Exhibit 10.2
2004 MANAGEMENT INCENTIVE PROGRAM
TABLE OF CONTENTS
Page
INCENTIVE COMPENSATION PLAN...................................................1
1. General Description................................................1
2. Definitions........................................................1
3. Effective Date and Duration........................................2
4. Administration.....................................................3
5. Determination of Bonus Pool and Awards.............................3
6. Payment and Deferral of Awards.....................................4
7. General............................................................4
8. Amendments and Termination.........................................5
LONG-TERM INCENTIVE PLAN OF 2004..............................................5
1. General Description................................................5
2. Definitions........................................................5
3. Effective Date and Duration........................................9
4. Administration.....................................................9
5. Grant of Options, Restricted Stock Awards, and Performance Share
Awards: Shares Subject to the Plan................................9
6. Eligibility.......................................................10
7. Stock Options.....................................................10
8. Performance Shares................................................11
9. Restricted Stock Awards...........................................12
10. Performance Restricted Stock Awards...............................13
11. General...........................................................14
12. Changes in Capital Structure......................................15
13. Amendments and Termination........................................15
2004 MANAGEMENT INCENTIVE PROGRAM
As Amended July 28, 2004
The purpose of the 2004 Management Incentive Program (the "Program") is
to provide a means through which Unocal Corporation (the "Company") and its
subsidiaries may attract and retain able employees upon whom the success of the
Company rests, and provide a means whereby those employees will be fairly
compensated and can acquire and maintain stock ownership, thereby strengthening
their commitment to maximizing the value of the Company for its stockholders.
The Program has two major components:
1. The Incentive Compensation Plan; and
2. The Long-Term Incentive Plan of 2004
A total of 12,000,000 shares will be subject to issuance under the
Incentive Compensation Plan and under the Long-Term Incentive Plan of 2004. Of
1this amount of 12,000,000 shares, not more than 6,000,000 shares may be issued
as Performance Share Awards, Restricted Stock Awards and Performance Restricted
Stock Awards.
Each of the components of the Program is described in the sections which follow.
INCENTIVE COMPENSATION PLAN
1. General Description
The Incentive Compensation Plan provides for annual cash awards to
Employees of the Company and its Subsidiaries. Participants may elect to defer a
portion of their annual Award into Restricted Stock, which shall be granted
under and subject to the terms of the Long-Term Incentive Plan of 2004, and may
also elect to defer payment of cash Awards pursuant to a cash deferral program.
2. Definitions
The following definitions shall be applicable throughout the Plan:
a. "Award" means a cash award granted under the Plan.
b. "Award Period" means a period of one year.
c. "Board" means the Board of Directors of the Company, except those
members who are Employees.
d. "Code" means the Internal Revenue Code of 1986, as amended.
e. "Committee" means the Management Development and Compensation Committee
of the Board, which shall consist solely of two or more directors who qualify as
"outside directors" as defined in the regulations under Section 162(m) of the
Code and as "non-employee directors" within the meaning of Rule 16b-3 under
Section 16 of the Securities Exchange Act of 1934. In the event that one or more
members of the Committee is determined not to comply with these requirements,
then the entire Board may serve as the Committee for purposes of the Plan,
including ratification of prior grants made by the Committee.
f. "Company" means Unocal Corporation.
g. "Comparative Return to Stockholders" means the Company's return to
stockholders compared to the return to stockholders of selected Peer Group
Companies. The Committee shall, in its sole discretion, determine the basis for
comparing stockholder returns.
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h. "Employee" means any person regularly employed by the Company or a
Subsidiary on a full-time salaried basis.
i. "Fair Market Value" for purposes of determining the number of shares
subject to a Restricted Stock Award under Section 6 means the average of the
closing prices of the Stock as reported in the New York Stock Exchange Composite
Transactions quotations for the 30 consecutive trading days prior to the first
day of the calendar year in which the Award is payable.
j. "Free Cash Flow" means cash flow from operating activities less cash
flow used in investing activity.
k. "Future Year Value Creation" means the sum of (i) the present value of
additions to oil and gas reserves through new commercial discoveries, (ii) the
increase of the present value of existing assets due to accelerated development
or commercialization and (iii) such other value additions as the Committee shall
establish.
l. "Holder" means an Employee of the Company who has deferred a portion of
his Award into Restricted Stock.
m. "Net Cash Provided by Operating Activities" means net cash provided by
operating activities as determined in accordance with Statement of Financial
Accounting Standards No. 95, Statement of Cash Flows.
n. "162(m) Participant" means an Employee who is an executive officer whose
compensation may be subject to the limitation on deductibility under Section
162(m) of the Code, as determined by the Committee in its sole discretion.
o. "Peer Group Companies" means those companies selected by the Committee
prior to the expiration of the first 90 days of an Award Period for the purpose
of comparing returns to stockholders during the Award Period. Unless otherwise
provided by the Committee at the time target awards are established, if, during
an Award Period, a member of the Peer Group of Companies is acquired by or
merged into another company and separate reports with respect to its return to
stockholders are not available, or a member is liquidated or for any other
reason does not have separate reports with respect to its return to
stockholders, then such company shall cease to be a member of the Peer Group of
Companies.
p. "Plan" means the Incentive Compensation Plan, as amended from time to
time.
q. "Program" means the 2004 Management Incentive Program, as amended from
time to time.
r. "Restricted Stock Award" means a restricted stock award as defined in
the Long Term Incentive Plan of 2004.
s. "Return on Capital Employed" or "ROCE" means the Company's net earnings
generated relative to the total level of capital (debt and equity) utilized.
t. "Subsidiary" means any corporation of which a majority of the
outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Company.
