Key Employee Long Term Incentive Plan

BAY STATE GAS COMPANY


KEY EMPLOYEE LONG-TERM INCENTIVE PLAN


1. Purposes of Plan


The purposes of the Bay State Gas Company Key Employee Long-Term Incentive Plan (the "Plan") are to provide long-term incentives for and to increase the opportunity for ownership in Bay State Gas Company (the "Company") by those employees who are directly responsible for the management, growth and success of the Company's business.


2. Administration of Plan


The plan shall be administered by the Compensation Committee (the "Committee") appointed by the Board of Directors of the Company, which shall consist of two or more members of the Board who qualify as disinterested persons, within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as outside directors, within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). No member of the Committee shall be eligible to receive an award under the Plan.


The Committee shall act by a majority of its members, without the necessity of a meeting. The Committee shall have full power, discretion and authority to interpret and administer the Plan, and any interpretation or other determination made, and any action taken, by the Committee shall be conclusive and binding on all persons having an interest under the Plan, except as otherwise determined by the Board of Directors.


3. Participation


Each executive or management employee of the Company or an affiliated company of Grade 35 or above and any other employee designated by the Board of Directors of the Company who holds a position which, by virtue of its scope, may have a material effect on the performance of the Company or who is a significant contributor to a specific project which is anticipated to have a material effect on the Company's performance shall be eligible to participate in the Plan.


4. Performance Shares


The maximum number of performance shares ("Performance Shares") which may be awarded under the Plan is 500,000. Each Performance Share shall, upon vesting in accordance with the provisions of the Plan, be exchangeable for one share of the Company's common stock, par value $3.33 1/3 per share ("Common Stock") and a cash payment equal to the dividends paid on a share of Common Stock during the performance period, as defined below. The award of Performance Shares shall not entitle a participant to any rights as a shareholder of the Company. Any Performance Shares awarded under the Plan which are forfeited or canceled may again be awarded under the Plan.


2


5. Grant of Awards


The Committee may grant awards of Performance Shares to eligible employees, who shall then become participants in the Plan, as of October 1 of each year from 1994 through 2003, inclusive. The Committee shall recommend and the Board of Directors approve the eligible employees to whom awards are to be granted and the amount of the award for each employee, except that Performance Shares awarded to any one employee shall not exceed 100,000 in the aggregate or the period the Plan is in effect.


6. Vesting


A participant shall become entitled to payment of all or a portion of the Performance Shares awarded to him or her in any year at the end of the three-consecutive year period beginning on the date the award is granted (a "Performance Period"), as determined in accordance with Schedule A, depending on the Compay's total return to shareholders for the Performance Period.


Except as otherwise provided in Section 7, if a participant terminates employment with the Company and its affiliates, voluntarily or involuntarily, he or she shall forfeit all Performance Shares awarded for the Performance Period in which the termination of employment occurs.


7. Retirement, Disability or Death of Participant


In the event a participant terminates employment by reason of retirement, disability or death, the participant shall be entitled to payment of a portion of the Performance Shares awarded to him or her for the Performance Period in which the termination occurs. Such portion shall be equal to the award determined under Section 6, based on the Company's total return to shareholders for the Performance Period to the date of the participant's termination of employment, multiplied by a fraction equal to the portion of the Performance Period for which the employee was employed by the Company or an affiliate.


A participant may designate a beneficiary, or revoke a beneficiary designation, under the Plan at any time. However, no designation or revocation shall be effective prior to its receipt by the Committee.


For purposes of the Plan, disability means the complete and permanent inability of an employee to perform his o ...