Document:

EX-10.1

 

Exhibit 10.1

BEFORE THE

PENNSYLVANIA PUBLIC UTILITY COMMISSION

	 	 	 	 
	Pennsylvania Public Utility Commission,
	 	 	 
	 

	 	 	Docket No. R-00061346
	 
	 	 	 
	Duquesne Industrial Intervenors And 

Industrial Energy Consumers Of 

Pennsylvania
	 	 	 
	 
	 	 	 
	Irwin A. Popowsky, Consumer Advocate

	 	 	Docket No. R-00061346C0001
	 
	 	 	 
	Office Of Small Business Advocate
	 	 	 
	 
	 	 	 
	Pennsylvania Large Energy Users 

Coalition

	 	 	Docket No. R-00061346C0002
	 
	 	 	 
	V.

	 	 	Docket No. R-00061346C0005
	 
	 	 	 
	Duquesne Light Company

	 	 	Docket No. R-00061346C0007

 

JOINT PETITION FOR SETTLEMENT OF ALL ISSUES

 

TO THE HONORABLE LARRY GESOFF, ADMINISTRATIVE LAW JUDGE:

I. INTRODUCTION

     The Office of Trial Staff (“OTS”) of the Pennsylvania Public Utility Commission
(“Commission”), the Office of Consumer Advocate (“OCA”), the Office of Small Business Advocate
(“OSBA”), Duquesne Industrial Intervenors (“DII”), Pennsylvania Large Energy Users Coalition
(“PLEUC”), International Brotherhood of Electrical Workers Local 29 (“IBEW”), Constellation
NewEnergy, Inc. (“CNE”), NRG Energy Center Pittsburgh LLC (“NRG”), Reliant Energy, Inc. (“Reliant
Energy”), Citizen Power, Inc. (“Citizen Power”), Citizens for Pennsylvania’s Future (“PennFuture”),
Community Action Association of Pennsylvania

 

(“CAAP”), Retail Energy Supply Association (“RESA”), Strategic Energy, LLC (“Strategic
Energy”), Direct Energy, LLC (“Direct Energy”), Comcast of California/Pennsylvania/Utah/
Washington, Inc. (“Comcast”), Wal-Mart Stores East, LP (‘“Wal-Mart”), and Duquesne Light Company
(“Duquesne Light”), parties to the above-captioned proceeding (hereinafter collectively referred
to as “Joint Petitioners”), hereby join in this Joint Petition For Settlement Of All Issues
(“Settlement”) and respectfully request that the Administrative Law Judge recommend and the
Commission approve all terms and conditions of this Settlement as set forth below.1 

     As fully set forth and explained below, the Joint Petitioners have agreed to a settlement of
all issues in this proceeding. The Settlement provides for increases in rates, as set forth in the
form of tariff supplement attached as Appendix “A” and the proof of revenues attached as Appendix
“B” to this Petition, designed to produce a net increase in annual distribution operating revenues
of $117,000,000, based upon the level of operation for the twelve months ended December 31, 2006,
as adjusted for ratemaking purposes.2 The Settlement also provides for approval of a
Transmission Service Charge (“TSC”) described in detail as a Rider in the retail tariff Appendix
“A”. The TSC contains retail transmission rates designed to produce approximately a $19.2 million
transmission revenue increase and provides for reconciliation of actual transmission costs and
revenues.3 

 

			
	1	 	The Industrial Energy Consumers of Pennsylvania
(“IECPA”), a party to this proceeding, does not object to the
settlement.
	 
	2.	 	The Settlement reflects a roll-in of estimated 2006
state taxes and tax rates into base rates. Duquesne proposes to set the
State tax adjustment surcharge (“STAS”) at 0% effective with
the effective date of settlement rates in this proceeding. The STAS may
change or the retail rates may be adjusted to reflect changes to
STAS-related taxes in effect for calendar year 2007.
	 
	3.	 	The transmission rates are designed on the assumption
that all customers are POLR customers. To the extent that a customer
selects an electric generation supplier (“EGS”), Duquesne
Light recovers less transmission revenue and the customer pays the EGS for
transmission service.

-2-

 

II. BACKGROUND

     In support of this Settlement, Joint Petitioners state the following:

     1. Duquesne Light provides electric distribution and transmission service to approximately
580,000 customers in Allegheny and Beaver Counties, Pennsylvania. Duquesne Light is a “public
utility” and an “electric distribution company” as defined under the Public Utility Code, see 66
Pa. C.S. §§ 102 & 2803, serving customers within its certificated service territory approved by
this Commission and subject to the regulatory jurisdiction of this Commission. Duquesne Light also
serves as Provider of Last Resort (“POLR” or “Default Service”) to customers that are not being
served by an electric generation supplier (“EGS”).

     2. On April 7, 2006, Duquesne Light filed with the Commission its Tariff Electric-Pa. P.U.C.
No. 24, to become effective June 6, 2006. Therein, Duquesne Light requested approximately $143.7
million in additional annual distribution rate revenues based upon a future test year of December
31, 2006. Duquesne Light also informed the Commission that transmission service charges reflected
in retail rates are expected to increase by approximately $19.2 million.4

     3. Tariff Electric-Pa. P.U.C. No. 24 was suspended by operation of law pursuant to Section
1308(d) of the Public Utility Code, 66 Pa.C.S. § 1308(d), for up to seven months or until January
6, 2007, unless permitted by Commission Order to become effective at an earlier date.

     4. By Order entered May 4, 2006, the Commission initiated an investigation of Duquesne Light’s
proposed general rate increase. The matter was assigned to the Office of

 

			
	4.	 	This is an estimate of the transmission increase that
the Company anticipates submitting to the Federal Energy Regulatory Commission
(“FERC”) for approval. The actual increase will be reviewed by
FERC subject to its rules, regulations and procedures.

-3-

 

Administrative Law Judge and the Honorable Larry Gesoff (the “ALJ”) was assigned to preside
over the proceeding. 5 

     5. OTS filed its notice of intervention and OCA, OSBA, DII, IECPA, PLEUC and four residential
customers filed complaints against the proposed general rate increase. In addition, IBEW, CNE,
NRG, Citizen Power, PennFuture, RESA, Strategic Energy, Direct Energy, Reliant Energy, Comcast,
CAAP and Wal-Mart filed Petitions to Intervene.

     6. An initial prehearing conference was scheduled for May 12, 2006. Prior to the initial
prehearing conference, the parties agreed to a procedural schedule. Parties participating in the
prehearing conference filed their respective prehearing memoranda identifying potential issues and
their expected witnesses.

