Document:

ex10-8.htm

    EXHIBIT
      10.8

    

    

    NATIONAL
      PENN BANCSHARES, INC. CAPITAL ACCUMULATION PLAN

    (Amended
      and Restated Effective January 1, 1997)

    

    (Revised
      2001)

    

    Amendment
      No. 16

    

    National
      Penn Bancshares, Inc. (the
      "Company") adopted the National Penn Bancshares, Inc. Capital Accumulation
      Plan
      (Amended and Restated Effective January 1, 1997) (Revised 2001)(the "Plan")
      for
      the benefit of certain of its Employees (as defined in the Plan) and its
      subsidiaries' Employees. The Company subsequently amended the Plan by Amendment
      Nos. 1-15 thereto.

    

    The
      Company hereby amends the Plan as hereinafter set forth.

    

    1.           The
      Resources for Retirement, Inc. 401(k) Plan and the Nittany Bank 401(k) Profit
      Sharing Plan shall be merged with and into this Plan.  Those plans are
      hereafter together referred to as the “Transferee Plans”.

    

    2.           All
      accounts transferred to this Plan from the Transferee Plans shall be
      administered and held in accordance with this Plan, except as hereinafter set
      forth.  This Plan shall preserve all “benefits, rights and features”
that are protected by Section 411(d)(6) of the Internal Revenue Code appurtenant
      to accounts transferred to this Plan   from the
      Transferee.  Separate accounts reflecting the transferred amounts
      shall be maintained to the extent necessary to carry out this
      requirement.  The transferred account of a participant in the
      Resources for Retirement, Inc. 401(k) Plan shall be fully vested without regard
      to length of service upon attainment of age 60.

    

    3.           Neither
      the accrued benefit nor the nonforfeitable interest of any participant in a
      Transferee Plan shall be reduced as a result of such transfer other than as
      a
      result of investment performance or proper charge of Plan expenses.

    

    4.           The
      transfers shall comply with the requirements of Section 414(1) of the Internal
      Revenue Code and the corresponding provisions of this Plan.

    

    Executed
      this 7th day of
      March,
      2007.

    

    

    
      	
              Attest:

            	
              NATIONAL
                PENN BANCSHARES, INC.

            
	 	 
	
              By:  /s/  Donna
                L. Wetzel

            	
              By:  /s/
                Earl Houseknecht

            
	
                      Senior
                Vice President-HR

            	 

    

    
41
      of 45exhibit_10-1.htm

     

    Exhibit
      10.1

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    2007

     

    Annual
      Incentive Plan

    

    
       

      
        
        

        
          

        

      

      
        
        

        2007
          Annual Incentive
          Plan                                           

      

    

     

    Table
      of Contents

     

    
      	 Glossary
              of Terms	 2
	 	 
	 What
              is the Annual Incentive Plan (AIP)	 3
	 	 
	 How
              does the AIP support AGL Resources’ strategic goals and
              objectives	 3
	 	 
	 Who
              is eligible to participate	 3
	 	 
	 Who
              is not eligible to participate	 4
	 	 
	 What
              is the Performance Measurement Period	 4
	 	 
	 How
              does the AIP work                                                                    	 4
	 	 
	 What
              are the Performance Measures	 4
	 ●
              Corporate
              Performance Goals	 4
	 ●
              Business
              Unit Performance Goals	 5
	 ●
              Individual
              Performance	 6
	 	 
	 How
              will the Corporate Performance Score, Business Unit Performance Score
              and
              Individual Performance Score be weighted?	 7
	 	 
	 What
              are the Target Awards? 	 8
	 	 
	 How
              is the AIP Award calculated?                        	 8
	 ●
              Annual
              Rate	 9
	 ●
              AIP Award
              calculation examples	 9
	 	 
	 What
              is the timing for payment of AIP awards?	 12
	 	 
	 What
              about new hires during the Performance Measurement
              Period?	 12
	 	 
	 What
              about a change in status during the Performance Measurement
              Period?	 13
	 	 
	 What
              is the effect of the AIP award on other benefits?	 13
	 	 
	 Who
              administers the AIP?	 14
	 	 
	 Are
              awards under the AIP intended to qualify under Section
              162(m)?	 14
	 	 
	 Does
              participation in the AIP create unemployment rights for
              participants?	 14
	 	 
	 By
              what law is the AIP governed?	 14
	 	 
	 What
              is the source of the funds required to pay benefits under the
              AIP?	 14
	 	 
	 Will
              taxes be withheld from awards?	 14
	 	 
	 Can
              the company amend or terminate the AIP?	 14

    

                                                 

                                                   

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

          2007
            Annual Incentive
            Plan                                       

        

      

    Glossary
      of Terms

     

    
      	
              AIP

            	
              This
                Annual Incentive Plan.

               

            
	
              Annual
                Rate

            	
              The
                rate of pay used to calculate individual AIP awards.

               

              For
                exempt participants, Annual Rate is the earned base salary during
                the
                Performance Measurement Period.

               

              For
                nonexempt participants, Annual Rate equals individual employee’s earned
                base rate plus total earned overtime, shift differential and other
                designated premiums paid during the Performance Measurement
                Period.

               

            
	
              Award
                Weighting Factors

            	
              The
                weight assigned to each of the Performance Measures.  The total
                weight of all Performance Measures equals 100%.

               

            
	
              Business
                Unit

            	
              The
                designated arrangement of operations and offices providing a measure
                of
                similar business activity by market, location, etc.

               

            
	
              Business
                Unit Performance Score

            	
              The
                score resulting from each Business Unit’s performance compared to the
                Business Unit’s performance goals.

               

            
	
              Corporate
                Performance Score

            	
              The
                score that corresponds with the EPS goal achieved and certified for
                the
                Performance Measurement Period.

               

            
	
              EPS

               

            	
              Earnings
                Per Share – Net income for the Performance Measurement Period divided by
                total shares outstanding (basic).  Net income is determined in
                accordance with generally accepted accounting principles
                (GAAP).  In certain instances, net income may be subject to the
                potential exclusion of certain one-time items.

               

            
	
              Individual
                Performance Score

            	
              Participant’s
                Individual Performance Score based upon a combination of IPO and
                Success
                Factor ratings.