3. Effective Date and Duration
The Plan shall be effective on February 10, 2004, the date of its
approval by the Board (the "Effective Date"). This Plan shall be submitted for
and subject to stockholder approval no later than twelve months after the
Effective Date. Unless earlier terminated by the Board, this Plan shall
terminate at the close of business on March 31, 2009. After the termination of
this Plan either upon such stated expiration date or its earlier termination by
the Board, no additional awards may be granted under this Plan, but previously
granted awards (and the authority of the Committee with respect thereto,
including the authority to amend such awards) shall remain outstanding in
accordance with their applicable terms and conditions and the terms and
conditions of this Plan.
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4. Aministration
The Committee shall administer the Plan. The acts of a majority of the
members present at any meeting at which a quorum is present and acts unanimously
approved in writing by the Committee shall be deemed the acts of the Committee.
The Committee may conduct meetings in person or by telephone. The Committee may,
in its discretion, delegate the authority to grant Awards under the Plan to
Employees other than executive officers to a committee of the Board of Directors
of the Company.
No member of the Committee, while serving as such, shall be eligible to
receive an Award under the Plan. The Committee shall have the authority, subject
to the provisions of the Plan, to establish, adopt, or revise such rules and
regulations and to make all such determinations relating to the Plan as it may
deem necessary or advisable in the administration of the Plan. The Committee's
interpretation of the Plan or any Awards granted pursuant thereto and all
decisions and determinations by the Committee with respect to the Plan shall be
final, binding, and conclusive on all parties.
5. Determination of Bonus Pool and Awards
The Committee shall elect Employees to participate in the Plan. The
bonus pool for each Award period shall be an amount equal to two percent (2%) of
the Company's Net Cash Provided by Operating Activities during the Award Period.
The aggregate amount of Awards under the Plan, without giving effect to any
augmentation upon deferral into Restricted Stock, may not exceed this bonus
pool.
Within the first 90 days of each Award Period, the Committee shall
establish the level of Awards for 162(m) Participants. The amount of each such
Award shall be expressed as a percentage of the bonus pool. The Committee shall
have the sole discretion to determine whether the full amount of such Awards
will be paid to such participants and may reduce, but may not increase, the
amount payable under an Award based on such criteria as the Committee, in its
sole discretion may determine, which criteria may include, but shall not be
limited to, one or more of the following: Comparative Return to Stockholders,
ROCE, Free Cash Flow, Future Year Value Creation and individual performance.
The Committee shall also establish individual target Awards, expressed
as a percentage of salary, for the remaining participants. Subject to the amount
of the bonus pool available after payment of the Awards described in the
preceding paragraph, the Committee shall have the sole discretion to determine
the actual amounts paid out under these Awards, which amounts may be greater
than or less than the target amounts, on the basis of factors such as, but not
limited to, the following:
a. Comparative Return to Stockholders,
b. ROCE,
c. Free Cash Flow,
d. Future Year Value Creation,
e. Comparison of actual operational or financial results to plans or goals,
adjusted for external factors such as changes in market prices,
f. Individual performance of Employees selected to participate in the Plan,
and
g. Reasonableness of total cash compensation.
Notwithstanding any other provision of the Plan, the maximum cash Award
payable to a participant in the Plan in any calendar year shall be 0.25% of the
Company's Net Cash Provided By Operating Activities for the calendar year or, if
less, $2,500,000; provided, however, that any portion of an Award deferred in
the form of Restricted Stock may be adjusted pursuant to Section 6.
In the event of a "Change of Control" (as such term is defined in the
Long-Term Incentive Plan of 2004) the Award Period shall be reduced to the
period ending on the date of such Change of Control. The amount payable to
162(m) Participants shall be determined as set forth in Section 5, but based on
the bonus pool for the shortened Award Period. Each other participant in the
Plan shall be paid in cash not less than his or her target award, prorated by
the ratio that the reduced Award Period bears to the calendar year and subject
to the limitation of the first paragraph of this Section 5.
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6. Payment and Deferral of Awards
Awards under the Plan shall be paid in cash from general funds of the
Company in a manner to be prescribed by the Committee. An Award may be paid all
or in part as a Restricted Stock Award, granted under and subject to the terms
of the Long-Term Incentive Plan of 2004, as determined by the Committee or
pursuant to an annual election of the recipient under such terms as the
Committee may establish. In consideration for forgoing cash compensation, the
Committee may, in its discretion, make a Restricted Stock Award with a total
dollar value greater than the Award deferred, provided that any such increase
shall not exceed 100% of the dollar value of the Award deferred, and provided
further, with respect to 162(m) Participants, the Committee shall establish any
applicable percentage increase at the same time that it establishes their Award
levels for the Award Period. The number of shares of Restricted Stock issued in
consideration of Awards deferred shall be equal to the dollar value of the Award
after any such increase divided by the Fair Market Value of the Stock. Any
fractional shares shall be paid in cash. The Committee may also permit
participants in the Plan to defer payment of cash Awards pursuant to a cash
deferral program on such terms, including interest which may be credited
thereon, as the Committee may approve in its sole discretion.
7. General
a. Government and Other Regulations. The obligation of the Company to make
payment of distributions under the Plan shall be subject to all applicable laws,
rules, and regulations, and to such approvals by governmental agencies as may be
required.
b. Tax Withholding. The Company or a Subsidiary, as appropriate, shall have
the right to deduct from all Awards paid in cash any federal, state or local
taxes as required by law to be withheld with respect to such cash payments. The
provisions of the Long Term Incentive Plan of 2004 shall govern tax withholding
with respect to any portion of an Award paid in the form of a Restricted Stock
Award.
c. Claim to Awards and Employment Rights. No Employee or other person shall
have any claim or right to be granted an Award under the Plan. Neither this Plan
nor any action taken hereunder shall be construed as giving any Employee any
right to be retained in the employ of the Company or a Subsidiary.