     7. The initial prehearing conference was held May 12, 2006. At the prehearing conference, the
ALJ adopted the schedule agreed to by the parties. Prior to the prehearing conference, the parties
agreed to discovery rules for the above-captioned proceeding, which included shorter response times
than those provided in the Commission’s regulations, that were so implemented by the ALJ. See 52
Pa. Code §§ 5.321 et seq. At the prehearing conference, the ALJ modified these rules to provide
that parties attempt to resolve discovery disputes by telephone, and that in the event parties were
unsuccessful in resolving their disputes, they were to send interrogatories and objections to the
ALJ for a further telephone discussion. At the prehearing conference, the ALJ further ordered that
Duquesne Light work with the OCA to discuss the location and timing of public input hearings.

 

			
	5.	 	Originally, both ALJ Gesoff and ALJ Michael A. Nemec
were jointly assigned to this proceeding with ALJ Gesoff as Lead Judge.
Subsequently on July 10, 2006, ALJ Gesoff informed the parties that he
would be the sole presiding ALJ after the conduct of the public input
meetings.

-4-

 

     8. Also on May 12, 2006, the ALJ issued a Prehearing Order. In the Prehearing Order, the ALJ
listed the parties that had filed notices of intervention, petitions to intervene and complaints to
date. The ALJ specifically noted the OTS Notice of Intervention and granted the Petitions to
Intervene of IBEW, CNE and NRG. The ALJ further ordered that the parties submit a proprietary
order for approval and set forth the rules regarding electronic service of documents, discovery,
scheduling of witnesses and common brief outline, instructions for briefs and the scheduling of
public input hearings as discussed at the prehearing conference.

     9. As directed by the Prehearing Order, Duquesne Light successfully worked with the OCA to
schedule public input hearings. One public input hearing was held on July 12, 2006, in Beaver
Falls, Pennsylvania, and two public input hearings were held on July 13, 2006, in Pittsburgh,
Pennsylvania.

     10. Also pursuant to the ALJ’s May 12, 2006, Prehearing Order, on June 15, 2006, Duquesne
Light filed a Motion for Protective Order and submitted a form for the Protective Order with the
Commission. On June 19, 2006, the ALJ issued an Order approving the Protective Order.

     11. On June 21, 2006, the ALJ issued the First Interim Order. In the First Interim Order, the
ALJ listed the parties that had filed petitions to intervene. The ALJ noted that he had granted
the Petitions to Intervene of IBEW, CNE and NRG at the prehearing conference held on May 12, 2006.
The ALJ also granted the Petitions to Intervene of Citizen Power, PennFuture, RESA, Strategic
Energy, Direct Energy, Reliant Energy, Comcast, CAAP and Wal-Mart.

     12. The Joint Petitioners undertook substantial formal and informal discovery in this
proceeding. Pursuant to the procedural schedule adopted by the ALJ, OTS, OCA, OSBA, PennFuture,
Comcast, CAAP, CNE, NRG, Wal-Mart, DII, Direct Energy and Strategic Energy

-5-

 

submitted direct testimony on July 7, 2006. Duquesne Light, OTS, OCA, OSBA, DII, Direct
Energy and Strategic Energy submitted rebuttal testimony on August 2, 2006. OTS, PennFuture, DII,
Direct Energy and Strategic Energy submitted surrebuttal testimony on August 16, 2006.

     13. The Joint Petitioners held multiple settlement conferences to attempt to amicably resolve
all outstanding issues in the case. As a result of these conferences and the efforts of the Joint
Petitioners to examine and resolve the issues in the proceeding, a settlement in principle of all
issues was achieved by the Joint Petitioners prior to the dates scheduled for evidentiary hearings.
The Joint Petitioners requested the ALJ to cancel hearings and the ALJ did subsequently direct
that the hearings be canceled.

     14. The Joint Petitioners have been able to agree to this instant Settlement covering all
issues. Joint Petitioners have agreed to a base rate increase and have also agreed to a rate
design to implement said increase. The Joint Petition provides for adjustments to retail
transmission rates under the Transmission Service Charge (“TSC”) Rider. The Joint Petition also
provides for the continuation and expansion of Duquesne Light’s Customer Assistance Program (“CAP”)
and Low Income Usage Reduction (“LIURP” or “Smart Comfort”) Program. The Joint Petitioners are in
full agreement that the Settlement is in the public interest as being in the best interests of both
Duquesne Light and its customers.

     15. The effect upon the average residential POLR customer’s total monthly bill as a result of
the Settlement is as follows:6

 

			
	6.	 	Monthly bills exclude Seams Elimination Charge
Adjustment (“SECA”) charges expected to expire prior to the
effective date of settlement rates.

-6-

 

	 	 	 	 	 	 	 
	 

	 	Effective on Date
of Rate Filing
	 	Proposed
	 	As Settled
	 
	 	 	 	 	 	 
	Residential Customer
(600 kWh/mo.)

	 	$63.87/mo.
	 	$75.86/mo.
	 	$74.23/mo.

     16. The Settlement is set forth in the following Section.

III. SETTLEMENT PROVISIONS

     17. The Joint Petitioners agree as follows:

	 	 	 	REVENUE REQUIREMENT
	 
	 	a.	 	Duquesne Light will be permitted to increase distribution rates
designed to produce an increase of $117 million in annual operating revenues
based upon the billing determinants as proposed by Duquesne Light for the 12
months ended December 31, 2006, as adjusted for ratemaking purposes.
	 
	 	b.	 	The increased rates reflect the following specific components:

	 	(1)	 	A 45.0% common equity ratio,
	 
	 	(2)	 	The Settlement rates reflects a level of
pension expense based upon expected Pension contributions of $20
million per year. Duquesne Light commits to fund $20 million annually
to its pension plans during the period rates set in this proceeding
remain effective, provided that such funding does not exceed the amount
that is deductible under the Internal Revenue Code, in which case,
Duquesne Light will fund the amount that is deductible. If the ERISA
minimum contribution exceeds $20 million, Duquesne Light will
contribute the ERISA minimum. The Settlement rates reflect $2.681
million of Other Post Employment Benefits Expenses. Duquesne Light
will be permitted to employ the accounting treatments set forth in its
testimony and supporting data responses with regard to Pensions and
OPEBs. Duquesne Light St. Nos. 2, 2-R and Exhibits SSB 1-20.
	 
	 	(3)	 	Participation in the Customer Assistance Plan
(“CAP”) reflected in the revenue requirement is 27,000 customers.
Duquesne Light withdraws Rider 21, the Universal Service Rider;
provided, however, that Duquesne Light may seek recovery of additional
CAP costs outside a general rate proceeding if participation levels

-7-

 

	 	 	 	substantially exceed 27,000 or there are substantial changes to the
CAP. Parties to this Settlement will not oppose recovery on the
basis that recovery of these increased costs on an interim basis may
only be permitted in a general rate proceeding. All parties reserve
the right to oppose expansion or changes to CAP or to raise issues
relating to recovery of additional CAP costs on any other basis.
	 