               

            
	
              IPOs

               

            	
              Individual
                Performance Objectives or “what”  is done.

            
	
              Performance
                Measurement Period

            	
              The
                Performance Measurement Period for the current AIP is January 1,
                2007
                through December 31, 2007.

               

            
	
              Performance
                Measures

            	
              Performance
                Measures are the criteria used to determine AIP awards.  They
                include corporate and Business Unit performance goals and each
                participant’s Individual Performance Score.

               

            
	
              Success
                Factors

               

            	
              Competencies
                demonstrated to achieve performance or “how” it is done.

               

            
	
              Target
                Award

            	
              The
                potential amount of incentive compensation that each participant
                has the
                opportunity to earn if the Total AIP Performance Score is
                100%.  A Target Award is expressed as a percentage of the
                participant’s Annual Rate.

               

            
	
              Total
                AIP Performance Score

            	
              Represents
                the level of corporate, Business Unit and individual performance
                attained
                at the end of the Performance Measurement Period.  Corporate,
                Business Unit, and Individual Performance Scores each can range from
                0% to
                200%.

            

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

        2007
          Annual Incentive
          Plan                                                

      

    

    Q.          
      What is the Annual Incentive Plan (AIP)?

    

    
      	
              A.

            	
              The
                Annual Incentive Plan (AIP) is a key part of the Company’s total
                compensation program. It is intended to provide a meaningful opportunity
                to earn cash awards by working together to achieve the Company’s
                performance objectives.  The primary purposes
                are:

            

    

    
      	
              ·  

            	
              Ensuring
                total cash compensation levels are
                competitive;

            

    

    
      	
              ·  

            	
              Rewarding
                strong financial performance;

            

    

    
      	
              ·  

            	
              Aligning
                pay with performance;

            

    

    
      	
              ·  

            	
              Recognizing
                individual performance and differentiating rewards;
                and

            

    

    
      	
              ·  

            	
              Reinforcing
                how individual contributions support corporate
                success.

            

    

    

    Q.          How
      does the AIP support AGL Resources’ strategic goals and
      objectives?

    

    
      	
              A.

            	
              The
                AIP is designed to align the interests of employees with those of
                the
                Company’s shareholders and customers as well as with the strategic
                objectives of the Company.  For 2007 our corporate goals
                are:

            

    

    
      	
              ·  

            	
              Focus
                on our core businesses and assets;

            

    

    
      	
              ·  

            	
              Grow
                all our businesses;

            

    

    
      	
              ·  

            	
              Leverage
                information systems and technology;
                and

            

    

    
      	
              ·  

            	
              Continue
                to invest in our employees as a competitive
                advantage

            

    

    

    The
      AIP
      pays cash awards to eligible employees if established Performance Measures
      are
      met or exceeded during the Performance Measurement
      Period.  Performance Measures may include Corporate and/or Business
      Unit performance goals and Individual Performance Scores, which are based on
      each participant’s IPO and Success Factor ratings.

    

    Q.           Who
      is eligible to participate?

    

    A.           Employees
      are eligible to participate in the AIP if they satisfy all of the following
      conditions:

    
      	
              ·  

            	
              Employed
                as a full-time employee of AGL Resources or of one of the following
                subsidiaries or operating
                divisions:

            

    

    
      	
              §  

            	
              Atlanta
                Gas Light

            

    

    
      	
              §  

            	
              AGL
                Networks

            

    

    
      	
              §  

            	
              AGL
                Services

            

    

    
      	
              §  

            	
              Chattanooga
                Gas

            

    

    
      	
              §  

            	
              Elizabethtown
                Gas

            

    

    
      	
              §  

            	
              Elkton
                Gas

            

    

    
      	
              §  

            	
              Florida
                City Gas

            

    

    
      	
              §  

            	
              Jefferson
                Island Storage & Hub

            

    

    
      	
              §  

            	
              Virginia
                Natural Gas (VNG)

            

    

    
      	
              §  

            	
              Pivotal
                Energy

            

    

    (Subsidiaries
      and operating divisions listed are based upon information available at the
      time
      of the writing of this document and may change do to mid-year unforeseen changes
      such as reorganization or acquisitions).

    
      	
              ·  

            	
              Employed
                on or before September 30, 2007;
                and

            

    

    
      	
              ·  

            	
              Considered
                active status when AIP award payments are distributed, or on an approved
                leave of absence when AIP award payments are distributed, or retired
                on or
                before the date AIP award payments are
                distributed.

            

    

    

    Union
      employees are eligible to participate only if their applicable Collective
      Bargaining Agreement (CBA) provides for such
      participation.

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

        2007
          Annual Incentive
          Plan                                        

      

    

    Q.           Who
      is not eligible to participate?

    

    A           Employees
      in any of the following categories are not eligible:

    
      	
              ·  

            	
              Seasonal,
                part-time, co-op, interns, and contract employees are not eligible
                to
                participate;

            

    

    
      	
              ·  

            	
              Employees
                who are eligible to participate in any other annual cash incentive
                plan
                are not eligible to participate;

            

    

    
      	
              ·  

            	
              Employees
                who are hired after September 30, 2007 are not eligible to
                participate;

            

    

    
      	
              ·  

            	
              Employees
                who resign or are discharged on or before the date any awards are
                paid are
                not eligible for payment of an award, unless otherwise provided by
                law
                (includes employees terminated under AGL Resources severance policy);
                or

            

    

    
      	
              ·  

            	
              Union
                employees whose CBA does not provide for such
                participation.

            

    

    

    Q.           What
      is the Performance Measurement Period?

    

    
      	
              A.

            	
              The
                Performance Measurement Period for the current AIP is January 1,
                2007
                through December 31, 2007.

            

    

    

    Q.           How
      does the AIP work?

    

    
      	
              A.

            	
              Corporate
                performance goals (earnings per share or EPS) are approved by the
                Policy
                Committee and the Compensation and Management Development Committee
                of the
                Board of Directors.  Performance Measures also
                include:

            

    

    
      	
              ·  

            	
              Business
                Unit performance goals, which are approved by the Policy
                Committee;

            

    

    
      	
              ·  

            	
              IPOs,
                which are established in discussions with each manager;
                and

            

    

    
      	
              ·  

            	
              Success
                Factors established for each participant’s
                position.