d. Beneficiaries. Any payment due under the Plan to a deceased participant
shall be paid to the beneficiary designated by the participant in writing and
filed with the Committee. If no such beneficiary has been designated, payment
shall be made to the participant's surviving spouse. If a participant does not
designate a beneficiary or have a surviving spouse, payment shall be made to the
participant's legal representative. A beneficiary designation may be changed or
revoked by a participant at any time, provided the change or revocation is filed
in writing with the Committee.
e. Nontransferability. A person's rights and interests under the Plan,
including amounts payable, may not be assigned, pledged, or transferred except,
in the event of an Employee's death, to a designated beneficiary as provided in
the Plan, or in the absence of such designation, by will or the laws of descent
and distribution, except as may be permitted by the Committee in its sole
discretion. The transfer restrictions set forth in provisions of the Long Term
Incentive Plan of 2004 shall apply to any Restricted Stock Awards granted in
lieu of cash under an Award.
f. Indemnification. Each person who is or shall have been a member of the
Committee or the Board, including the Employee directors, shall be indemnified
and held harmless by the Company against and from any loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by him in connection
with or resulting from any claim, action, suit, or proceeding to which he may be
a party or in which he may be involved by reason of any action or failure to act
under the Plan and against and from any and all amounts paid by him in
satisfaction of judgment in any such action, suit or proceeding against him. He
shall give the Company an opportunity, at its own expense, to handle and defend
the same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
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g. Reliance on Reports. Each member of the Committee and the Board,
including the Employee directors, shall be fully justified in relying or acting
in good faith upon any report made by the independent public accountants of the
Company and its Subsidiaries and upon any other information furnished in
connection with the Plan by any person or persons other than himself. In no
event shall any person who is or shall have been a member of the Committee or of
the Board be liable for any determination made or other action taken or any
omission to act in reliance upon any such report or information or for any
action taken, including the furnishing of information, or failure to act, if in
good faith.
h. Relationship to Other Benefits. No payment under the Plan shall be taken
into account in determining any benefits under any pension, retirement, profit
sharing, group insurance or other benefit plan of the Company or any Subsidiary,
unless specifically so provided under such plan.
i. Expenses. The expenses of administering the Plan shall be borne by the
Company and its Subsidiaries.
j. Pronouns. Masculine pronouns and other words of masculine gender shall
refer to both men and women.
k. Titles and Headings. The titles and headings of the sections in the Plan
are for convenience of reference only and in the event of any conflict, the text
of the Plan, rather than such titles or headings, shall control.
8. Amendments and Termination
The Board may at any time terminate the Plan, and with the express
written consent of a Holder, the Board or Committee may cancel, reduce or
otherwise alter his outstanding Awards thereunder if, in its judgment, the tax,
accounting, or other effects of the Plan or potential payouts thereunder would
not be in the best interest of the Company. The Board may, at any time, or from
time to time, amend or suspend and, if suspended, reinstate, the Plan in whole
or in part; provided, however, that, to the extent then required by applicable
law or any applicable listing agency, or as deemed necessary or advisable by the
Board, any amendment to this Plan shall be subject to shareholder approval.
LONG-TERM INCENTIVE PLAN OF 2004
As Amended July 28, 2004
1. General Description
The Long-Term Incentive Plan of 2004 provides for granting Nonqualified
Stock Options, Restricted Stock Awards, Performance Shares and Performance
Restricted Stock Awards. The Plan succeeds the Unocal Long-Term Incentive Plan
of 1998.
2. Definitions
The following definitions shall be applicable throughout the Plan but
shall not be deemed to apply in other contexts unless specifically provided
otherwise:
a. "Award" means, individually or collectively, any Nonqualified Stock
Option, Restricted Stock Award, Performance Share Award or Performance
Restricted Stock Award.
b. "Award Period" means the period of time (which shall not be less than
three years) used to determine any payments of Performance Share Awards.
c. "Board" means the Board of Directors of the Company, except those
members who are Employees.
d. "Cause" means (i) conduct or action by a Holder that violates the
Company's code of conduct or is materially harmful to the Company, (ii) theft,
forgery, fraud, misappropriation, embezzlement, moral turpitude or other act of
material misconduct against the Company or any of its affiliates, (iii) willful
failure by a Holder to follow an order of the Board, except in such case where
the Holder believes in good faith that following such order would be materially
detrimental to the interests of the Company, (iv) a Holder's
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conviction of or pleading guilty or nolo contendere to a felony or
(v) performance by a Holder falls below the reasonable expectations of the
Company.
e. "Change of Control" means:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")(a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (A) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock") or (B) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
paragraph (i), the following acquisitions shall not constitute a Change of
Control: (A) any acquisition directly from the Company, (B) any acquisition
by the Company, (C) any acquisition by an employee benefit plan (or related
trust) sponsored or maintained by the Company or any entity controlled by
the Company or (D) any acquisition by any entity pursuant to a transaction
which complies with clauses (A), (B) and (C) of paragraph (iii) of this
Section 2(e); or
(ii) Individuals who, as of February 10, 2004, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to February 10, 2004 whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another entity (a "Business
Combination"), in each case, unless, following such Business Combination,
(A) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
entity resulting from such Business Combination (including, without
limitation, an entity which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) (the "Resulting Entity") in
substantially the same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding any Resulting Entity or any employee benefit plan (or related
trust) of the Company or such Resulting Entity) beneficially owns, directly
or indirectly, 20% or more of, respectively, the then outstanding shares of
common stock of the Resulting Entity or the combined voting power of the
then outstanding voting securities of such entity except to the extent that
such ownership existed prior to the Business Combination and (C) at least a
majority of the members of the board of directors of the Resulting Entity
were members of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for such
Business Combination; or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
Notwithstanding the foregoing, the Board may deem "consummation of" an
event to include a period of time immediately prior to or
contemporaneous with the event to enable the Holder to exercise the
Award or otherwise realize the benefits of the Award with respect to
the underlying shares in the same manner as available to the common
stockholders generally as a result of the event, but subject to the
occurrence of a Change of Control, and, in the case of an Option,
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subject to the payment or any permitted offset of the exercise price
and any applicable withholding taxes. For purposes of clause (iii),
"entity" means any corporation, limited liability company, partnership
or any other statutorily recognized business organization or entity
that is similar to a statutory corporation and that can be merged into
or combined with a statutory corporation.