	 	(4)	 	Duquesne Light will increase annual Low-Income
Usage Reduction Program (“LIURP or Smart Comfort”) funding by $350,000
from $1,181,000 to $1,531,000 to permit the Company to provide LIURP
service under its existing program to up to 2,250 customers per year.
	 
	 	(5)	 	Duquesne Light’s jurisdictional separation
study of distribution and transmission costs is approved.

	 	 	 	REVENUE ALLOCATION AND RATE DESIGN
	 
	 	c.	 	The Settlement increase in revenues will be allocated to the
classes as set forth in Appendix “C”. The revenue allocation scales back
Duquesne Light’s proposed distribution increases to the classes in a
non-proportional manner to provide for further movement of the classes toward
system average return. The results of non-proportional scale back are shown in
Appendix C.
	 
	 	d.	 	Residential Rate Design — Duquesne will be permitted to
increase the Rate RS, Rate RH and Rate RA customer charge to $7.00/month. The
Rate RS energy charges will also be increased to recover the remaining increase
to the RS class. The Rate RH and Rate RA energy charges will be designed in
the same manner as originally proposed to recover the remaining revenue. The
resulting rates are shown in Appendices A and B.
	 
	 	e.	 	All Other Classes — The increase for each other class will be
recovered first from the proposed customer charge. The remaining revenue
increase

-8-

 

	 	 	 	will be recovered using the rate design for demand and energy charges as
originally proposed.
	 
	 	f.	 	Duquesne Light will continue Rule 4 under its current terms
with the exception that it will be revised to apply only to distribution
charges.
	 
	 	g.	 	The credit for untransformed service under Rate L will be
increased to $.70/kW/mo. The additional revenue deficiency resulting from the
increased credit will be reflected in the Rate L demand charges in this
proceeding.
	 
	 	h.	 	In its next general rate proceeding, Duquesne Light will
present an evaluation of the potential for separating the GS/GM rate schedule
and, if deemed appropriate, propose a separation.

	 	 	 	RIDERS
	 
	 	i.	 	Rider 21, Universal Service Charge, will be removed under the
terms set forth in paragraph 17b.3.
	 
	 	j.	 	Rider 20, DSIC is withdrawn.
	 
	 	k.	 	Duquesne will be permitted to implement the Transmission
Service Charge (“TSC”) as filed in Exhibit NJDK-1 of Duquesne Light Statement
No. 14, and attached as part of Compliance Tariff (Appendix “A” hereto).
Retail transmission rates will be set using the formulas set forth in the TSC
to achieve the rate in effect under the PJM Interconnection, LLC Open Access
Transmission Tariff (“OATT”) when distribution rates become effective. Any
change in OATT rates will be reflected and reconciled under the procedures set
forth in the TSC.

-9-

 

	 	 	 	OTHER ISSUES
	 
	 	l.	 	Duquesne Light will evaluate the proposals of other parties
relating to energy conservation and education, time of use metering and
economic development and will make proposals deemed by it to be appropriate as
to such matters in its filing to implement POLR rates effective January 1,
2008, subject to recovery of costs commencing with completion of such
proceeding. The parties agree not to contend that recovery of such costs is
permissible only in a general rate proceeding. All parties reserve the right
to oppose or seek to modify any proposal made by Duquesne Light and to oppose
recovery of costs on any other basis.
	 
	 	m.	 	Duquesne Light will provide a contribution of $1.5 million per
year for each of the four years 2007 through 2010 to be administered by the
Pennsylvania Energy Development Authority (PEDA) to fund renewable energy
projects that meet the requirements of Tier 1 technologies specified in the
Alternative Energy Portfolio Standards Act (Act 213) and/or to fund energy
efficiency and energy education projects. At least 75% of the funds will be
expended on projects located in the service territory of Duquesne Light and the
remaining 25% of the funds may be spent on projects that benefit directly the
customers of Duquesne Light’s service territory.
	 
	 	n.	 	The parties agree to consider the development of a Purchase of
Accounts Receivables (“POAR”) program for suppliers serving residential and
small commercial customers in Duquesne Light’s territory as a potential

-10-

 

	 	 	 	alternative to full unbundling of POLR costs in distribution rates. If
unanimous agreement (or agreement not to oppose) by the parties is achieved
on POAR, the parties agree that there will be no further unbundling of POLR
costs in the POLR proceeding. If unanimous agreement (or agreement not to
oppose) among the parties is not forthcoming by October 31, 2006, the
parties agree that issues concerning further unbundling of distribution
costs will be addressed in the proceeding to establish Default Service rates
effective January 1, 2008 and Duquesne Light will submit an analysis in that
proceeding addressing the further unbundling of distribution costs,
including the issue of further unbundling of uncollectible accounts expense
and the potential of purchasing EGS account receivables. All parties
reserve the right to: (1) claim that it is inappropriate to unbundle any
cost that is not avoidable by Duquesne Light when a customer elects to
obtain supply service from an EGS and to the timing of implementation; (2)
assert that a POAR plan should be implemented in lieu of full POLR cost
unbundling; or (3) oppose such proposal on any other grounds. Duquesne
Light will not contend in such proceeding that unbundling of distribution
rates cannot be undertaken in such proceeding because it is not a general
rate proceeding.
	 
	 	o.	 	As part of Duquesne Light’s filing to establish Default Service
(i.e. POLR) rates effective January 1, 2008, Duquesne Light will submit an
analysis addressing whether any portion of Duquesne Light’s operations is
subsidizing its affiliates, including its affiliate EGS, Duquesne Light

-11-

 

	 	 	 	Energy. Duquesne Light may also include an analysis of whether any portion
of Duquesne Light’s operations is subsidizing other EGSs.
	 
	 	p.	 	Duquesne Light agrees to utilize a consolidated billing program
which accepts “rate ready” bill information from participating EGSs.
	 
	 	q.	 	Duquesne Light, to strengthen its commitment to the development
of the competitive market, will:

	 	(1)	 	Convene meetings including (i) biannual service
meetings with interested EGSs, and include participation from Duquesne
Light’s Supplier Service Center and the operational personnel of EGSs
that are serving customers in Duquesne Light’s service territory, to
discuss retail supplier issues, and (ii) one additional meeting per
calendar year among Duquesne Light, all interested EGSs, and interested
Commercial and Industrial customers to discuss customer choice issues.
	 
	 	(2)	 	In conjunction with the meetings described in
(1) above, review and modify, as necessary, Duquesne Light’s Supplier
Coordination Tariff and adopt criteria to measure Duquesne Light’s
customer service levels to EGSs. If Duquesne Light modifies its
Supplier Coordination Tariff separately, it will provide 30 days’
written notice to EGSs and large Commercial and Industrial customers
that have participated in the meetings described in (1) above before
filing its proposed modifications with the Commission.
	 