            

    

    

    Awards
      are paid based upon performance against these preset goals as determined at
      the
      end of the Performance Measurement Period.  Additionally, payments are
      based upon each individual’s Annual Rate, Target Award percentage and Total
      Performance Score as discussed later in this document.

    

    
      	
              Q.

            	
                 
                What are the Performance
                Measures?

            

    

    Details
      are provided below for the Corporate, Business Unit and Individual levels of
      performance.

    

    A.           
      Corporate Performance Goals

    

    Corporate
      performance is measured against the EPS goal approved by the Board of Directors
      for the Performance Measurement Period and certified by them at the end of
      the
      Performance Measurement Period. For purposes of the AIP, the certified EPS
      will
      be will be used as the Corporate Performance Score in calculating payouts under
      the plan adjusted to reflect the effect of economic value created by the
      Company’s wholesale business unit, but not yet reflected in GAAP earnings
      reported for the year.  The EPS goal represents an aggressive goal
      intended to provide an incentive for participants to extend extraordinary
      efforts to match the expectations of our investors and customers.  At
      the end of the Performance Measurement Period (December 31, 2007), the Corporate
      Performance Score is expressed as a percentage and can range from 0% to
      200%.

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

        2007
          Annual Incentive
          Plan                                      

      

    

    The
      following chart shows the approved corporate performance goals for the AIP
      and
      corresponding Corporate Performance Scores for the Performance Measurement
      Period (January 1, 2007 through December 31, 2007).

    

    
      	
              Earnings
                Per Share Goal*

            	
              Corporate
                Performance Score

            
	
                 $2.65
                **

            	
              0%

            
	
               $2.70

            	
              50%

            
	
               $2.75

            	
              75%

            
	
               $2.80

            	
              100%

            
	
               $2.85

            	
              150%

            
	
               $2.98

            	
              200%

            

    

    

    *
      For the purposes of the 2007 AIP, net income and the resulting EPS will be
      adjusted to reflect the effect of economic value created by the Company’s
      wholesale business unit, but not yet reflected in GAAP earnings reported for
      the
      year.

    

    **The
      Company must meet or surpass $2.65 EPS(the corporate financial performance
      threshold), for the year ending December 31, 2007  for any corporate
      or business unit payment to be made.  Corporate payouts between 0% and
      50% will be interpolated for EPS results between $2.65 and
      $2.70.  Payout for IPO performance when EPS is below $2.65 will
      require Compensation Committee approval.
 

    

    For
      EPS
      results falling between the levels noted above, the Corporate Performance Score
      will be interpolated on a straight-line basis. However, the Corporate
      Performance Score cannot exceed 200%.

    

    In
      determining the Corporate Performance Score, the Compensation and Management
      Development Committee of the Company’s Board of Directors has the discretion to
      remove the effects of all or a portion of significant one-time items (whether
      positive or negative) from reported EPS.

    

    Business
      Unit Performance Goals

    

    Like
      the
      Company EPS goal, Business Unit goals are aggressive and intended to provide
      an
      incentive for participants to focus their efforts and perform at stretch levels
      as a team.  Business Units represent smaller divisions of AGL
      Resources that participants impact more directly through their day-to-day
      performance.

    

    All
      AGL
      Resources operations and business locations have been assigned to a Business
      Unit for performance measurement under the AIP.  Business Units are
      divided into Operations and Services.  For the purpose of the 2007
      AIP, Operations Business Units consist of:

    

    
      	
              ·  

            	
              Distribution
                Operations (Southern Operations and Mid-Atlantic Operations
                combined);

            

    

    
      	
              ·  

            	
              Pivotal
                Energy (Jefferson Island Storage & Hub and Business
                Development)

            

    

    
      	
              ·  

            	
              AGL
                Networks

            

    

    

    For
      the
      purpose of the 2007 AIP, Services Business Units will be comprised of Corporate
      Operating Services (COP’s) and Distribution Operating Services
      (DOP’s).  Services Business Units will consist of the
      following:

    

    
      	
              ·  

            	
              Information
                Technology

            

    

    
      	
              ·  

            	
              Engineering
                Services & Supply Chain

            

    

    
      	
              ·  

            	
              Finance

            

    

    
      	
              ·  

            	
              Legal,
                Ethics, & Compliance

            

    

    
      	
              ·  

            	
              External
                Affairs

            

    

    
      	
              ·  

            	
              Human
                Resources

            

    

    

    
      
        
        

      

      
        5

        
          

        

      

      
        2007
          Annual Incentive Plan

      

    

     

     

    Eligible
      employees in each of these Business Units will have part of their AIP
      performance measured by the success of their respective Business Unit.  The
      Business Unit Performance Goals consist of specific goals with respect to
      financial performance and other defined performance goals. 

    

    Business
      Unit goals will be weighted according to the table below

     

    
      
        	
                Business
                  Unit

              	
                Measures

              	
                Weight

              
	
                Distribution
                  Ops

              	
                EBIT

              	
                60%

              
	
                Operational
                  Measures: Safety, reliability, customer growth, project milestones,
                  etc.

              	
                40%

              
	
                Pivotal

              	
                EBIT

              	
                30%

              
	
                Safety
                  & reliability

              	
                10%

              
	
                Project
                  milestones

              	
                60%

              
	
                Services

              	
                Distribution
                  Ops overall performance

              	
                45%

              
	 	
                Pivotal
                  overall performance

              	
                5%

              
	 	
                Dept.
                  defined service level goals

              	
                50%

              

      

Note
      that
      whereas Distribution Ops and Pivotal are measured solely upon their own
      performance, the Services Business Units will be measured upon a combination
      of
      the performance of Distribution Ops and Pivotal as well as performance of their
      own Business Unit’s goals.

    

    Business
      Unit Performance Goals for 2007 have been established for each Business Unit
      and
      distributed to the Management Committee members for communication.  A
      separate document, the “2007 AIP Business Unit Performance Goals Exhibit,” is on
      file with each respective business head and the Policy Committee
      members.

     

    At
      the
      end of the Performance Measurement Period (December 31, 2007), each Business
      Unit’s Performance Score is calculated and expressed as a percentage that can
      range from 0% to 200%.  Targets will equal 100% performance.  The
      Policy Committee will determine the exact performance score at the end of the
      performance period.