f. "Code" means the Internal Revenue Code of 1986, as amended.
g. "Committee" means the Management Development and Compensation Committee
of the Board, which shall consist solely of two or more directors who qualify as
"outside directors" as defined in the regulations under Section 162(m) of the
Code and as "non-employee directors" within the meaning of Rule 16b-3 under
Section 16 of the Securities Exchange Act of 1934. In the event that one or more
members of the Committee is determined not to comply with these requirements,
then the entire Board may serve as the Committee for purposes of the Plan,
including ratification of prior grants made by the Committee.
h. "Company" means Unocal Corporation.
i. "Comparative Discretionary Cash Flow per Share (Debt Adjusted)" means
the Company's Discretionary Cash Flow per Share (Debt Adjusted) compared to the
Discretionary Cash Flow per Share (Debt Adjusted) of a selected group of Peer
Group Companies.
j. "Comparative Finding and Development Costs per BOE Added" means the
Company's Finding and Development Costs per BOE Added compared to the Finding
and Development Costs per BOE Added of the Peer Group Companies.
k. "Comparative Production and G&A Costs per BOE Added" means the Company's
Production and G&A Costs per BOE Added compared to the Production and G&A Costs
per BOE Added of the Peer Group Companies.
l. "Comparative Production Growth per Share (Debt Adjusted)" means the
Company's Production Growth per Share (Debt Adjusted) compared to the Production
Growth per Share (Debt Adjusted) of the Peer Group Companies.
m. "Comparative Return to Stockholders" means the Company's return to
stockholders compared to the return to stockholders of a selected group of Peer
Group Companies. The Committee shall, in it sole discretion, establish the basis
for comparing stockholder returns within the first 90 days of the applicable
Award Period or Performance Year.
n. "Date of Grant" means the date on which the granting of an Award is
authorized by the Committee or such later date as may be specified by the
Committee in such authorization.
o. "Discretionary Cash Flow Per Share (Debt Adjusted)" means the debt
adjusted discretionary cash flow per share for the Company and each applicable
Peer Group Company as determined based on such data and pursuant to such
procedures as the Committee establishes within the first 90 days of the
applicable Award Period.
p. "Employee" means any person regularly employed by the Company or a
Subsidiary on a full-time salaried basis.
q. "Fair Market Value" means:
(i) For Options, the average of the reported high and low prices of
the Stock as reported in the New York Stock Exchange Composite Transactions
quotations on a specified date.
(ii) For Performance Share Awards, the average of the closing prices
of the Stock as reported in the New York Stock Exchange Composite
Transactions quotations for the 30 consecutive trading days prior to the
"Valuation Date." The "Valuation Date" for the purpose of granting
Performance Share Awards shall be the first day of the calendar year in
which the Award is made. The "Valuation Date" for the purpose of
Performance Share payments shall be the trading day on which the Committee
approves the payment.
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r. "Finding and Development Costs Per BOE Added" means finding and
development costs per barrel of oil equivalent added as determined in accordance
with generally accepted accounting principles and reported in the Company's or a
Peer Group Company's 10-K Supplemental Information on Oil and Gas and
Exportation and Production Activities.
s. "Free Cash Flow" means cash flow from operating activities less cash
flow used in investing activity.
t. "Future Year Value Creation" means the sum of (i) the present value of
additions to oil and gas reserves through new commercial discoveries, (ii) the
increase of the present value of existing assets due to accelerated development
or commercialization and (iii) such other value additions as the Committee shall
establish within the first 90 days of a Performance Year, each of which shall be
determined based on such data and pursuant to such procedures as the Committee
establishes within the first 90 days of the applicable Performance Year.
u. "Holder" means an Employee of the Company or a Subsidiary who has been
granted an Option, a Restricted Stock Award, a Performance Share Award or a
Performance Restricted Stock Award.
v. "Net Cash Provided by Operating Activities" means net cash provided by
operating activities as determined in accordance with Statement of Financial
Accounting Standards No. 95, Statement of Cash Flows.
w. "162(m) Participant" means an Employee who is an executive officer whose
compensation may be subject to the limitation on deductibility under Section
162(m) of the Code, as determined by the Committee in its sole discretion.
x. "Option" or "Nonqualified Stock Option" means an Award granted under
Section 7.
y. "Peer Group Companies" means those companies selected by the Committee,
in its sole discretion prior to the expiration of the first 90 days of an Award
Period or Performance Year, for the purpose of comparing applicable Performance
Criteria during the Award Period or Performance Year. Unless otherwise
determined by the Committee at the time of grant, if, during an Award Period or
Performance Year, a member of the Peer Group of Companies is acquired by or
merged into another company and separate reports with respect to its Performance
Criteria are not available, or a member is liquidated or for any other reason
does not have separate reports with respect to its Performance Criteria, then
such company shall cease to be a member of the Peer Group of Companies.
z. "Performance Criteria" means:
(i) with respect to Performance Shares for 162(m) Participants, any
one or more of the following: Comparative Return to Stockholders,
Comparative Discretionary Cash Flow Per Share, Comparative Production
Growth Per Share, Comparative Finding and Development Costs Per BOE Added,
and Comparative Production and G&A Costs Per BOE Produced, and
(ii) with respect to Performance Restricted Stock Awards, any one or
more of the following: Comparative Return to Stockholders, ROCE, Future
Year Value Creation, and Net Cash Provided by Operating Activities.
aa. "Performance Restricted Stock" means an Award granted under Section 10.
bb. "Performance Share" means an Award granted under Section 8.
cc. "Plan" means the Long-Term Incentive Plan of 2004, as amended from time
to time.
dd. "Production and G&A Costs per BOE Produced" means the Company's or a
Peer Group Company's production and general and administrative costs per barrel
of oil equivalent determined based on such data and pursuant to such procedures
as the Committee establishes within the first 90 days of the applicable Award
Period and reported in its 10-K Supplemental Information on Oil and Gas and
Exploration and Production Activities.
ee. "Production Growth Per Share (Debt-Adjusted)" means the Company's or a
Peer Group Company's debt adjusted production growth per share determined based
on such data and pursuant to such procedures as the Committee establishes within
the first 90 days of the applicable Award Period.