	 	(3)	 	Duquesne Light will, within thirty (30) days
following the entry of the Commission’s Order approving this
Settlement, provide EGSs with the name and direct contact information
of an employee at the level of Director or above of the Company who is
empowered to resolve operational issues and competitive retail market
issues.
	 
	 	(4)	 	Duquesne Light will meet with EGSs and other
parties to this proceeding to obtain input from the parties prior to
making its filing to establish POLR rates to become effective January
1, 2008.

-12-

 

IV. THE PUBLIC INTEREST

     18. This Settlement was achieved by the Joint Petitioners after an extensive investigation of
Duquesne Light’s filing, including extensive informal and formal discovery and the filing of
direct, rebuttal and surrebuttal testimony by a number of the Joint Petitioners.

     19. Acceptance of the Settlement will avoid the necessity of further administrative and
potential appellate proceedings at what would have been a substantial cost to the Joint Petitioners
and Duquesne Light’s customers.

     20. The Settlement Rates will allocate the agreed upon revenue requirement to each customer
class in a manner that is reasonable given the rate structure and cost of service positions
advanced in the testimony and exhibits of the various parties.

     21. Attached to this Settlement Petition are the respective Statements in Support of a number
of the Joint Petitioners setting forth the basis upon which they consider the Settlement to be
fair, just and reasonable and therefore in the public interest. The Joint Petitioners respective
Statements in Support are attached hereto as Appendix D.

V. SETTLEMENT CONDITIONS

     22. This Settlement is conditioned upon Commission approval of all terms and conditions
contained herein without modification. If the Commission modifies the Settlement, then any Joint
Petitioner may elect to withdraw from this Settlement and may proceed with litigation and, in such
event, this Settlement shall be void and of no effect. Such election to withdraw must be made in
writing, filed with the Secretary of the Commission and served upon all Joint Petitioners within
five (5) business days after the entry of an order modifying the Settlement.

     23. The Joint Petitioners acknowledge and agree that this Settlement, if approved, shall have
the same force and effect as if the Joint Petitioners had fully litigated this proceeding.

-13-

 

This Settlement shall be considered to have the same effect as full litigation of this
proceeding resulting in the establishment of rates that are Commission-made, just and reasonable
rates.

     24. This Settlement is proposed by the Joint Petitioners to settle all issues in the instant
proceeding. If the Commission does not approve the Settlement and the proceedings continue to
further hearings, the Joint Petitioners reserve their respective rights to present additional
testimony and to conduct full cross-examination, briefing and argument. The Settlement is made
without any admission against, or prejudice to, any position which any Joint Petitioner may adopt
in the event of any subsequent litigation of this proceeding.

     25. This Settlement may not be cited as precedent in any future proceeding, except to the
extent required to implement this Settlement.

     26. The Commission’s approval of the Settlement shall not be construed to represent approval
of any party’s position on any issue, except to the extent required to effectuate the terms and
agreements of the Settlement in this and future proceedings involving Duquesne Light.

     27. It is understood and agreed among the parties that the Settlement is the result of
compromise, and does not necessarily represent the position(s) that would be advanced by any party
in this proceeding if it were fully litigated.

     28. This Settlement is being presented only in the context of this proceeding in an effort to
resolve the proceeding in a manner which is fair and reasonable. The Settlement is the product of
compromise. This Settlement is presented without prejudice to any position which any of the
parties may have advanced and without prejudice to the position any of the parties may advance in
the future on the merits of the issues in future proceedings except to the extent necessary to
effectuate the terms and conditions of this Settlement. This Settlement does not

-14-

 

preclude the parties from taking other positions in proceedings of other public utilities
under Section 1308 of the Public Utility Code, 66 Pa.C.S. § 1308, or any other proceeding.

     29. A copy of the Settlement will be served upon the customer complainants.

     30. If the ALJ adopts the Settlement without modification, the Joint Petitioners waive their
rights to file Exceptions.

VI. CONCLUSION

     WHEREFORE, the Joint Petitioners, by their respective counsel, respectfully request as
follows:

     1. That Administrative Law Judge Larry Gesoff recommend and the Commission approve this
Settlement including all terms and conditions thereof;

     2. That the Commission’s Investigation at R-00061346 and the Complaints of DII and IECPA, OCA,
OSBA, and PLEUC at R-00061346C0001, R-00061346C0002, R-00061346C0005, and R-00061346C0007 be marked closed;

     3. That all other Complaints associated with this proceeding, including the Complaints at
R-00061346C0003, R-00061346C0004, R-00061346C0006, and
R-00061346C0008 be dismissed; and

-15-

 

     4. That the Commission enter an Order consistent with this Settlement, terminating the
proceeding and authorizing Duquesne Light Company to file the tariff attached as Appendix “A”
effective as provided herein.

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Respectfully submitted,
	 
	 	 	 	 	 	 	 	 
	/s/Michael W. Gang	 	 	 	Date:	 	9/13/06
	 	 	 	 	 	 	 
	Michael W. Gang, Esquire

David B. MacGregor, Esquire

Anthony D. Kanagy, Esquire

Gary Jack, Esquire
	 	 	 	 	 	 
	For:

	 	Duquesne Light Company	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	/s/Robert V. Eckenrod	 	 	 	Date:	 	9/14/06
	 	 	 	 	 	 	 
	Charles Daniel Shields, Esquire

Robert V. Eckenrod, Esquire
	 	 	 	 	 	 
	For:

	 	Office of Trial Staff	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	/s/David T. Evrard	 	 	 	Date:	 	9/13/06
	 	 	 	 	 	 	 
	Tanya J. McCloskey, Esquire

David T. Evrard, Esquire

Darryl Lawrence, Esquire
	 	 	 	 	 	 
	For:

	 	Office of Consumer Advocate	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	/s/Steven C. Gray	 	 	 	Date:	 	9/14/06
	 	 	 	 	 	 	 
	Steven C. Gray, Esquire

Sharon E. Webb, Esquire
	 	 	 	 	 	 
	For:

	 	Office of Small Business Advocate	 	 	 	 	 	 

-16-

 

	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	/s/Scott J. Rubin	 	 	 	Date:	 	9/12/06
	 	 	 	 	 	 	 
	Scott J. Rubin, Esquire
	 	 	 	 	 	 
	For:

	 	International Brotherhood of 

Electrical Workers Local 29	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	/s/George Jugovic, Jr.	 	 	 	Date:	 	9/14/06
	 	 	 	 	 	 	 
	George Jugovic, Jr., Esquire
	 	 	 	 	 	 
	For:

	 	Citizen’s For Pennsylvania’s Future	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	/s/Pamela C. Polacek	 	 	 	Date:	 	9/13/06
	 	 	 	 	 	 	 
	David M. Kleppinger, Esquire

Pamela C. Polacek, Esquire

Adam L. Benshoff, Esquire
	 	 	 	 	 	 
	For:

	 	Duquesne Industrial Intervenors	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	/s/Thomas Brogan	 	 	 	Date:	 	9/13/06
	 	 	 	 	 	 	 
	Thomas Brogan, Esquire

W. Gregory Rhodes, Esquire

Brian J. Knipe, Esquire
	 	 	 	 	 	 
	For:

	 	Constellation NewEnergy, Inc.

