1
EXHIBIT 10.3
BURLINGTON RESOURCES INC.
INCENTIVE COMPENSATION PLAN
As Amended and Restated Effective October 1, 1994
(Originally Effective January 1, 1989)
2
BURLINGTON RESOURCES INC.
INCENTIVE COMPENSATION PLAN
Table of Contents
Page
----
Section 1 Definitions . . . . . . . . . . . . . . . . . . 1
Section 2 Administration . . . . . . . . . . . . . . . . . 3
Section 3 Participants . . . . . . . . . . . . . . . . . . 4
Section 4 Incentive Award Pool . . . . . . . . . . . . . . 4
Section 5 Individual Awards . . . . . . . . . . . . . . . 6
Section 6 Payment Of Incentive Awards . . . . . . . . . . 7
Section 7 General Provisions . . . . . . . . . . . . . . . 14
-i-
3
BURLINGTON RESOURCES INC.
INCENTIVE COMPENSATION PLAN
PREAMBLE
WHEREAS, Burlington Resources Inc. (the "Company") established
the Burlington Resources Inc. Incentive Compensation Plan (the "Plan")
effective January 1, 1989 in order for the Company to attract and retain
exceptional employees and to provide a direct incentive to the Participants to
improve the profitability of the Company; and
WHEREAS, the Company amended and restated the Plan effective May
1, 1990 and desires to amend and restate the Plan to effect certain changes;
NOW, THEREFORE, the Company does hereby amend and restate the
Plan as set forth herein, effective October 1, 1994.
SECTION 1
DEFINITIONS
For purposes of the Plan, the following terms shall have the
meanings indicated:
1.1 Account means a Memorandum Account, Special Deferral Memorandum
Account, and/or an Automatic Deferral Account, as each is defined in
Section 6.5.
1.2 Beneficiary means the person(s) designated by a Participant, on a
form provided by the Management Committee and filed with the
Company's Human Resources Department, to receive benefits from the
Plan in the event of his or her death. A Participant may change his
or her beneficiary designation at any time. If no designated
Beneficiary survives the
4
Participant, the Beneficiary shall be the Participant's surviving
spouse or, if none, his or her estate.
1.3 Board means the Board of Directors of the Company.
1.4 Company means Burlington Resources Inc., a Delaware corporation.
1.5 Company Stock Account means a notional subaccount of an Account
credited with Phantom Stock, as provided in Section 6.6.
1.6 Employer means the Company and its subsidiaries.
1.7 Fair Market Value means, as applied to a specific date, the mean
between the highest and lowest quoted selling prices at which the
common stock of the Company was sold on such date as reported in the
NYSE-Corporate Transactions by The Wall Street Journal on such date
or, if no Company common stock was traded on such date, on the next
preceding day on which its common stock was so traded.
1.8 Incentive Award means the amount of a Participant's individual award
granted to the Participant for a year pursuant to Section 5.
1.9 Interest Account means a notional subaccount of an Account credited
with interest, as provided in Section 6.6.
1.10 Management Committee means the committee appointed pursuant to
Section 2.1 to administer the Plan.
1.11 Participant means each employee who participates in the Plan in
accordance with Section 3.
1.12 Permanent Disability means the Management Committee has found, upon
the basis of medical evidence satisfactory to it, that a Participant
is totally disabled, whether due to physical or mental condition, so
as to be prevented from engaging in further fullCtime employment by
the Employers and that such disability is reasonably expected to be
permanent or long-term.
-2-
5
1.13 Phantom Stock means a phantom or notional share of common stock of
the Company. A Participant shall not possess any rights of a
stockholder of the Company with respect to a share of Phantom Stock,
including, without limitation, rights concerning voting and
dividends. A share of Phantom Stock shall be payable solely in cash
under the Plan.
1.14 Plan means the Burlington Resources Inc. Incentive Compensation Plan
either in its previous or present form or as amended from time to
time.