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ff. "Program" means the 2004 Management Incentive Program, as amended from
time to time.
gg. "Restricted Stock Award" means an Award granted under Section 9.
hh. "Retirement" means termination of employment on or after attaining age
65.
ii. "Return on Capital Employed" or "ROCE" means the Company's net earnings
generated relative to the total level of capital (debt and equity) utilized as
determined based on such data and pursuant to such procedures as the Committee
establishes within the first 90 days of the applicable Performance Year.
jj. "Stock" means shares of common stock of the Company as defined in
Article Fourth of the Company's Certificate of Incorporation and such other
stock as shall be substituted for such shares as provided in Section 12.
kk. "Subsidiary" means any corporation of which a majority of the
outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Company.
ll. "Voluntary Termination" means any termination of employment by a Holder
prior to Retirement other than a termination without Cause or a termination due
to death or disability.
3. Effective Date and Duration
The Plan shall be effective on February 10, 2004, the date of its
approval by the Board (the "Effective Date"). This Plan shall be submitted for
and subject to stockholder approval no later than twelve months after the
Effective Date. Unless earlier terminated by the Board, this Plan shall
terminate at the close of business on the day before the fifth anniversary of
the Effective Date. After the termination of this Plan either upon such stated
expiration date or its earlier termination by the Board, no additional awards
may be granted under this Plan, but previously granted awards (and the authority
of the Committee with respect thereto, including the authority to amend such
awards) shall remain outstanding in accordance with their applicable terms and
conditions and the terms and conditions of this Plan.
4. Administration
The Committee shall administer the Plan. The acts of a majority of the
members present at any meeting at which a quorum is present and acts unanimously
approved in writing by the Committee shall be deemed the acts of the Committee.
The Committee may conduct its meetings in person or by telephone. The Committee
may, in its discretion, delegate the authority to grant Awards under the Plan
for Employees other than executive officers to a committee of the Board of
Directors of the Company.
No member of the Committee, while serving as such, shall be eligible to
receive an Award under the Plan. The Committee shall have the authority, subject
to the provisions of the Plan, to establish, adopt, or revise such rules and
regulations and to make all such determinations relating to the Plan as it may
deem necessary or advisable in the administration of the Plan. The Committee's
interpretation of the Plan or any Awards granted pursuant thereto and all
decisions and determinations by the Committee with respect to the Plan shall be
final, binding, and conclusive on all parties.
5. Grant of Options, Restricted Stock Awards, and Performance Share Awards:
Shares Subject to the Plan
The Committee may, from time to time, grant and amend Awards to
Employees in accordance with the provisions of the Plan; provided however that:
a. Subject to Section 12, the aggregate number of shares of Stock made
subject to Awards under the Plan may not exceed 12,000,000 shares.
b. To the extent an Award lapses or the rights of its Holder terminate or
are forfeited, any shares of Stock subject to such Award that are not exercised
or are forfeited shall again be available to be granted as an Award. Upon the
full or partial payment of any option price by the transfer to the Company of
Stock or upon satisfaction of tax withholding obligations in connection with any
such exercise or any other payment made or benefit realized under this Plan by
the transfer or relinquishment of Stock, there shall be deemed to have been
issued or transferred under this Plan only the number of shares of Stock
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actually issued or transferred by the Company less the number of shares of Stock
so transferred or relinquished.
c. Stock delivered by the Company in settlement under the Plan may be from
the Company's authorized and unissued Stock or Stock purchased on the open
market or by private purchase.
d. Except as provided in Sections 7(d)(v), 7(e), 8(c), 9(a) or 10(d), the
Company shall not distribute Stock until six months have elapsed from the date
of the Award under the Plan.
e. Awards may contain such other provisions as the Committee may determine
that are not inconsistent with the terms of the Plan.
6. Eligibility
All Employees of the Company and its Subsidiaries (including officers
or Employees who are members of the Board of Directors) shall be eligible to be
granted Awards under the Plan.
7. Stock Options
One or more Options may be granted to any Employee. No person may be
granted during any 12-month period Options to acquire more than 600,000 shares
of Stock under this Plan. Each Option so granted shall be subject to the
following conditions:
a. Option Price. The option price per share of Stock shall be established
by the Committee at the time of grant, but shall be not less than Fair Market
Value on the Date of Grant.
b. Form of Payment. At the time of the exercise of the Option, the option
price shall be payable in a combination of cash and/or shares of Stock
acceptable to the Committee valued at the Fair Market Value as of the date the
Option is exercised, including (if permitted by the Company) proceeds from the
sale of Stock acquired by exercise of the Option (a cashless exercise).
c. Restrictions on Shares Acquired. The Committee may impose restrictions
for a specified period (the "Restriction Period") on a portion or all of the
shares acquired through exercise of Options in order to promote the share
ownership objectives of the Plan.
d. Stock Option Agreement. Each Option granted under the Plan shall be
evidenced by a "Stock Option Agreement" between the Company and the Holder of
the Option containing provisions determined by the Committee, which shall
include the following terms and conditions:
(i) Any Option or portion thereof that is exercisable shall be
exercisable for the full amount or for any part thereof, except as
otherwise determined by the Committee and set forth in the Stock Option
Agreement.