     

    In
      determining the Business Unit Performance Score, the Policy Committee has the
      discretion to adjust for the effects of all or a portion of significant one-time
      items (whether positive or negative) affecting the score based on its review
      of
      the actual performance of the Business Unit compared to the Business Unit goals
      as set forth on the 2007 AIP Business Unit Performance Goals
      Exhibit.

     

    Individual
      Performance

    

    As
      noted
      earlier, one of the key objectives of the AIP is to provide recognition of
      individual contributions to the Company’s business success.  A related
      objective is to provide meaningful differentiation of awards. When a participant
      achieves superior levels of performance, the award they receive is appropriately
      greater than the awards received by participants with lower performance
      ratings.

    

    There
      are
      two measures of individual performance.  Individual Performance
      Objectives (IPOs) measure individual performance against pre-set objectives
      -
      the “what is achieved” and Success Factors measure competencies demonstrated to
      achieve that performance - the “how it is
      achieved.”   Performance ratings for these two measures will be
      combined to determine an Individual Performance Score, which can range from
      0%
      to 200%.  This score along with the Corporate and Business Unit
      Performance Scores will be used to determine Total AIP Performance
      Scores.  An example will be provided later in this
      document.

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

        2007
          Annual Incentive
          Plan                                      

      

    

    

    At
      the
      end of the Performance Measurement Period, IPO and Success Factor performance
      will be assessed separately using the ratings below.

    
      	
              ·  

            	
              FM
                (Fails to Meet)

            

    

    
      	
              ·  

            	
              PM
                (Partially Meets)

            

    

    
      	
              ·  

            	
              SM
                (Successfully Meets)

            

    

    
      	
              ·  

            	
              ME
                (Meets and Exceeds)

            

    

    
      	
              ·  

            	
              SE
                (Significantly Exceeds)

            

    

    

    The
      two
      ratings (for IPO and Success Factor performance) will be combined to calculate
      an Individual Performance Score.

    

    The
      expected distribution across the Company for the Individual Performance Score
      ratings is as follows:

    
      	
              ·  

            	
              FM
                (<5%)

            

    

    
      	
              ·  

            	
              PM
                (20-30%)

            

    

    
      	
              ·  

            	
              SM
                (40-60%)

            

    

    
      	
              ·  

            	
              ME
                (20-30%)

            

    

    
      	
              ·  

            	
              SE
                (<10%)

            

    

    

    Rating
      integrity within each functional area and Business Unit is the responsibility
      of
      each manager.  Rating integrity across functions and Business Units
      will be the responsibility of the Management Committee.

    

    The
      Individual Performance Score will be a composite of the IPO and the Success
      Factor ratings.  Once the ratings for each have been determined, the
      Individual Performance Score will be derived from the matrix below.

    
 

    
      
        	 	 	 	
                Individual
                  Performance (50%)

              
	
                S

              	
                F

              	 	
                FM

              	
                PM

              	
                SM

              	
                ME

              	
                SE

              
	
                U

              	
                A

              	
                FM

              	
                0%

              	
                0%

              	
                0%

              	
                0%

              	
                0%

              
	
                C

              	
                C

              	
                PM

              	
                0%

              	
                10%
                  - 35%
                  - 60%

              	
                65%
                  - 75% - 85%

              	
                90%
                  - 100% - 110%

              	
                115%
                  - 125% - 135%

              
	
                C

              	
                T

              	
                SM

              	
                0%

              	
                65%
                  - 75% - 85%

              	
                90%
                  - 100% - 110%

              	
                115%
                  - 125% - 135%

              	
                140%
                  - 150% - 160%

              
	
                E

              	
                O

              	
                ME

              	
                0%

              	
                90%
                  - 100% - 110%

              	
                115%
                  - 125% - 135%

              	
                140%
                  - 150% - 160%

              	
                165%
                  - 175% - 185%

              
	
                S

              	
                R

              	
                SE

              	
                0%

              	
                115%
                  - 125% - 135%

              	
                140%
                  - 150% - 160%

              	
                165%
                  - 175% - 185%

              	
                190%
                  - 195% - 200%

              
	
                S

              	 	 	 	 	 	 	 
	
                (50%)

              	 	 	 	 	 	 	 

      

The
      table
      weights IPO scores at 50% of the total and the Success Factor score at 50%
      of
      the total.  This score is used with the Corporate and Business Unit
      Performance Scores based upon each participant’s  tier to determine
      individual AIP awards.

    

    Participants
      may be scored according to the range within the corresponding
      cell.  The range may be used to increase or decrease the final score
      based upon actual performance.  The Policy Committee will be provided
      with a budget for IPS dollars based upon the central or budget scores within
      each cell (as indicated in red) to ensure the aggregate scores remain within
      budget.  This budget will be determined by applying the 2006 IPS
      ratings to the 2007 targeted Individual Performance earnings.

    

    Participants
      who receive a “Fails to Meet” (FM) rating on either the Success Factor rating or
      the IPO rating will not be eligible for an incentive award regardless of
      Corporate and Business Unit performance.

    

    
      	
              Q.  

            	
              How
                will the Corporate Performance Score, Business Unit Performance Score
                and
                Individual Performance Score be
                weighted?

            

    

    

    
      	
              A.

            	
              Because
                participants have different levels of impact on each of the measures,
                the
                AIP will weight each factor differently for different categories
                of
                participants.  This provides a better “line of sight” to
                performance at each participant’s level in the
                organization.

            

    

    

    
      
        
        

      

      
        7

        
          

        

      

      
        2007
          Annual Incentive Plan

      

    

     

     

    Award
      Weighting Factors

    

    The
      Performance Measures for Corporate, Business Unit and Individual Performance
      are
      weighted so that some Performance Measures affect the Total AIP Performance
      Score more than others.  Weighting factors are expressed as
      percentages.  The total weight of all of the Performance Measures
      always equals 100%.

    

    The
      following table shows tiers of participation and the corresponding weight of
      Corporate, Business Unit and Individual Performance.

