Exhibit 10.5
EQUITABLE RESOURCES, INC.
2005 EXECUTIVE PERFORMANCE INCENTIVE PROGRAM
EQUITABLE RESOURCES, INC. (the
“Company”) hereby establishes this EQUITABLE RESOURCES,
INC. 2005 EXECUTIVE PERFORMANCE INCENTIVE PROGRAM (the
“Program”) as of this 23 rd day of February, 2005, in accordance with
the terms provided herein.
WHEREAS, the Company maintains
certain long-term incentive award plans including the 1999
Equitable Resources, Inc. Long-Term Incentive Plan (the
“1999 Plan”) for the benefit of its employees and
executives, of which the Program is a subset; and
WHEREAS, in order to further align
the interests of executives with the interests of the shareholders,
the Company desires to provide additional long-term incentive
benefits through the Program, in the form of awards qualifying as
“Performance Awards” under the 1999 Plan.
NOW, THEREFORE, the Company hereby
provides for additional incentive benefits for certain executive
employees of the Company and adopts the terms of the Program on the
following terms and conditions:
Section 1. Incentive
Program Purpose.
The main purpose of the Program is to provide additional long-term
incentive opportunities to key executives to further align their
interests with those of the Company’s shareholders and
customers and with the strategic objectives of the Company.
Awards granted hereunder may be earned by achieving relative
performance levels against a pre-determined peer group and other
absolute and relative performance levels, and are forfeited if
defined performance levels are not achieved. By placing a
portion of the executive’s compensation at risk, the Company
has an opportunity to reward exceptional performance or reduce the
compensation opportunity when performance does not meet
expectations. The Program shall be construed consistent with
the provisions of the 1999 Plan with respect to awards to Covered
Employees, as such term is defined in the 1999 Plan, and the
deductibility of such awards under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the
“Code”).
Section 2. Effective
Date . The
effective date of this Program is January 1, 2005. The
Program will remain in effect until the earlier of
December 31, 2008 or the closing date of a Change of Control
event defined in Section 5 unless otherwise amended or
terminated as provided in Section 18 (“Termination
Date”).
Section 3.
Eligibility. The
Chief Executive Officer of the Company (the “CEO”)
shall, in his or her sole discretion, select the employees of the
Company who shall be eligible to participate in the Program, up to
a maximum of 40 employees. The CEO’s selections will
become participants in the Program (the “Participants”)
only upon approval by the Compensation Committee of the Board of
Directors (the “Committee”), comprised in accordance
with the requirements of the 1999 Plan. In the event that
an
employee is hired by the Company during the
Performance Period, as defined below, the CEO shall, in his or her
sole discretion, determine whether the employee will be eligible to
participate in the Program, provided that the Committee must
approve all new participants to the Program.
Section 4. Performance
Incentive Share Unit Awards. Upon being selected to participate in the
Program, each Participant shall be awarded a number of performance
incentive share units (the “Target Share Units”), the
value of which is determined by reference to the Company’s
stock, which award shall be proposed by the CEO and approved by the
Committee. For a new Participant, the Target Share Units
shall be proposed by the CEO and approved by the Committee and will
be pro-rated based on the employee’s hire date and the
contemplated ending date of the Program, which is December 31,
2008. The Target Share Units, plus accrued dividends
(“Total Target Share Units”) may be increased by as
much as two and one-half (2.5) times the number awarded based
solely on the achievement of the objective performance criteria as
described in Section 5, and the Committee shall have no
discretion to increase the Total Target Share Units that would
otherwise be due upon attainment of the Performance
Condition. The maximum number of Target Share Units that may
be awarded under the Program is 600,000, subject to adjustment as
provided in the preceding sentence and in
Section 13.
The Target Share Units shall be held in escrow
by the Company subject to satisfaction of the terms and conditions
described below. A Participant shall have no right to
exchange the Target Share Units for cash, stock or any other
benefit and shall be a mere unsecured creditor of the Company with
respect to such share units and any future rights to
benefits.