(ii) Every share purchased through the exercise of an Option shall be
paid for in full prior to delivery of stock or, if permitted by the
Company, through a cashless exercise. Each Option shall cease to be
exercisable, as to any share, when the Holder purchases the share or when
the Option lapses.
(iii) Options shall not be transferable by the Holder except by will
or the laws of descent and distribution and shall be exercisable during the
Holder's lifetime only by the Holder, his guardian or legal representative,
except as permitted pursuant to Section 11(e).
(iv) Notwithstanding any other provision of the Plan, in the event (A)
of a public tender for all or any portion of the Stock of the Company, (B)
that a proposal to merge, consolidate, or otherwise combine with another
company is submitted for stockholder approval, or (C) another situation
exists that the Committee determines is similar thereto then, the Committee
may in its sole discretion declare outstanding Options to be immediately
exercisable, and it may also include provisions for such events in the
Stock Option Agreement.
(v) The Committee may in its sole discretion declare that outstanding
Options that are immediately exercisable, but have not been exercised, will
terminate upon (A) a dissolution of the Company, (B) a merger,
reorganization, consolidation or similar event that the Company does not
survive, or (C) the consummation of a merger, reorganization, consolidation
or similar event
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approved by the Board of Directors, and it may also include provisions
for such events in the Stock Option Agreement.
e. Other Terms and Conditions. Each Option shall become exercisable in such
manner (which may include cumulative annual or other installments) on or after
such date or dates and within such period or periods, not to exceed ten years
from its Date of Grant, as set forth in the Stock Option Agreement. Except as
provided in Section 7(d)(v) or upon a Change of Control, no Option granted
hereunder shall become exercisable prior to one year from the date of grant.
f. Option Repricing/Cancellation and Regrant. Except as provided in or
pursuant to Section 12, the Committee may not authorize, generally or in
specific cases only, for the benefit of any Participant any adjustment in the
exercise or purchase price or the number of shares subject to an Option by
cancellation of an outstanding Option and a subsequent regranting of an Option,
by amendment or by substitution of an outstanding Option without prior approval
of the Company's stockholders.
8. Performance Shares
a. Awards. Grants of Performance Shares may be made by the Committee during
the term of the Plan, which shall be credited to a Performance Share account to
be maintained for each such Holder. Each Performance Share shall represent a
bookkeeping unit of measurement that is deemed to have a value equivalent to one
share of Stock of the Company. Grants of Performance Shares shall be made within
the first 90 days to 162(m) Participants and within the first calendar year to
other participants of the applicable Award Period. All such grants shall be
deemed to have been made on January 1 of the calendar year in which grants are
made. In determining the size of Awards, the Committee may take into account a
Holder's responsibility level, performance, potential, cash compensation level,
and the Fair Market Value of the Company's Stock at the time of Awards, as well
as such other considerations as it deems appropriate. During any 12-month period
no person may receive more than 30% of the aggregate number of Performance
Shares granted or more than 90,000 Performance Shares. Within the first 90 days
of the applicable Award Period, the Committee shall establish (i) performance
goals based on one or more of the Performance Criteria and (ii) a matrix for
determining the percentage by which participants' Performance Shares will be
multiplied based on the Company's achievement of such performance goals. In no
event shall the matrix allow for a percentage in excess of 200%.
b. Right to Payment of Performance Shares. Following the end of the Award
Period, the Committee shall determine the extent to which the performance goals
for the Award Period have been achieved. The Committee shall then multiply the
number of each Holder's Performance Shares by the percentage determined under
the pre-established matrix to determine the amount payable to each Holder (the
"Payout Shares").
Each Holder of Performance Shares shall be entitled at the end of an Award
Period to a dollar amount equal to the Fair Market Value of his Payout Shares as
of the Valuation Date. In no event shall the Fair Market Value of the Payout
Shares exceed 400% of the Fair Market Value of the initial Award of Performance
Shares.
c. Timing and Form of Payment. No payment of Performance Shares shall be
made prior to the end of an Award Period, but payment shall be made as soon as
practicable thereafter. The Committee may authorize payment in a combination of
cash and/or Stock, as it deems appropriate. Stock delivered in payment of
Performance Shares may be shares purchased for the account of the Holder or
authorized and unissued shares, or any combination thereof. The number of shares
of Stock to be paid in lieu of cash will be determined by dividing the portion
of the payment not paid in cash by:
(i) The average of the reported high and low prices of the Stock as
reported in the New York Stock Exchange Composite Transactions quotations
on the date on which the shares are issued, or
(ii) The price per share paid for shares purchased for a Holder's
account should the Company purchase shares on behalf of a Holder.
Notwithstanding any other provision of the Plan, in the event (A) of
any public tender for all or any part of the Stock of the Company, (B) that any
proposal to merge, consolidate or otherwise combine the Company with another
company is submitted for stockholder approval, or (C) another situation exists
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which the Committee determines is similar thereto, then the Committee may in its
sole discretion declare any Award Period ended as of a specific date and
accelerate payments of such Performance Share Awards to Holders in amounts at
least equal to the number of Performance Shares credited to each Holder's
Performance Share account at the beginning of the Award Period, and it may also
include provisions for such events in the Performance Share Award.
d. Termination of Employment. In the event a Holder terminates employment
during an Award Period, payout shall be as follows:
(i) Termination determined by the Committee to be at the convenience
of the Company and not for Cause or for performance inadequacy:
- Payout shall be made at the end of the Award Period and
shall be prorated for service during the period.
(ii) Resignation or discharge other than pursuant to Section 8(d)(i):
- The Award shall be completely forfeited.