NRG Energy Center Pittsburgh LLC

Reliant Energy, Inc.	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	/s/John E. McCaffrey	 	 	 	Date:	 	9/6/06
	 	 	 	 	 	 	 
	Harvey L. Reiter, Esquire

John E. McCaffrey, Esquire

Jaime S. Dibble, Esquire
	 	 	 	 	 	 
	For:

	 	Citizen Power, Inc.	 	 	 	 	 	 

-17-

 

	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	/s/Joseph L. Vullo	 	 	 	Date:	 	9/6/06
	 	 	 	 	 	 	 
	Joseph L. Vullo, Esquire
	 	 	 	 	 	 
	For:

	 	Community Action Association of Pennsylvania	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	/s/Kevin J. Moody	 	 	 	Date:	 	9/6/06
	 	 	 	 	 	 	 
	Daniel Clearfield, Esquire

Kevin J. Moody, Esquire
	 	 	 	 	 	 
	For:

	 	Strategic Energy, LLC

Direct Energy, LLC

Retail Energy Supply Association	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	/s/Geoffrey A. Sawyer, III	 	 	 	Date:	 	9/14/06
	 	 	 	 	 	 	 
	Geoffrey A. Sawyer, III, Esquire

Jerry C. Harris, Jr., Esquire
	 	 	 	 	 	 
	For:

	 	Comcast of California/Pennsylvania/

Utah/Washington, Inc.	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	/s/Scott H. DeBroff	 	 	 	Date:	 	9/12/06
	 	 	 	 	 	 	 
	Scott H. DeBroff, Esquire

Stuart Sacks, Esquire
	 	 	 	 	 	 
	For:

	 	Wal-Mart Stores East, L.P.	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	/s/Paul F. Forshay	 	 	 	Date:	 	9/12/06
	 	 	 	 	 	 	 
	Theodore H. Jobes, Esquire

Steven S. Goldenberg, Esquire

Paul F. Forshay, Esquire
	 	 	 	 	 	 
	For:

	 	Pennsylvania Large Energy Users Coalition	 	 	 	 	 	 

-18-EX-10.1

 

EXHIBIT 10.1

Amended

September 11, 2006

Hartville Group, Inc.

2006 Stock Option Plan

(as adopted on February 10, 2006)

     1. PURPOSE AND DEFINITIONS. The purpose of this Plan is to provide incentives
to attract retain and motivate eligible persons whose present and potential contributions are
important to the success of the Company, its Parent and Subsidiaries, by offering them an
opportunity to participate in the Company’s future performance through awards of Options.
Capitalized terms not defined in the text are defined in Section 22 hereof.

     2. SHARES SUBJECT TO THE PLAN. Subject to Section 16 hereof, the total number of
Shares reserved and available for grant and issuance pursuant to this Plan will be 20,000,000
Shares. All such shares are eligible to be issued as Options, as determined by the Committee or
the Board. Subject to Section 16 hereof, Shares that are subject to issuance upon exercise of an
Option but cease to be subject to such Option for any reason other than exercise of such Option
will be available for grant and issuance in connection with future Options under this Plan. At all
times the Company will reserve and keep available a sufficient number of Shares as will be required
to satisfy the requirements of all outstanding Options granted under this Plan. The Shares that
may be issued under the Plan may be authorized but unissued Shares or issued Shares reacquired by
the Company, including without limitation Shares purchased on the open market, and held as treasury
shares.

     3. ELIGIBILITY. Options may be granted to employees, officers, directors or
consultants (provided such consultants render bona fide services). A person may be granted more
than one Option under this Plan.

     4. ADMINISTRATION.

          4.1 Committee Authority. This Plan will be administered by the Committee. Subject
to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the
Committee has full power to implement and carry out this Plan. Without limitation, the Committee
has the authority to:

          (a) construe and interpret this Plan, any Stock Option Agreement or Exercise Agreement (each
as defined in Section 5 hereof) and any other agreement or document executed pursuant to this Plan;

          (b) prescribe, amend and rescind rules and regulations relating to this Plan;

          (c) select persons to receive Options;

          (d) determine the form and terms of Options;

4

 

          (e) determine the number of Shares or other consideration subject to Options;

          (f) determine whether Options will be granted singly, in combination with, in tandem with, in
replacement of, or as alternatives to, any Options granted under this Plan or any awards under any
other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company;

          (g) grant waivers of Plan or Option conditions;

          (h) determine the vesting and exercisability of Options;

          (i) correct any defect, supply any omission, or reconcile any inconsistency in this
Plan, any Option or any Stock Option Agreement or Exercise Agreement (each as defined in
Section 5 hereof);

          (j) extend the period in which a Participant may exercise a vested Option following
a Termination;

          (k) determine whether an Option has been earned; and

          (l) make all other determinations necessary or advisable for the administration of
this Plan.

          Other provisions of the Plan notwithstanding, the Board shall perform the functions of the
Committee for purposes of granting awards to directors who serve on the Committee, and the Board
may perform any function of the Committee under the Plan for any other purpose, 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, as amended, 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, except
where the context otherwise requires.

          4.2 Committee Discretion. Any determination made by the Committee with respect to
any Option will be made in its sole discretion at the time of grant of the Option or, unless in
contravention of any express term of this Plan or Option, and subject to Section 5.8 hereof, at any
later time, and such determination will be final and binding on the Company and on all persons
having an interest in any Option under this Plan. The Committee may delegate to one or more
officers of the Company the authority to grant Options under this Plan; provided that such officer
cannot grant options to himself or herself, can only grant options to subordinate employees and
provided, further, that such delegation is limited to a specific number of shares to be granted at
a specified option price and subject to a vesting schedule approved by the Committee.

     5. OPTIONS. The Committee may grant Options to eligible persons as set forth in
Section 3 and will determine the number of Shares subject to the Option, the Exercise Price of the
Option, the period during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:

          5.1 Form of Option Grant. Each Option granted under this Plan will be evidenced by
an Agreement (“STOCK OPTION AGREEMENT”) which will be in such form and contain

5

 

such provisions (which need not be the same for each Participant) as the Committee may from time to time
approve, and which will comply with and be subject to the terms and conditions of this Plan.

          5.2 Date of Grant. The date of grant of an Option will be the date on which the
Committee makes the determination to grant such Option (or the date that an officer with delegated
authority makes the determination to grant such Option), unless otherwise specified by the
Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant
within a reasonable time after the granting of the Option.