Section 5. Performance
Condition of the Target Share Units. Subject to Section 8, the total
number of Target Share Units that will be issued (“Awarded
Share Units”) to a Participant will be based on (i) the
Company’s total shareholder return relative to the peer
group’s (Attachment A) total shareholder return for the
period described in (a) below, and (ii) the
Company’s average absolute return on total capital during the
Performance Period (collectively, the “Performance
Condition”), for the Performance Period of January 1,
2005 to the Termination Date (the “Performance
Period”). The Performance Condition with respect to the
Performance Period shall be established by the Committee within 90
days after its commencement, but in no event later than the date on
which 25% of the Performance Period has elapsed, and before the
outcome of the Performance Condition is no longer substantially
uncertain.
(a)
Total Shareholder
Return . For
purposes of this Program, total shareholder return will be
calculated as follows:
Step 1
A “Beginning Point” will
be established for the Company and each company in the peer
group. This Beginning Point will be defined as one share of
stock with a value equal to the average closing stock price as
reported in The Wall Street Journal for the ten
(10) business day period
2
prior to approval of the Program
ending on and including the date of the Committee’s approval,
for each company.
Step 2
Dividends paid for each company from
the beginning of the Performance Period will be cumulatively added
to the Beginning Point as additional shares of such company’s
stock. The closing price on the last business day of the
month in which the record date for the dividend occurs will be used
as the basis for determining the number of shares to be
added. The resulting total number of shares accumulated
during the Performance Period will be referred to as the Total
Shares Held at Ending Point.
Step 3
Except as provided in the following
sentence, an “Ending Point” will be defined as Total
Shares Held at Ending Point for each company times the average
closing stock price as reported in The Wall Street Journal
for the last ten (10) business days of the Performance Period
for each company. In the event of a change of control as then
defined in the 1999 Plan (“Change of Control”), the
Ending Point will be defined as the Total Shares Held at Ending
Point times the average of the closing price as reported in The
Wall Street Journal for the ten (10) business days
preceding the closing of the Change of Control
transaction.
Step 4
Total Shareholder Return
(“TSR”) will be expressed as a percentage and is
calculated by dividing the Ending Point by the Beginning Point and
then subtracting 1 from the result. Each company including
the Company will be ranked in descending order by the TSR so
calculated.
The Committee may determine to
exclude a member of the peer group if such member ceases to exist
during the Performance Period due to a cash merger or tender offer,
to the extent such determination is consistent with Treas. Reg.
§1.162-27(e)(2).
(b)
Average Absolute Return on Total
Capital . For
purposes of this Program, average absolute return on total capital
will be calculated for each completed calendar quarter within the
Performance Period as follows:
Net Income After Tax + (Interest x
(1 - Effective Tax Rate)), with such sum divided by (Debt +
Preferred Stock + Book Equity - Cash).
The average of those amounts,
calculated by dividing the sum by the number of whole completed
quarters in the Performance
3
Period, shall equal the average
absolute return on total capital for the Performance
Period.
The above amounts shall be
calculated as reported on the Company’s financial
statements.
In the event of a Change of Control
or other Termination Date occurring after the end of a calendar
quarter, the immediately preceding calendar quarter shall be the
final quarter considered for purposes of the above
calculation.
(c)
Application of Performance
Condition . The
Total Target Share Units for each Participant will be multiplied by
the payout factor identified on the payout matrix (Attachment B)
that corresponds to (i) the Company’s relative TSR
ranking on the payout matrix for the period specified herein
combined with (ii) the Company’s average absolute return
on total capital performance on the payout matrix for the
Performance Period. The result of the calculation is the
number of Awarded Share Units. Pursuant to such calculation,
Awarded Share Units will equal:
(i)
100 percent of the Total Target
Share Units for (x) median relative TSR performance, provided
average absolute return on capital is greater than 8% and less than
9%, or (y) for TSR performance in the top 66.67% of all
performers, provided average absolute return on capital is greater
than 9% and less than 10%,
(ii)
250 percent of the Total Target
Share Units for TSR performance at the top 13.5% of all performers,
provided average absolute return on capital is greater than or
equal to 10%,
(iii)
0 percent of the Total Target Share
Units for TSR performance below the top 60% of all performers
i