(iii) Retirement:
- Payout shall be made at the end of the Award Period and
shall be prorated for service during the period.
(iv) Early retirement:
- If at the Holder's request, the Award shall be completely
forfeited.
- If at the Company's request, payout shall be at the end of
the Award Period and shall be prorated for service during
the period.
(v) Death or Total and Permanent Disability:
- Payout shall be at the end of the Award Period and shall be
prorated for service during the period.
9. Restricted Stock Awards
a. Restriction Period. A Restricted Stock Award may be granted by the
Committee to any Employee. At the time a Restricted Stock Award is made, the
Committee shall establish a period of time (the "Restriction Period") applicable
to such Award which shall be not less than four years. Each Restricted Stock
Award may have a different Restriction Period, at the discretion of the
Committee. In the event (i) of a public tender for all or any portion of the
Stock of the Company, (ii) that any proposal to merge, consolidate, or otherwise
combine the Company with another company is submitted for stockholder approval,
or (iii) another situation exists which the Committee determines is similar
thereto, then the Committee may in its sole discretion change or eliminate the
Restriction Period, and it may also include provisions for such events in the
Restricted Stock Award.
b. Other Terms and Conditions. Subject to the terms of the Plan, the
Committee shall determine the terms and conditions applicable to any particular
grant of a Restricted Stock Award. The Holder shall have the right to enjoy all
stockholder rights during the Restriction Period with the exception that:
(i) The Holder may not sell, transfer, pledge, exchange, hypothecate,
or otherwise dispose of the Stock during the Restriction Period, except as
permitted pursuant to Section 11(e).
(ii) Any breach of the terms and conditions established by the
Committee pursuant to the Restricted Stock Award shall cause a forfeiture
of the Restricted Stock Award, and any dividends withheld thereon.
(iii) Cash and stock dividends may either be currently paid or
withheld by the Company for the Holder's account. At the discretion of the
Committee, interest may be paid on the amount of cash dividends withheld,
including cash dividends on stock dividends, at a rate and subject to such
terms as determined by the Committee.
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c. Termination of Employment. The Committee shall establish, and set forth
in the applicable Restricted Stock Award, the effect of a termination of
employment on the rights and benefits of a Restricted Stock Award and, in doing
so, may make distinctions based upon, inter alia, the reason for the termination
of employment.
10. Performance Restricted Stock Awards
a. General. Grants of Performance Restricted Stock Awards may be made by
the Committee during the term of the Plan. A Performance Restricted Stock Award
is an award of restricted shares based on the Company's performance over the
immediately preceding calendar year (a "Performance Year"). The first
Performance Year shall be 2004. The maximum number of shares that may be granted
subject to Performance Restricted Stock Awards in any Performance Year is
800,000 shares.
b. Awards to 162(m) Participants. Within the first 90 days of a Performance
Year, the Committee shall establish (i) the target number of restricted shares
to be granted as a Performance Restricted Stock Award to each 162(m)
Participant, (ii) the performance goals based on one or more of Comparative
Return to Shareholders, ROCE, Free Cash Flow and Net Cash Provided by Operating
Activities for the Performance Year, and (iii) the extent to which the
individualized target Performance Restricted Stock Awards will be granted, if at
all, based on the attainment of those performance goals. Following the end of
such Performance Year, the Committee shall determine the extent to which the
pre-established performance goals were met and the corresponding number of
restricted shares subject to each 162(m) Participant's Performance Restricted
Stock Award, if any. The Committee may reduce (but not increase) the number of
shares subject to each such Award based on such criteria as the Committee, in
its sole discretion may determine, including but not limited to Future Year
Value Creation and individual performance.
c. Awards to Non-162(m) Participants. For each Performance Year, the
Committee shall establish individual target restricted stock awards for the
participants who are not 162(m) Participants based upon such criteria as the
Committee, in its sole discretion may determine, which criteria may include, but
is not limited to, one or more of the following: ROCE, Free Cash Flow, Future
Year Value Creation, salary grade and salary. Following the end of the
Performance Year and subject to the number of restricted shares available for
grant after the award of Performance Restricted Stock Awards to 162(m)
Participants, the Committee shall have the sole discretion to determine the
actual number of shares subject to each Performance Restricted Stock Award,
which amounts may be greater or lesser than the target amounts, on the basis of
factors such as, but not limited to, the following:
(i) Comparison of actual operational or financial results to plans or
goals, adjusted for external factors such as changes in market prices,
(ii) Individual performance of Employees selected to participate in
the Plan, and
(iii) Reasonableness of total cash compensation.
d. Restriction Period. At the time a Performance Restricted Stock Award is
made, the Committee shall establish a period of time (the "Restriction Period")
applicable to such Performance Restricted Stock Award, which shall be not less
than four years (subject to Section 10(b)). Each Performance Restricted Stock
Award may have a different Restriction Period, at the discretion of the
Committee. In the event (i) of a public tender for all or any portion of the
Stock of the Company, (ii) that any proposal to merge, consolidate or otherwise
combine the Company with another company is submitted for stockholder approval,
or (iii) another situation exists that the Committee determines is similar
thereto, then the Committee may in its sole discretion change or eliminate the
Restriction Period, and it may also include provisions for such events in the
Performance Restricted Stock Award.
e. Other Terms and Conditions. The provisions of Section 9(b) shall apply
to Performance Restricted Stock Awards granted pursuant to Section 10.
f. Termination of Employment. The provisions of Section 9(c) shall apply to
Performance Restricted Stock Awards granted pursuant to Section 10.
g. Distribution. Except as provided in Section 10(d), in no event shall
Stock be delivered prior to six months from the date of grant.
