment, suspension or termination shall adversely affect a Participant’s
rights to his or her award after the date of the award; provided, however, that
to the extent an award is determined with respect to a Termination Date,
including a Termination Date pursuant to the preceding sentence, Participants’
rights to awards are deemed not to be adversely affected thereby, and the
Company may amend this Program from time to time without any participant’s
consent to the extent deemed necessary or appropriate, in its sole discretion,
to effect compliance with Section 409A of the Code, including regulations
and interpretations thereunder, which amendments may result in a reduction of
benefits provided hereunder and/or other unfavorable changes to participants, (ii) no
amendment may alter the time of payment as provided in Section 6 of the
Program, and (iii) no amendment may be made following a Change of Control.

 

10

 

Attachment A

 

2008 Executive Performance Incentive Program

 

Peer Group

 

Atlas Energy Resources LLC

Cabot Oil & Gas Corp.

Chesapeake Energy Corp.

CNX Gas Corp.

El Paso Corp.

Enbridge Inc.

Energen Corp.

Markwest Energy Partners LP

MDU Resources Group Inc.

National Fuel Gas co.

Oneok Inc.

Penn Virginia Corp.

Questar Corp.

Range Resources Corp.

Sempra Energy

Southern Union Co.

Southwestern Energy Co.

Spectra Energy Corp.

Transcanada Corp.

Williams Cos. Inc.

 

11

 

Attachment B

 

2008 Executive Performance
Incentive Program

 

Payout Matrix

 

	
  Company’s Position in

  	
   

  	
   

  	
   

  
	
  TSR Ranking

  	
   

  	
  Payout
  Multiple

  	
   

  
	
  1

  	
   

  	
   

  	
   

  	
  3.00

  	
   

  
	
  2

  	
   

  	
   

  	
   

  	
  3.00

  	
   

  
	
  3

  	
   

  	
   

  	
   

  	
  3.00

  	
   

  
	
  4

  	
   

  	
   

  	
   

  	
  2.75

  	
   

  
	
  5

  	
   

  	
   

  	
   

  	
  2.50

  	
   

  
	
  6

  	
   

  	
   

  	
   

  	
  2.25

  	
   

  
	
  7

  	
   

  	
   

  	
   

  	
  2.00

  	
   

  
	
  8

  	
   

  	
   

  	
   

  	
  1.75

  	
   

  
	
  9

  	
   

  	
   

  	
   

  	
  1.50

  	
   

  
	
  10

  	
   

  	
   

  	
   

  	
  1.25

  	
   

  
	
  11

  	
   

  	
   

  	
   

  	
  1.00 median

  	
   

  
	
  12

  	
   

  	
   

  	
   

  	
  0.75

  	
   

  
	
  13

  	
   

  	
   

  	
   

  	
  0.75

  	
   

  
	
  14

  	
   

  	
   

  	
   

  	
  0.75

  	
   

  
	
  15

  	
   

  	
   

  	
   

  	
  0.50

  	
   

  
	
  16

  	
   

  	
   

  	
   

  	
  0.50

  	
   

  
	
  17

  	
   

  	
   

  	
   

  	
  0.25

  	
   

  
	
  18

  	
   

  	
   

  	
   

  	
  0.25

  	
   

  
	
  19

  	
   

  	
   

  	
   

  	
  0.00

  	
   

  
	
  20

  	
   

  	
   

  	
   

  	
  0.00

  	
   

  
	
  21

  	
   

  	
   

  	
   

  	
  0.00

  	
   

  

 

The Committee retains the discretion to reduce the corresponding Payout
Multiple by up to .75 if the Company does not attain the revenue target specified
herein; provided, however, that if the Company’s relative TSR ranking is median
or above, the Payout Multiple shall not be decreased below 1.00.  The revenue target for the periods October 1,
2008 to September 30, 2011 is listed below:

 

	
  Total Sales Volume (mmcfe)

  	
   

  	
  Production Revenue ($000,000)

  	
   

  
	
  270,000

  	
   

  	
  1,301.4

  	
   

  

 

12

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