          5.3 Exercise Period. Options may be exercisable on such vesting or other schedule
within the times or upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; provided, however, that no Option will be exercisable after the
expiration of ten (10) years from the date the Option is granted. The Committee may provide for
Options to become exercisable at one time or from time to time, periodically or otherwise, in such
number of Shares or percentage of Shares and based on such criteria as the Committee determines.

          5.4 Exercise Price. The Exercise Price of an Option will be determined by the
Committee when the Option is granted and may not be less than the Fair Market Value on the date of
grant. Payment for the Shares purchased must be made in accordance with Section 6 hereof.

          5.5 Method of Exercise. Options may be exercised only by delivery to the Company of
a written stock option exercise agreement (the “EXERCISE AGREEMENT”) in a form approved by the
Committee (which need not be the same for each Participant), stating the number of Shares being
purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement, if any,
and such representations and agreements regarding Participant’s investment intent and access to
information and other matters, if any, as may be required or desirable by the Company to comply
with applicable securities laws, together with payment in full of the Exercise Price, and any
applicable taxes, for the number of Shares being purchased.

          5.6 Termination. Subject to earlier termination pursuant to Section 16 hereof and
subject to the terms set forth in any Stock Option Agreement approved by the Committee, exercise of
an Option will always be subject to the following:

(a) If a Participant who is an employee, officer, director or consultant to the Company or
a Parent or Subsidiary of the Company is Terminated for any reason other than death,
Disability or Cause, then the Participant may exercise such Participant’s Options, only to
the extent that such Options are vested and exercisable on the Termination Date and such
Options must be exercised by the Participant, if at all, within three (3) months after the
Termination Date, but in any event, no later than the expiration date of the Options.

(b) If a Participant who is an employee, officer, director or consultant to the Company or
a Parent or Subsidiary of the Company is Terminated because of the Participant’s death or
Disability (or the Participant dies within three (3) months after Participant’s Termination
other than for Cause), then the Participant may exercise such Participant’s Options, only to
the extent that such Options are vested and exercisable on the Termination Date and such
Options must be exercised by Participant (or Participant’s legal representative or
authorized assignee), if at all, within twelve (12) months after the Termination Date, but
in any event no later than the expiration date of the Options.

6

 

(c) If a Participant who is an employee, officer, director or consultant to the Company or
a Parent or Subsidiary of the Company is Terminated for Cause, as determined by the
Committee in its sole discretion, then the Participant’s Options shall expire on such
Participant’s Termination Date, or at such later time and on such conditions as are
determined by the Committee.

          5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number
of Shares that may be purchased on exercise of an Option, provided that such minimum number will
not prevent Participant from exercising the Option for the full number of Shares for which it is
then exercisable.

          5.8 Modification, Extension or Renewal. The Committee may modify, extend or renew
outstanding Options and authorize the grant of new Options in substitution therefor, provided that
any such action may not, without the written consent of a Participant, impair any of such
Participant’s rights under any Option previously granted. The Committee may reduce the Exercise
Price of outstanding Options without the consent of Participants affected by a written notice to
them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise
Price that would be permitted under Section 5.4 hereof for Options granted on the date the action
is taken to reduce the Exercise Price.

     6. PAYMENT FOR SHARE PURCHASES.

          6.1 Payment. Payment for Shares purchased pursuant to this Plan may be made in cash
(by check) or, where expressly approved for the Participant by the Committee and where permitted by
law:

(a) by cancellation of indebtedness of the Company to the Participant;

(b) by surrender of unrestricted shares that have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which such Option will
be exercised and are clear of all liens, claims, encumbrances or security interests;

(c) by waiver of compensation due or accrued to the Participant for services rendered;

(d) through a cashless exercise program implemented by the Company and approved by
the Committee in connection with this Plan; or

(f) by any combination of the foregoing.

     7. WITHHOLDING TAXES.

          7.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of
Options granted under this Plan, the Company may require the Participant to remit to the Company an
amount sufficient to satisfy federal, state and local withholding tax requirements prior to the
delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Options are to be made in cash, such payment will be net of an amount sufficient
to satisfy federal, state, and local withholding tax requirements.

          7.2 Stock Withholding. When, under applicable tax laws, the Participant incurs tax
liability in connection with the exercise or vesting of any Option that is subject to tax
withholding and the Participant is obligated to pay the Company the amount required to be withheld,
the
 

7

 

Committee may in its sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued that number of
Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined
on the date that the amount of tax to be withheld is to be determined. All elections by a
Participant to have Shares withheld for this purpose will be made in accordance with the
requirements established by the Committee and be in writing in a form acceptable to the Committee.

     8. PRIVILEGES OF STOCK OWNERSHIP. No Participant will have any of the rights of a
stockholder with respect to any Shares until the Shares are issued to the Participant. After
Shares are issued to the Participant, the Participant will be a stockholder and have all the rights
of a stockholder with respect to such Shares, including the right to vote and receive all dividends
or other distributions made or paid with respect to such Shares.

     9. TRANSFERABILITY. Options granted under this Plan, and any interest therein, will
not be transferable or assignable by Participant, and may not be made subject to execution,
attachment or similar process, otherwise than by will or by the laws of descent and distribution.
During the lifetime of the Participant an Option will be exercisable only by the Participant or
Participant’s legal representative and any elections with respect to an Option may be made only by
the Participant or Participant’s legal representative. Notwithstanding the foregoing to the
contrary, the Committee may, in its sole discretion and in the manner established by the Committee,
provide for the irrevocable transfer, without payment of consideration, of any Option by a
Participant to such Participant’s spouse, children, grandchildren, nieces, or nephews, to the
trustee of any trust for the principal benefit of one or more such persons, or to a partnership
whose only partners are one or more such persons. In the case of such a permitted transfer, the
Option shall be exercisable only by the transferee or such transferee’s legal representative.

     10. DESIGNATION OF A BENEFICIARY. A Participant may file a written designation of a
beneficiary who is to receive the Participant’s rights pursuant to a grant of Options upon the
death of the Participant. The Participant may include his or her grant of Options in an omnibus
beneficiary designation for all benefits under the Plan. To the extent that a Participant has
completed a designation of beneficiary while employed with the Company, or serving on its Board or
as a consultant, such beneficiary shall remain in effect, to the extent enforceable under
applicable law, with respect to any grant of Options thereunder.

          Such designation of beneficiary may be changed by the Participant at any time by written
notice. In the event of the death of a Participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such death, the Company shall allow the
legal representative of the Participant’s estate to exercise the grant of Options.

     11. CERTIFICATES. All certificates for Shares or other securities delivered under
this Plan will be subject to such stock transfer orders, legends and other restrictions as the
Committee may deem necessary or advisable, including restrictions under any applicable federal,
state or foreign securities law, or any rules, regulations and other requirements of the SEC or any
stock exchange or automated quotation system upon which the Shares may be listed or quoted.