1.15 Termination means a Participant's termination of employment with the
Employers, including by reason of death, retirement or Permanent
Disability.
SECTION 2
ADMINISTRATION
2.1 Management Committee. The Plan shall be administered by a
management committee (the "Management Committee") consisting of such executives
of the Company as the Chief Executive Officer of the Company shall designate.
Subject to review by the Compensation and Nominating Committee of the Board,
the Management Committee shall have the complete authority and power to
interpret the Plan, prescribe, amend and rescind rules relating to its
administration, select eligible Participants, determine a Participant's (or
Beneficiary's) right to a payment and the amount of such payment, and to take
all other actions necessary or desirable for the administration of the Plan.
All actions and decisions of the Management Committee shall be final and
binding upon all Participants and Beneficiaries. No member of the Management
Committee shall vote on any matter that pertains solely to himself or herself.
-3-
6
SECTION 3
PARTICIPANTS
3.1 Participants. The Management Committee shall determine and
designate the executives of the Company and other key employees of the
Employers who are eligible to receive awards under the Plan (the
"Participants"). Participants will be limited to those employees who, because
of their management or staff positions, have the principal responsibility for
the management, direction and success of the Company as a whole or a subsidiary
or a particular business unit thereof. Directors of the Company who are
full-time executives of the Company shall be eligible to participate in the
Plan.
SECTION 4
INCENTIVE AWARD POOL
4.1 Incentive Award Pool. A memorandum account (the "Incentive Award
Pool") shall be established for the Company and each participating subsidiary
for purposes of determining the amount of money which shall be available for
Incentive Awards for each year. The Incentive Award Pool of an Employer (the
Company or a participating subsidiary) for each year shall be an amount equal
to the sum total of the aggregate maximum incentive awards available for its
Participants for that year. Each Participant's maximum incentive award for a
particular year (the-Maximum Incentive Award") shall equal the Participant's
annual salary (as defined below) multiplied by the Maximum Award Percentage (as
defined below), which amount is then multiplied by the Performance Standard
Percentage (as defined below) of his Employer for that year; provided, however,
that for Participants in grade F and above who are employed by a participating
subsidiary, the Maximum Incentive Award shall be the sum of (a) the
Participant's annual salary multiplied by his Maximum Award Percentage, which
amount is then multiplied by one-half of the subsidiary's Performance Standard
Percentage for the year, plus (b) the Participant's
-4-
7
annual salary multiplied by his or her Maximum Award Percentage, which amount
is then multiplied by one-half of the Company's Performance Percentage for the
year. The term "annual salary" shall mean the Participant's annual salary
being paid at the end of the year (or date of Termination, if applicable)
exclusive of bonuses and all other items of compensation for the year.
4.2 Company/Subsidiary Performance. At the beginning of each year,
the Compensation and Nominating Committee shall approve strategic and financial
objectives for the Company for the year, and the Management Committee shall
approve strategic and financial objectives for the participating subsidiaries
for the year. At the end of the year, the same committee that approved the
objectives of the Company or a participating subsidiary, as the case may be,
shall assess the Company or subsidiary's performance in relation to those
objectives for purposes of establishing the size of the Incentive Award Pool in
accordance with the following table of Performance Categories and Standard
Percentages:
Company or Subsidiary Performance
Performance Category Standard Percentage
--------------------- -------------------
I. Performance for the year
was outstanding and
exceeded objectives. 100%
II. Performance for the year
met or exceeded objectives
or was excellent in view of
prevailing conditions. 75%
III. Performance for the year
generally met objectives
or was very acceptable
in view of prevailing
conditions. 50%
IV. Performance for the year
did not meet objectives
and was generally below
acceptable levels. 0 to 25%
-5-
8
4.3 Maximum Award Percentage. Each participating employer (the
Company or a subsidiary) shall establish the salary grades of its Participants.
