Fill and Sign the Executive Compensation and Related Person Secgov Form

ITEM 3. COMPENSATION PROGRAM FOR OFFICERS ANDCERTAIN KEY MANAGEMENT PERSONNEL The Board of Directors has adopted a Compensation Program for Officers and Certain Key Management Personnel (the “Compensation Program” or the “Program”). The Company is now seeking approval of the Program from Shareholders. The Program document is set forth in Exhibit B hereto. The Compensation Program is intended to ensure that total compensation, composed of base and variable compensation components, is competitive in the marketplace and promotes the Company s strategic objectives. More specifically, the purposes of the Compensation Program are to: ensure that base compensation compares favorably with regard to organizations competing for similar talent; provide an opportunity for officers and other key management personnel to share in the success of the Company by linking a portion of compensation (variable compensation) to corporate performance results; encourage a longer-term view by paying part of an earned variable compensation award in common stock that is subject to five-year restriction and forfeiture provisions; and foster and reinforce teamwork among officers and other key management personnel. The Company is asking Shareholders to approve the Compensation Program. A reserve of 50,000 shares of the Common Stock of the Company from the authorized but unissued shares that have been previously approved by shareholders will be established for this purpose; the Company may also use previously-issued shares held as Treasury Stock or shares purchased on the market. Eligibility Participants in the Program are the senior officers of the Company and other key management personnel who are in positions to make a substantial contribution to the management, growth and success of the Company and have been designated by the Board of Directors as eligible. At present, 16 persons are eligible to participate in the Compensation Program. The Board of Directors has the power to otherwise modify the eligibility requirements of the Compensation Program. The eligible participants are listed in Appendix I to the Program document (see Exhibit B hereto). Program Administration The Program will be administered by the Chief Executive Officer (“CEO”) with the approval of the Compensation Committee. The Compensation Committee will review the operation of the Program no less frequently than annually and, as it deems necessary, recommend appropriate actions to the Board of Directors. The Board of Directors will have the full power and authorityto: interpret the Program; designate the participants; act on the CEO s recommendations; amend or terminate the Program, subject to required shareholder and regulatory approval; and approve the CEO s base and variable compensation. Compensation Components Under the Program, base salaries are intended to provide a competitive rate of fixed compensation. Base salary levels will be assessed by compiling and analyzing salary information from various published survey sources on an annual basis, and are intended to be managed to the market average (in any event, within a plus or minus 10% range around the market average) as determined from the survey analysis. Actual base compensation within the market range will depend on internal equity, overall scope of responsibilities of the position, recruitment needs, and significant individual performance variations. The variable compensation component of the Program will tie compensation directly to the achievement of key corporate-wide objectives. Awards earned will be paid in cash, stock grants, and restricted stock. (The Company will impose two restrictions of a five year duration: no transferability and forfeiture of the stock upon termination of employment with the Company, except for retirement, death or disability.) The stock award provisions are effective only upon shareholder and other required regulatory approval. Opportunities for variable compensation awards for officers or key management employees will vary depending upon the “Band” in which they fall — Band A, B or C — such “bands” signifying differences in the nature of the positions and their impact on the organization. At present, sixteen persons are eligible to participate in the Program; two in Band A, five in Band B and nine in Band C. The Board of Directors is authorized to increase or decrease the size of each band. Depending on the extent to which the Company’s objectives are met or exceeded on appropriate performance measures, the awards can range from a threshold of 12.5% to a maximum of 75% of base salary. The award delivery feature is intended to motivate officers and other key management employees toward the annual attainment of critical corporate objectives consistent with the need to manage the Company to achieve longer-term success. Appropriate corporate performance measures and the performance objectives associated with them will be determined annually but are expected to remain in substantially the same form year- to-year. The performance measures will be weighted to reflect the Company’s strategic plan and the impact each organization band/officer position has on performance; the extent to which variable compensation is paid will be a function of the Company’s performance against the objectives on each of the performance measures. The performance measures, their weighting and the performance objectives for the first year of the Program. 1994, are set forth in Appendix II to the Program document. After the close of each year, the Compensation Committee, with input from the CEO, will ascertain the degree to which these performance objectives were accomplished to determine if variable awards are to be paid. If the threshold level of performance is not met, an award will not be paid with respect to that specific performance measure. In addition, the Program incorporates a circuit breaker to protect shareholder investment. The circuit breaker ensures that awards will not be paid unless earnings, after subtracting the variable awards, are greater than dividends paid in the year for which variable compensation is to be awarded.Participants must be employed on the date the award is paid in order to receive an award unless the participant has retired, is disabled or is deceased, or the Compensation Committee determines that the circumstances under which the participant terminated employment warrant special consideration. The Company presently is seeking regulatory approvals to reserve for issuance and to use 50,000 shares of common stock for awards in the Program. The 50,000 shares are expected to be used over the course of five years. The Company also may use previously-issued shares held as Treasury Stock or shares purchased on the market. At the Compensation Committee s discretion, participants may be granted Restricted Shares, Stock Grants or any combination of these provided that the combined total numbers of shares granted does not exceed the overall share authorization described above. Restricted Shares that are forfeited in accordance with the Program shall again be available for award under the Program. In the event of stock dividends, stock splits, recapitalizations, mergers, consolidations, combinations, exchanges of shares, spin-offs, liquidations, reclassifications or other similar changes in the capitalization of the Company, the number of shares of Common Stock available for grant under the Program shall be adjusted proportionately or otherwise by the Board, and where deemed appropriate, the number of shares covered by Restricted Shares outstanding. In the event of any other changes affecting the Common Stock reserved under the Program, such adjustments, if any, as may be deemed equitable by the Board, shall be made to give proper effect to such event. Effective Dates The Program, except for the stock award provisions, became effective as of January 1, 1994. The stock award provisions of the Program will become effective upon approval by shareholders of the Company and any required approval of the issuance of shares by the Vermont Public Service Board. The Program and all outstanding awards shall remain in effect until all outstanding awards have been earned, have been exercised or repurchased. have expired or have been canceled. The Board of Directors believes that the Program is designed to improve the performance of the Company and to serve the best interest of the shareholders. By encouraging ownership of the Company’s stock among those who play significant roles in the Company’s success, implementation of the Program will more closely align the interests of Executive Officers and key management employees with those of its shareholders. The Program will also have a positive effect on the Company’s ability to attract, motivate and retain employees of outstanding leadership and management ability. The affirmative vote of a majority of the outstanding shares is required for the approval of the Compensation Program for Officers and Certain Key Management Personnel. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THIS ITEM 3.