     12. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a Participant’s Shares,
the Committee may require the Participant to deposit all certificates representing Shares, together
with stock powers or other instruments of transfer approved by the Committee, appropriately
endorsed in blank, with the Company or an agent designated by the Company to

8
 

 

hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the certificates.

     13. EXCHANGE AND BUYOUT OF OPTIONS. The Committee may, at any time or from time to
time, authorize the Company, with the consent of the respective Participants, to issue new Options
in exchange for the surrender and cancellation of any or all outstanding Options. The Committee
may at any time buy from a Participant an Option previously granted with payment in cash, Common
Stock of the Company (including restricted stock) or other consideration, based on such terms and
conditions as the Committee and the Participant may agree.

     14. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Option will not be effective
unless such Option is in compliance with all applicable federal and state securities laws, rules
and regulations of any governmental body, and the requirements of any stock exchange or automated
quotation system upon which the Shares may then be listed or quoted, as they are in effect on the
date of grant of the Option and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue or deliver
certificates for Shares under this Plan prior to (a) obtaining any approvals from governmental
agencies that the Company determines are necessary or advisable, and/or (b) compliance with any
exemption, completion of any registration or other qualification of such Shares under any state or
federal law or ruling of any governmental body that the Company determines to be necessary or
advisable. The Company will be under no obligation to register the Shares with the SEC or to
effect compliance with the exemption, registration, qualification or listing requirements of any
state securities laws, stock exchange or automated quotation system, and the Company will have no
liability for any inability or failure to do so.

     15. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted under this
Plan will confer or be deemed to confer on any Participant any right to continue in the employ of,
or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company
or limit in any way the right of the Company or any Parent or Subsidiary of the Company to
terminate Participant’s employment or other relationship at any time, with or without cause.

     16. CORPORATE TRANSACTIONS.

          16.1 Assumption or Replacement of Options by Successor or Acquiring Company. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger, acquisition consolidation,
reorganization or other transaction or series of related transactions in which the Company is not
the surviving corporation (other than a merger or consolidation with a wholly owned subsidiary, a
reincorporation of the Company in a different jurisdiction, or a merger, acquisition consolidation,
reorganization or other transaction or series of related transactions in which the shares of
capital stock of the Company outstanding immediately prior to such merger, acquisition
consolidation, reorganization or other transaction or series of related transactions continue to
represent, or are converted or exchanged for shares of capital stock which represent, immediately
following such merger, acquisition consolidation, reorganization or other transaction or series of
related transactions at least a majority, by voting power, of the capital stock of the surviving or
resulting corporation), (c) a merger, acquisition consolidation, reorganization or other
transaction or series of related transactions in which the Company is the surviving corporation but
after which the shares of capital stock of the Company outstanding immediately prior to such
merger, acquisition consolidation, reorganization or other transaction or series of related
transactions no longer represent, or are converted or exchanged for shares
 

9

 

of capital stock which no longer represent, at least a majority, by voting power, of the capital
stock of the Company or (d) the sale of all or substantially all of the assets of the Company, any
or all outstanding Options may be assumed, converted or replaced by the successor or acquiring
corporation (if any), which assumption, conversion or replacement will be binding on all
Participants. In the alternative, the successor or acquiring corporation may substitute equivalent
Options or provide substantially similar consideration to Participants as was provided to
stockholders (after taking into account the existing provisions of the Options). In the event such
successor or acquiring corporation (if any) does not assume or substitute Options, as provided
above, pursuant to a transaction described in this Section 16.1, then notwithstanding any other
provision in this Plan to the contrary, the vesting of such Options will accelerate and the Options
will become exercisable in full prior to the consummation of such event at such times and on such
conditions as the Committee determines, and if such Options are not exercised prior to the
consummation of the corporate transaction, they shall terminate in accordance with the provisions
of this Plan.

          16.2 Other Treatment of Options. Subject to any greater rights granted to
Participants under the foregoing provisions of this Section 16, in the event of the occurrence of
any transaction described in Section 16.1 hereof, any outstanding Options will be treated as
provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation or
sale of assets.

          16.3 Assumption of Options by the Company. The Company, from time to time, also may
substitute or assume outstanding options granted by another company, whether in connection with an
acquisition of such other company or otherwise, by either (a) granting an Option under this Plan in
substitution of such other company’s option, or (b) assuming such option as if it had been granted
under this Plan if the terms of such assumed option could be applied to an Option granted under
this Plan. Such substitution or assumption will be permissible if the holder of the substituted or
assumed option would have been eligible to be granted an Option under this Plan if the other
company had applied the rules of this Plan to such grant. In the event the Company assumes an
option granted by another company, the terms and conditions of such option will remain unchanged
(except that the exercise price and the number and nature of shares issuable upon exercise of any
such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event
the Company elects to grant a new Option rather than assuming an existing option, such new Option
may be granted with a similarly adjusted Exercise Price.

          16.4 Adjustment of Shares. In the event that the number of the Company’s outstanding
shares of Common Stock is changed by a stock dividend, recapitalization, stock split, reverse stock
split, subdivision, combination, reclassification or other similar change in the capital structure
of the Company without consideration, then (a) the number of Shares reserved for issuance under
this Plan and (b) the Exercise Prices of and number of Shares subject to outstanding Options, will
be proportionately adjusted by the Committee, subject to any required action by the Board or the
stockholders of the Company and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be paid in cash at the Fair Market Value of
such fraction of a Share or will be rounded down to the nearest whole Share, as determined by the
Committee in its discretion. The Board or the Committee shall give notice of any adjustments to
each Participant granted an Option under this Plan, and such adjustments shall be effective and
binding on all Participants. If because of one or more recapitalizations, reorganizations or other
corporate events, the holders of outstanding Shares receive something other than Shares, then upon
exercise of an Option, the Participant will receive what the holder would have owned if the holder
had
 

10

 

exercised the Option immediately before the first such corporate event and not disposed of anything the holder received
as a result of the corporate event.

     17. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective on the date
that it is adopted by the Board (the “EFFECTIVE DATE”). Upon the Effective Date, the Board may
grant Options pursuant to this Plan.

     18. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided herein, this
Plan will terminate ten (10) years from the Effective Date. This Plan and all agreements hereunder
shall be governed by and construed in accordance with the laws of the State of Nevada.

     19. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.8 hereof, the Board may
at any time terminate or amend this Plan in any respect, including without limitation amendment of
any form of Stock Option Agreement or instrument to be executed pursuant to this Plan. However, no
such action may prejudice the rights of any Participant who has prior thereto been granted Options
under this Plan.