     

    

      
        	
                Tier

              	
                Corporate

                Score

              	
                Business
                  Unit Score

              	
                Individual

                Score

              
	
                 Policy
                  Committee Officers*

              	
                75%

              	
                0%

              	
                25%

              
	
                Tier
                  2 Officers

              	
                40%

              	
                35%

              	
                25%

              
	
                Tiers
                  3 – 4 Officers

              	
                30%

              	
                35%

              	
                35%

              
	
                Grades
                  M – O

              	
                25%

              	
                30%

              	
                45%

              
	
                Grades
                  K – L

              	
                20%

              	
                30%

              	
                50%

              
	
                Grade
                  J and below  (Union ** & non-union)

              	
                0%

              	
                30%

              	
                60%

              

      

*
      The
      Policy Committee Officers participate in the Executive Performance Incentive
      Program as approved by AGL Resources’ shareholders.  It mirrors the
      corporate EPS portion of the AIP, but is intended to comply with the
      requirements of Section 162(m) of the Internal Revenue Code and is subject
      to
      the review of the Compensation and Management Development Committee of the
      Board
      of Directors.

    **Subject
      to the express terms of the relevant CBA.

    

    

    Q.           What
      are the Target
      Awards?

    

    
      	
              A.

            	
              Target
                Awards are expressed as a percentage of each participant’s Annual Rate and
                represent the potential amount that each participant will have the
                opportunity to earn as incentive compensation if the Total AIP Performance
                Score is 100%.  The actual award received, if any, may be
                greater or less than the Target Award depending on the level of Corporate,
                Business Unit, and Individual
                Performance.

            

    

    

    The
      following table shows salary grades and corresponding Target
      Awards.

    

    
      	
              AGL
                Resources’

              Salary
                Grade

            	
              Target
                Award

              (%
                of Annual Rate)

            
	
              Eligible
                Bargaining Unit Employees

            	
              5%

            
	
              A-F

            	
              5%

            
	
              G
                & H

            	
              6%

            
	
              I

            	
              8%

            
	
              J

            	
              10%

            
	
              K

            	
              12%

            
	
              L

            	
              14%

            
	
              M

            	
              17%

            
	
              N

            	
              21%

            
	
              O

            	
              25%

            
	
              Officers

            	
              Individually
                determined

            

    

    

    Note
      that
      Target Awards will be prorated if a change in assignment occurs
      mid-year.

    

    Q.           How
      is the AIP award calculated?

    

    
      	
              A.

            	
              The
                calculation of AIP award begins with a participant’s Annual Rate of pay
                multiplied by their Target Award.  A formula is then applied
                which includes the Corporate, Business Unit, and Individual Performance
                Scores weighted according to the participation tier.  The
                examples below illustrate this
                calculation.

            

    

    

    
      
        
        

      

      
        8

        
          

        

      

      
        2007
          Annual Incentive Plan

      

    

     

     

    Annual
      Rate

    

    For
      exempt employees, Annual Rate is the earned base pay during the Performance
      Measurement Period as an eligible participant.

    

    For
      nonexempt employees, Annual Rate is the earned base pay plus total overtime,
      shift differential pay and other designated pay premiums earned as an eligible
      participant during the Performance Measurement Period.

    

    Therefore,
      Annual Rate will exclude periods when on unpaid leave or otherwise inactive
      or
      ineligible.

    

    
      	
               

            	
              AIP
                Award Calculation
                Examples

            

    

    

    At
      the
      end of the Performance Measurement Period (December 31, 2007), the AIP award
      is
      calculated based on Annual Rate, Target Award, and Total AIP Performance
      Score.

    

    In
      the
      two examples below, an AIP award is calculated using different sets of
      assumptions for “Mary” and “John.”

    

    Example
      “A” - MARY

    
      
        	
                ·  

              	
                Mary
                  is an active employee of AGL Resources for all of 2007 in Chattanooga
                  Gas
                  Company.

              

      

    

    
      
        	
                ·  

              	
                Mary’s
                  annual salary on January 1, 2007 was $75,000, but she received
                  a salary
                  increase on February 1 to $80,000 which continued through the rest
                  of the
                  year

              

      

    

    
      
        	
                ·  

              	
                Mary
                  was in the same position throughout
                  2007

              

      

    

    
      
        	
                o  

              	
                Position
                  grade is K

              

      

    

    
      
        	
                o  

              	
                Target
                  Award is 12%

              

      

    

    
      
        	
                ·  

              	
                Mary
                  did not have any leave or inactive status periods during the
                  year

              

      

    

    
      
        	
                ·  

              	
                Performance
                  Scores

              

      

    

    
      
        	
                o  

              	
                Company’s
                  EPS = $2.80

              

      

    

    
      
        	
                o  

              	
                Business
                  Unit Performance Score = 95%

              

      

    

    
      
        	
                o  

              	
                Mary’s
                  Success Factor rating is SM and her IPO rating is
                  ME

              

      

    

    
      

    

    
      Step
        1– Determine performance scores for each element – Corporate, Business
        Unit and Individual

    

    
      

    

    
      
        	
                ·  

              	
                Corporate
                  Performance Score

              

      

    

    
      Corporate
        result: EPS = $2.80

    

    
      From
        the
        table, EPS at $2.80 = Corporate Performance Score of 100%

    

    
      

    

    
      	
               

              Earnings
                Per Share Goal*

            	
               

              Corporate
                Performance Score

            
	
                  $2.65
                **

            	
              0%

            
	
                $2.70*

            	
              50%

            
	
               $2.75

            	
              75%

            
	
               $2.80

            	
              100%

            
	
               $2.85

            	
              150%

            
	
               $2.98

            	
              200%

            

    

    
      

    

    *
      For the purposes of the 2007 AIP, net income and the resulting EPS will be
      adjusted to reflect the effect of economic value created by the Company’s
      wholesale business unit, but not yet reflected in GAAP earnings reported for
      the
      year.

    

    **The
      Company must meet or surpass $2.65 EPS(the corporate financial performance
      threshold), for the year ending December 31, 2007  for any corporate
      or business unit payment to be made.  Corporate payouts between 0% and
      50% will be interpolated for EPS results between $2.65 and
      $2.70.  Payout for IPO performance when EPS is below $2.65 will
      require Compensation Committee approval.
 