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11. General
a. Government and Other Regulations. The obligation of the Company to make
payment of Awards in Stock or otherwise shall be subject to all applicable laws,
rules, and regulations, and to such approvals by governmental agencies as may be
required. The Company shall be under no obligation to register under the
Securities Act of 1933, as amended ("Act") any of the shares of Stock paid under
the Plan. If the Stock issued under the Plan may in certain circumstances be
exempt from registration under the Act, the Company may restrict the transfer of
such shares in such manner as it deems advisable to ensure the availability of
any such exemption.
b. Tax Withholding. The Company or a Subsidiary, as appropriate, shall have
the right to deduct from all Awards paid in cash any federal, state or local
taxes as required by law to be withheld with respect to such cash payments, and,
in the case of Awards paid in Stock, the Employee or other person receiving such
Stock may be required to pay to the Company or a Subsidiary, as appropriate, the
amount of any such taxes which the Company or Subsidiary is required to withhold
with respect to such Stock. The Company may, in lieu of requiring cash payment
of any such taxes, elect to withhold from Stock payments a number of whole
shares of Stock with a value equal to the minimum applicable withholding
obligation on vesting or payment. Valuation for this purpose shall be the
average of the reported high and low prices of the Stock as reported in the New
York Stock Exchange Composite Transactions quotations for the first trading date
following the Award or Restriction Period, unless the Committee determines that
it is appropriate to value the Stock on some other date for this purpose. Shares
in no event may be withheld in excess of the minimum number required for tax
withholding under applicable law.
c. Claim to Awards and Employment Rights. No Employee or other person shall
have any claim or right to be granted an Award under the Plan. Neither this Plan
nor any action taken hereunder shall be construed as giving any Employee any
right to be retained in the employ of the Company or a Subsidiary.
d. Beneficiaries. Any payment of Awards due under this Plan to a deceased
Holder shall be paid to the beneficiary designated by the Holder in writing and
filed with the Company. If no such beneficiary has been designated, payment
shall be made to the Holder's surviving spouse. If the Holder has not designated
a beneficiary and has no surviving spouse, payment shall be made to the Holder's
legal representative. A beneficiary designation may be changed or revoked by a
Holder at any time, provided the change or revocation is filed in writing with
the Committee.
e. Nontransferability. A Holder's rights and interests under the Plan,
including amounts payable, may not be assigned, pledged, or transferred except,
in the event of an Employee's death, to a designated beneficiary as provided in
the Plan, or in the absence of such designation, by will or the laws of descent
and distribution, except as may be permitted by the Committee in its sole
discretion. The Committee, in its sole discretion, may permit transfers of
Options, Performance Restricted Stock and/or Restricted Stock Awards to an
Employee's family members and entities (including trusts, corporations,
partnerships, and limited liability companies) that are established for the
exclusive benefit of or are owned solely by family members and may prescribe
such rules and limitations as it deems appropriate regarding such transfers,
taking into account tax considerations, the impact of Section 16 of the
Securities Exchange Act of 1934, the need to register shares under the
Securities Act of 1933 and any applicable State Blue Sky Laws, and any other
relevant considerations. The above transfer restrictions shall not apply to
transfers pursuant to a court order, including, but not limited to, any domestic
relations orders.
f. Indemnification. Each person who is or shall have been a member of the
Committee or the Board, including the Employee directors, shall be indemnified
and held harmless by the Company against and from any loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by him in connection
with or resulting from any claim, action, suit, or proceeding to which he may be
a party or in which he may be involved by reason of any action or failure to act
under the Plan and against and from any and all amounts paid by him in
satisfaction of judgment in any such action, suit or proceeding against him. He
shall give the Company an opportunity, at its own expense, to handle and defend
the same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
-14-
g. Reliance on Reports. Each member of the Committee and the Board,
including the Employee directors, shall be fully justified in relying or acting
in good faith upon any report made by the independent public accountants of the
Company and its Subsidiaries and upon any other information furnished in
connection with the Plan by any person or persons other than himself. In no
event shall any person who is or shall have been a member of the Committee or of
the Board be liable for any determination made or other action taken or any
omission to act in reliance upon any such report or information or for any
action taken, including the furnishing of information, or failure to act, if in
good faith.
h. Relationship to Other Benefits. No payment under the Plan shall be taken
into account in determining any benefits under a pension, retirement, profit
sharing, group insurance or other benefit plan of the Company or any Subsidiary.
i. Expenses. The expenses of administering the Plan shall be borne by the
Company and its Subsidiaries.
j. Pronouns. Masculine pronouns and other words of masculine gender shall
refer to both men and women.
k. Titles and Headings. The titles and headings of the sections in the Plan
are for convenience of reference only, and in the event of any conflict, the
text of the Plan, rather than such titles or headings, shall control.
12. Changes in Capital Structure
Options, Restricted Stock Awards, Performance Share Awards, Performance
Restricted Stock Awards and any agreements evidencing such Awards shall be
subject to adjustment by the Committee as to the number and price of shares of
Stock or other considerations subject to such Awards in the event of changes in
the outstanding Stock by reason of stock dividends, stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges, or other relevant changes in capitalization occurring after the Date
of Grant of any such Options or Awards. In the event of any such change in the
outstanding Stock, the aggregate number of shares available under the Plan and
Program may be appropriately adjusted by the Committee, whose determination
shall be conclusive.
13. Amendments and Termination
The Board may at any time terminate the Plan and, subject to Section
7(f), with the express written consent of a Holder, the Board or Committee may
cancel, reduce or otherwise alter his outstanding Awards thereunder if, in its
judgment, the tax, accounting, or other effects of the Plan or potential payouts
thereunder would not be in the best interest of the Company. The Board may, at
any time, or from time to time, amend or suspend and, if suspended, reinstate,
the Plan in whole or in part. Notwithstanding the foregoing, to the extent then
required by Section 7(f), applicable law or any applicable listing agency, or
deemed necessary or advisable by the Board, any amendment to this Plan shall be
subject to stockholder approval.
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