     20. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the Board, the
submission of this Plan to the stockholders of the Company for approval, nor any provision of this
Plan will be construed as creating any limitations on the power of the Board to adopt such
additional compensation arrangements as it may deem desirable, including, without limitation, the
granting of stock options or any other equity awards outside of this Plan, and such arrangements
may be either generally applicable or applicable only in specific cases.

     21. COMPLIANCE WITH RULE 16B-3. This Plan is intended to comply in all respects with
Rule 16b-3 with respect to Participants who are subject to Section 16 of the Exchange Act, and at
any time that the Company is a reporting company pursuant to Section 13 or 15(d) of the Exchange
Act, any provision(s) herein that is/are contrary to Rule 16b-3 shall be deemed null and void to
the extent appropriate by either the Committee or the Board. If, with respect to Participants who
are subject to Section 16 of the Exchange Act, an exemption from Section 16(b) of the Exchange Act
is not otherwise available under Exchange Act Rule 16b-3(d)(1) or (2), then Shares purchased upon
exercise of an Option granted to such Participant may not be sold before at least six months have
elapsed from the date the Option was granted.

     22. DEFINITIONS. As used in this Plan, the following terms will have the following
meanings:

“BOARD” means the Board of Directors of the Company.

“CAUSE” means Termination because of (i) any willful material violation by the Participant
of any law or regulation applicable to the business of the Company or a Parent or Subsidiary
of the Company, (ii) the Participant’s conviction for or guilty plea to, a felony or a crime
involving moral turpitude or any willful perpetration by the Participant of a common law
fraud, (iii) the Participant’s commission of an act of personal dishonesty which involves a
personal profit in connection with the Company or any other entity having a business
relationship with the Company, (iv) any material breach by the Participant of any material
provision of any agreement or understanding between the Company or a Parent or Subsidiary of
the Company and the Participant regarding the terms of the Participant’s service as an
employee, director or consultant to the Company

11
 

 

or a Parent or Subsidiary of the Company, including without limitation, the willful and
continued failure or refusal of the Participant to perform the material duties required of
such Participant as an employee, director or consultant of the Company or a Parent or
Subsidiary of the Company, other than as a result of having a Disability, or a breach of any
applicable invention assignment and confidentiality agreement, non-competition agreement or
similar agreement between the Company or a Parent or Subsidiary of the Company and the
Participant, (v) Participant’s intentional disregard of the policies of the Company or a
Parent or Subsidiary of the Company so as to cause loss, damage or injury to the property,
reputation or employees of the Company or a Parent or Subsidiary of the Company, or (vi) any
other misconduct by the Participant which is materially injurious to the financial condition
or business reputation of, or is otherwise materially injurious to, the Company or a Parent
or Subsidiary of the Company.

“CODE” means the Internal Revenue Code of 1986, as amended, or any successor thereto,
together with rules, regulations and interpretations promulgated thereunder.

“COMMITTEE” means the Compensation Committee of the Board or another committee of the Board
specifically appointed by the Board to administer this Plan. Any such Committee appointed by
the Board specifically to administer this Plan shall consist of not less than two members
and shall consist solely of non-employee directors. If neither the Compensation Committee
nor a separate Plan committee is appointed, the Board shall act as the Committee.

“COMPANY” means Hartville Group, Inc., a Nevada corporation.

“DISABILITY” means a total and permanent disability as defined in Section 22(e)(3) of the
Code.

“EXCHANGE ACT” means the Securities Exchange Act of 1934, as amended.

“EXERCISE PRICE” means the price at which a holder of an Option may purchase the Shares
issuable upon exercise of the Option.

“FAIR MARKET VALUE” means, as of any date, the value of a share of the Company’s Common
Stock determined as follows:

(a) if such shares of Common Stock are then quoted on the NASDAQ National Market,
its closing price on the NASDAQ National Market on the business day immediately
preceding the date of determination;

(b) if such shares of Common Stock are publicly traded and are then listed on a
national securities exchange, its closing price on the business day immediately
preceding the date of determination on the principal national securities exchange on
which the shares of Common Stock are listed or admitted to trading;

(c) if such shares of Common Stock are publicly traded but are not quoted on the
NASDAQ National Market nor listed or admitted to trading on a national securities
exchange, the average of the closing bid and ask prices on the business day
immediately preceding the date of determination as reported by National Association
of Securities Dealers, Inc. (or, if not so reported, as

12
 

 

otherwise reported by any newspaper or other source as the Board may determine); or

(d) if none of the foregoing is applicable, by the Committee in good faith after
reasonable investigation.

“OPTION” means an award of an option to purchase Shares, which is not intended to qualify as
an incentive stock option under Section 422 of the Code, pursuant to Section 5 hereof.

“PARENT” means a “parent corporation,” whether now or hereafter existing, as defined in
Section 424(e) of the Code.

“PARTICIPANT” means a person who receives an Option under this Plan.

“PLAN” means this 2006 Stock Option Plan, as amended from time to time.

“RULE 16B-3” means Rule 16b-3 promulgated by the SEC under the Exchange Act.

“SEC” means the Securities and Exchange Commission.

“SECURITIES ACT” means the Securities Act of 1933, as amended.

“SHARES” means the shares of Common Stock of the Company, $0.001 par value per share,
reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 16 hereof, and
any successor security.

“SUBSIDIARY” means a “subsidiary corporation,” whether now or hereafter existing, as defined
in Section 424(f) of the Code.

“TERMINATION” or “TERMINATED” means, for purposes of this Plan with respect to a
Participant, that the Participant has for any reason ceased to provide services as an
employee, officer, director or consultant to the Company or a Parent or Subsidiary of the
Company. A Participant will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the
Committee, provided that such leave is for a period of not more than ninety (90) days,
unless reinstatement upon the expiration of such leave is guaranteed by contract or statute
or unless provided otherwise pursuant to formal policy adopted from time to time by the
Company and issued and promulgated in writing. In the case of any Participant on (i) sick
leave, (ii) military leave or (iii) an approved leave of absence, the Committee may make
such provisions respecting suspension of vesting of the Option while the Participant is on
leave from the Company or a Parent or Subsidiary of the Company as the Committee may deem
appropriate, except that in no event may an Option be exercised after the expiration of the
term set forth in the Stock Option Agreement. The Committee will have sole discretion to
determine whether a Participant has ceased to provide services and the effective date on
which the Participant ceased to provide services (the “TERMINATION DATE”).

     23. PLAN IS UNFUNDED. Insofar as it provides for the grant of Options, the Plan
shall be unfunded. Any liability of the Company to any Participant with respect to a grant of
Options shall be based solely upon any contractual obligations which may be created by the Plan; no

13

 

such obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on
any property of the Company. Neither the Company nor the Board shall be required to give any
security or bond for the performance of any obligation which may be created by this Plan.

     24. APPROVALS. This Plan was adopted by the Board on February 10, 2006.

14

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00110-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00110-of-00352.parquet"}]]