    

    
      
        
        

      

      
        9

        
          

        

      

      
        2007
          Annual Incentive Plan

      

    

    
       

       

      The
        Corporate Performance Score of 100% will be entered into the Total AIP
        Performance Score calculation in Step 3.

    

    
      

    

    
      
        	
                ·  

              	
                Business
                  Unit Performance
                  Score

              

      

    

    
      The
        Business Unit Performance Score of 95% will be entered into the Total AIP
        Performance Score calculation in Step 3.

    

    
      

    

    
      
        	
                ·  

              	
                Individual
                  Performance Score

              

      

    

    
      Using
        the
        matrix provided, Mary’s Success Factor rating (SM) and IPO rating (ME) combine
        to produce an Individual Performance Score of 125%.  However, her
        manager received approval to increase Mary’s score to 135%.

       

       

      
        
          
            	 	 	 	
                    Individual
                      Performance (50%)

                  
	
                    S

                  	
                    F

                  	 	
                    FM

                  	
                    PM

                  	
                    SM

                  	
                    ME

                  	
                    SE

                  
	
                    U

                  	
                    A

                  	
                    FM

                  	
                    0%

                  	
                    0%

                  	
                    0%

                  	
                    0%

                  	
                    0%

                  
	
                    C

                  	
                    C

                  	
                    PM

                  	
                    0%

                  	
                    10%
                      - 35% - 60%

                  	
                    65%
                      - 75% - 85%

                  	
                    90%
                      - 100% - 110%

                  	
                    115%
                      - 125% - 135%

                  
	
                    C

                  	
                    T

                  	
                    SM

                  	
                    0%

                  	
                    65%
                      - 75% - 85%

                  	
                    90%
                      - 100% - 110%

                  	
                    115%
                      - 125% - 135%

                  	
                    140%
                      - 150% - 160%

                  
	
                    E

                  	
                    O

                  	
                    ME

                  	
                    0%

                  	
                    90%
                      - 100% - 110%

                  	
                    115%
                      - 125% - 135%

                  	
                    140%
                      - 150% - 160%

                  	
                    165%
                      - 175% - 185%

                  
	
                    S

                  	
                    R

                  	
                    SE

                  	
                    0%

                  	
                    115%
                      - 125% - 135%

                  	
                    140%
                      - 150% - 160%

                  	
                    165%
                      - 175% - 185%

                  	
                    190%
                      - 195% - 200%

                  
	
                    S

                  	 	 	 	 	 	 	 
	
                    (50%)

                  	 	 	 	 	 	 	 

          

The
          Individual Performance Score of 135% will be entered in the
          Total AIP Performance Score calculation in Step 3.

      

    

    
      

    

    
      Step
        2– Annual Rate

    

    
      Annual
        rate will be the annualized earnings earned during the performance
        period.  In Mary’s case, this will amount to her annual salary of
        $75,000 for one month (1/12 x $75,000 = $6,250), and her annual salary of
        $80,000 for the remaining eleven months (11/12 x $80,000 =
        $73,333).  Her final annual rate will be $79,583

    

    
      

    

    
      The
        Annual Rate of $79,583 will be entered in the award calculation formula in
        Step
        4.

    

    
      

    

    
      Step
        3– Calculation of Total AIP Performance Score

    

    
      

    

    
      	
              Measure

            	
              Weighting

            	
              Performance
                Score

            	
              Weighted
                Performance

            
	
              Corporate

            	
              20%

            	
              100%

            	
              20%
                x 100% = 20%

            
	
              Business
                Unit

            	
              30%

            	
              95%

            	
              30%
                x 95% = 28.5%

            
	
              Individual

            	
              50%

            	
              135%

            	
              50
                x 135% = 67.5%

            
	
              Total
                AIP Performance Score

            	 	 	
              20%
                + 28.5% + 67.5% = 116%

            

    

    

    Step
      4 - Award Calculation

    Multiply
      Mary’s Annual Rate ($79,583) times her target award percentage (12%) and her
      Total AIP Performance Score (116%).

    

    AIP
      Award
      = $79,583 x 12% x 116% =
$11,077.95

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

        2007
          Annual Incentive
          Plan                                     

      

    

    Example
      “B” - JOHN

    
      
        	
                ·  

              	
                John
                  is an active employee of AGL Resources Services Company for all
                  of 2007,
                  except for one month (April) when he was on unpaid
                  leave

              

      

    

    
      
        	
                ·  

              	
                For
                  the first 40 weeks of the performance measurement period, John
                  was in a
                  grade F position with a target award of
                  5%

              

      

    

    
      
        	
                ·  

              	
                He
                  works in the Controller’s organization in Atlanta;  The Finance
                  AGSC Business Unit Performance was
                  105%

              

      

    

    
      
        	
                ·  

              	
                His
                  annual salary on January 1 was $38,000 but he received an increase
                  on
                  October 1 when he was promoted to a grade G having a 6% target
                  award.  His annual salary for the rest of the year was $41,000.
                  John was at the 6% target award level for the remaining 12 weeks
                  of the
                  performance period.

              

      

    

    
      
        	
                ·  

              	
                He
                  earned $2,750 in overtime during 2007 while in grade
                  F

              

      

    

    
      
        	
                ·  

              	
                Company’s
                  EPS = $2.75

              

      

    

    
      
        	
                ·  

              	
                John’s
                  Success Factor rating is ME and his IPO rating is
                  SE

              

      

    

    
      

    

    
      Step
        1– Determine performance scores for each element – Corporate
        and Individual

    

    
      

    

    
      
        	
                ·  

              	
                Corporate
                  Performance Score

              

      

    

    
      Corporate
        result: EPS = $2.75

    

    
      From
        the
        table, EPS at $2.75 = Corporate Performance Score of 75%

    

    
      

    

    
      	
               

              Earnings
                Per Share Goal*

            	
               

              Corporate
                Performance Score

            
	
                  $2.65
                **

            	
              0%

            
	
               $2.70*

            	
              50%

            
	
              $2.75

            	
              75%

            
	
              $2.80

            	
              100%

            
	
              $2.85

            	
              150%

            
	
              $2.98

            	
              200%

            

    

    
      

    

    *
      For the purposes of the 2007 AIP, net income and the resulting EPS will be
      adjusted to reflect the effect of economic value created by the Company’s
      wholesale business unit, but not yet reflected in GAAP earnings reported for
      the
      year.

    

    **The
      Company must meet or surpass $2.65 EPS(the corporate financial performance
      threshold), for the year ending December 31, 2007  for any corporate
      or business unit payment to be made.  Corporate payouts between 0% and
      50% will be interpolated for EPS results between $2.65 and
      $2.70.  Payout for IPO performance when EPS is below $2.65 will
      require Compensation Committee approval.
 

    

    
      The
        Performance Score of 75% will be entered into the Total AIP Performance Score
        calculation in Step 3.

    

    

    
      
        	
                ·  

              	
                Business
                  Unit Performance
                  Score

              

      

    

    
      The
        Business Unit performed at 105% of their target.  So the Business Unit
        Performance Score of 105% will be entered in the Total AIP Performance Score
        calculation in Step 3.

    

    
      

    

    
      
        	
                ·  

              	
                Individual
                  Performance Score

              

      

    

    
      John’s
        Success Factor rating (ME) and IPO rating (SE) combine to produce an Individual
        Performance Score of 175% in the matrix example.  In John’s case, his
        manager received approval to increase his payout to 185% which will be entered
        in the Total AIP Performance Score calculation in Step 3.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          2007
            Annual Incentive Plan

        

      

       

       

      
        
          
            	 	 	 	
                    Individual
                      Performance (50%)

                  
	
                    S

                  	
                    F

                  	 	
                    FM

                  	
                    PM

                  	
                    SM

                  	
                    ME

                  	
                    SE

                  
	
                    U

                  	
                    A

                  	
                    FM

                  	
                    0%

                  	
                    0%

                  	
                    0%

                  	
                    0%

                  	
                    0%

                  
	
                    C

                  	
                    C

                  	
                    PM

                  	
                    0%

                  	
                    10%
                      - 35% - 60%

                  	
                    65%
                      - 75% - 85%

                  	
                    90%
                      - 100% - 110%

                  	
                    115%
                      - 125% - 135%

                  
	
                    C

                  	
                    T

                  	
                    SM

                  	
                    0%

                  	
                    65%
                      - 75% - 85%

                  	
                    90%
                      - 100% - 110%

                  	
                    115%
                      - 125% - 135%

                  	
                    140%
                      - 150% - 160%

                  
	
                    E

                  	
                    O

                  	
                    ME

                  	
                    0%

                  	
                    90%
                      - 100% - 110%

                  	
                    115%
                      - 125% - 135%

                  	
                    140%
                      - 150% - 160%

                  	
                    165%
                      - 175% - 185%

                  
	
                    S

                  	
                    R

                  	
                    SE

                  	
                    0%

                  	
                    115%
                      - 125% - 135%

                  	
                    140%
                      - 150% - 160%

                  	
                    165%
                      - 175% - 185%

                  	
                    190%
                      - 195% - 200%

                  
	
                    S

                  	 	 	 	 	 	 	 
	
                    (50%)

                  	 	 	 	 	 	 	 

          

      

    

    
      Step
        2– Annual Rate

    

    
      John’s
        annual rate will be the aggregate of earnings including base pay, overtime,
        shift differential, and any other designated pay premiums earned during the
        performance period.  For illustration purposes, John’s annual rate is
        approximated below:

    

    
      

    

    
      Annual
        salary of $38,000 for nine months (excluding one month on inactive status)
        =
        $25,333

    

    
      Overtime
        earnings during 2006 = $2,750 while in the grade F position

    

    
      Annual
        Rate for the first 9 months = $25,333 + $2,750 = $28,083

    

    
      Annual
        salary of $41,000 for three months = $10,250

    

    
      The
        annual rate of $38,333 ($28,083 + $10,250) will be entered into the award
        calculation in Step 4 with his respective Target Award.

    

    
      

    

    
      Step
        3– Calculation of Total AIP Performance Score

    

    The
      Corporate EPS result of $2.79 means AIP payments can be made.

    

    
      	
              Measure

            	
              Weighting

            	
              Performance
                Score

            	
              Weighted
                Performance

            
	
              Corporate

            	
              10%

            	
              75%

            	
              10%
                x 75% = 7.5%

            
	
              Business
                Unit

            	
              30%

            	
              105%

            	
              30%
                x 105% = 31.5%

            
	
              Individual

            	
              60%

            	
              185%

            	
              60%
                x 185% = 111%

            
	
              Total
                AIP Performance Score

            	 	 	
              7.5%
                + 31.5% + 111% = 150%

            

    

    

    Step
      4 - Award Calculation

    Multiply
      John’s Annual Rate ($38,333) times his Target Award percentages (5% and 6%)
      times the proration factor and his Total AIP Performance Score
      (150%).

    

    AIP
      Award
      = ($38,333 x 5% x 40/52) + (38,333 x 6% x 12/52) x 150% = ($1,474.35 + $530.76)
      x 150% = $3,007.67

    

    Q.        What
      is the timing for payment of AIP awards?

    

    
      	
              A.

            	
              The
                current AIP Performance Measurement Period is January 1, 2007 through
                December 31, 2007.

            

    

    

    Payment
      of awards, if any, will occur as soon as administratively practicable during
      the
      first quarter of fiscal 2008, but not later than March 15, 2008.

    

    
      	
              Q.

            	
              What
                about new hires during the Performance Measurement
                Period?

            

    

    

    
      	
              A.

            	
              Participants
                must be employed by September 30, 2007 to be eligible to participate
                in
                the AIP.  Awards for participants hired between January 1, 2007
                and September 30, 2007 will be prorated based upon the number of
                months
                employed as an eligible employee during the Performance Measurement
                Period.  Employees who have an agreement with the Company that
                specifies another arrangement during the Performance Measurement Period,
                the terms of the agreement with the Company will govern the terms
                of the
                AIP award.

            

    

    

    
      
        
        

      

      
        12

        
          

        

      

      
        2007
          Annual Incentive Plan

      

    

     

     

    
      	
              Q.

            	
              What
                about a change in status during the Performance Measurement
                Period?

            

    

    

    
      	
              A.

            	
              A
                change in status can affect an award in the following
                ways:

            

    

    

    Eligible
      participants who change incentive targets during the Performance Measurement
      Period will receive a prorated incentive based on the week in which the target
      change becomes effective.  For instance, if a participant is at a
      grade level with a target award of 5% for 14 weeks and then is promoted to
      a
      grade with a target of 6% for the remainder of the year, the 5% target will
      be
      prorated by 14/52 and the 6% target will be prorated by 38/52 in the award
      calculation.

    

    Changes
      in Business Unit during the Performance Measurement Period will not be
      tracked.  Only year-end Business Unit performance will be used to
      determine the Business Unit Performance Score used in calculating
      awards.  Partial year performance will not be measured.

    

    Employees
      are not eligible to participate in multiple annual cash incentive plans
      simultaneously.  Participants in plans other than AIP who transfer
      into the AIP during the Performance Measurement Period will receive a prorated
      payment, as earned under the AIP, based on the effective date of the transfer.
      Payments, if any, under the other incentive plan will be pursuant to the terms
      of the Plan.  Managers of transferring employees should complete
      performance review forms at the time of transfer and provide a copy to the
      employee’s new manager.

    

    Retirement
      – Employees who retire from active status on or before the date
      that any awards are paid (i.e., the date that award payments are
      distributed), under the terms of the AGL Resources Retirement Plan or any other
      retirement plan approved by the Board of Directors for that purpose, will be
      eligible for payment of an award.  The award, if any, will be prorated
      based upon the earnings received while working as an active employee during
      the
      Performance Measurement Period.

    

    Death
      or Long-Term Disability – Employees who
      terminate due to death or who are placed on Long-Term Disability (LTD) under
      AGL
      Resources’ LTD Plan during the Performance Period, are considered eligible for a
      prorated payment based upon the earnings received while working as an active
      employee during the Performance Period.  Awards are paid at the end of
      the Performance Period to either the employee or, in the case of death, the
      employee’s estate.

    

    Resignation,
      Severance or Discharge– Employees who resign or are discharged on
      or before the date when awards are paid (i.e., the date that payment
      amounts are actually distributed),will not be eligible for payment of an award,
      even if severance, if any, extends past that date, unless otherwise provided
      by
      law.

    

    Leaves
      of Absence

    
      	
              ·  

            	
              Eligible
                participants who experience an approved leave of absence during the
                plan
                year will be eligible to receive their incentive based on their annual
                rate, award target level and performance achieved during the Performance
                Measurement Period.

            

    

    
      	
              ·  

            	
              Eligible
                participants on military leave will receive payment of the award
                according
                to AGL Resources’ military leave
                policy.

            

    

    

    Q.        What
      is the effect of the AIP award on other benefits?

    

    
      	
              A.

            	
              AIP
                awards count as compensation for the Retirement Savings Plus (RSP)
                Plan
                and the Nonqualified Savings Plan (NSP).  Awards also count as
                compensation for participants subject to the Career Average Earnings
                formula under the AGL Resources’ Retirement Plan, but do not count as
                compensation for participants subject to the Final Average Earnings
                formula under the AGL Resources’ Retirement
                Plan.

            

    

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

        
          2007
            Annual Incentive
            Plan                        

        

      

    

    

    Q.        Who
      administers the AIP?

    

    
      	
              A.

            	
              The
                AIP will be administered by the Policy Committee of the
                Company.  Except as otherwise set forth in this document, no
                person, other than members of the Policy Committee, will have any
                discretion concerning decisions affecting the
                AIP.

            

    

    

    The
      Policy Committee will have the authority to interpret the AIP and establish
      such
      rules and regulations as it deems necessary or advisable for the proper
      administration of the AIP, and will make determinations and will take such
      other
      action in connection with or in relation to accomplishing the objectives and
      goals of the AIP, including adjusting individual awards as it deems necessary
      or
      advisable.  Each determination or other action made or taken by the
      Policy Committee pursuant to the AIP, including interpretation of the AIP and
      the specific conditions and provisions of the awards granted hereunder, will
      be
      final and conclusive for all purposes and upon all persons.

    

    The
      Compensation and Management Development Committee of the Company’s Board of
      Directors will have the sole authority to determine and certify the corporate
      performance, following the end of the Performance Measurement
      Period.

    

    Q.         Are
      awards under the AIP intended to qualify under Section
      162(m)?

    

    
      	
              A.

            	
              In
                order to qualify for the exemption under Section 162(m) of the Internal
                Revenue Code of 1986, as amended, awards must be issued under a plan
                that
                has been approved by shareholders. As a result, awards granted to
“Covered
                Persons,” as that term is defined under Section 162(m), and intended to
                qualify as “qualified performance-based compensation” will be granted
                under the Company’s Executive Performance Incentive Plan, or a successor
                to such plan.  However, to the extent permitted under Section 162(m),
                the awards granted under the Corporate portion of the Plan to such
                Covered
                Persons will be calculated in the same manner as Awards issued
                pursuant to this AIP.

            

    

    

    Q.        Does
      participation in the AIP create employment rights for
      participants?

    

    
      	
              A.

            	
              The
                AIP does not constitute a contract of employment and participation
                in the
                AIP will not give a Participant the right to continue in the employ
                of the
                Company on a full-time, or any other basis.  Participation in
                the AIP will not give any participant any right or claim to any benefit
                under the AIP, unless such right or claim has specifically been granted
                by
                the Policy Committee under the terms of the
                AIP.

            

    

    

    Q.        By
      what law is the AIP governed?

    

    
      	
              A.

            	
              The
                AIP and all rules and determinations made and taken pursuant hereto
                will
                be governed by the laws of the State of Georgia, to the extent not
                preempted by federal law, and construed
                accordingly.

            

    

    

    Q.        What
      is the source of the funds required to pay benefits under the
      AIP?

    

    A.        The
      funds used to pay AIP benefits will be paid from the Company’s general
      assets.

    

    Q.        Will
      taxes be withheld from awards?

    

    
      	
              A.

            	
              Awards
                are considered “supplemental” income and are subject to federal and state
                income tax withholding, as well as the employee portion of social
                security
                (FICA) and Medicare taxes.

            

    

    

    Q.        Can
      the Company amend or terminate the
      AIP?

    

    A.        The
      Company reserves the right to amend or terminate the AIP at any time at its
      discretion.

    
 

    
      
        
        

      

      
        14

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