The Compensation and Nominating Committee shall assign a percentage of annual
salary (the "Maximum Award Percentage") for the President and Chief Executive
Officer of the Company and the Management Committee shall assign the Maximum
Award Percentages applicable to all other Participants. The Maximum Award
Percentages of the Participants shall be used to calculate the Incentive Award
Pools, as set forth in Section 4.1.
SECTION 5
INDIVIDUAL AWARDS
5.1 President and Chief Executive Officer. The Compensation and
Nominating Committee of the Board shall annually grant the Incentive Award for
the President and Chief Executive Officer of the Company. In evaluating the
President and Chief Executive Officer, the Compensation and Nominating
Committee shall consider the corporate objectives of the Company and his or her
responsibilities and accomplishments, and such other factors as it deems
appropriate.
5.2 Other Participants. The Management Committee shall annually
grant the Incentive Awards to the Participants other than the President and
Chief Executive Officer of the Company in accordance with their individual
performances. In evaluating a Participant, the Management Committee shall
consider the corporate objectives of the Participant's Employer, the
Participant's responsibilities and accomplishments, and such other factors as
it deems appropriate.
5.3 Incentive Award Limits. The aggregate individual Incentive
Awards for an Employer's Participants may not exceed that Employer's Incentive
Award Pool. A Participant's performance must be satisfactory, regardless of
Company or subsidiary performance, before he or she may be granted an Incentive
Award.
-6-
9
5.4 New Employee, or Retirement, Disability, Death or Termination of
Employment. The Compensation and Nominating Committee or the Management
Committee, as applicable and in its discretion, may grant all or such portion
of an Incentive Award for the year as it deems advisable to a Participant (or
his Beneficiary in the case of his death) who is employed or who is promoted to
an executive grade during the year, or whose employment is terminated during
the year because of his or her retirement, death, permanent disability,
resignation or discharge.
SECTION 6
PAYMENT OF INCENTIVE AWARDS
6.1 Immediate Payment. Each Participant who has elected to receive
his or her Incentive Award for the year currently shall be paid his or her
Incentive Award in cash in the month following the month in which the award is
made.
6.2 Voluntary Deferrals. Prior to the end of any year, each
Participant may elect to have the payment of all or a portion of his or her
Incentive Award for that year deferred until his or her Termination, subject to
a $1,000 minimum. The election shall be irrevocable and shall be made on a
form prescribed by the Management Committee, which shall govern the amount
deferred, the form of its payment pursuant to Section 6.9 following the
Participant's Termination, and, except as provided below, the investment of the
Participant's Memorandum Account for such deferral period pending its payment.
A Participant's deferral election shall apply only to the Incentive Award for
that year. If a Participant has not made a deferral election, the Incentive
Award payable to him or her for that year shall be paid pursuant to Section
6.1.
6.3 Special Deferrals. The Management Committee may, in its
discretion, approve deferred payments ("Special Deferrals") as follows. Prior
to the end of any year, each Participant may elect to have the payment of all
or a portion of
-7-
10
his or her Incentive Award for that year deferred until a date or dates
specified by the Management Committee, which, with respect to any Special
Deferral invested in Phantom Stock, must be more than six months after the
effective date of such deferral. The Participant's election shall be
irrevocable and shall be made on a form prescribed by the Management Committee.
A Participant's Special Deferral election shall apply only to the Incentive
Award for that year. If a Participant has not made a Special Deferral
election, the Incentive Award payable to him or her for that year shall be paid
in accordance with Section 6.1.
6.4 Automatic Deferrals. If the Management Committee determines that
all or part of the Incentive Award to be paid to a Participant pursuant to
Section 6.1 would be nondeductible by the Company or a subsidiary for Federal
tax purposes due to the limitations of Section 162(m) of the Internal Revenue
Code, so much of the payment, if any, that would be deductible that year shall
be paid to the Participant pursuant to Section 6.1 and, unless the Management
Committee, in its sole discretion, directs otherwise, the balance of such
Incentive Award shall be deferred automatically and credited to the
Participant's Automatic Memorandum Account, which, pursuant to the
Participant's election, shall be invested and payable as follows:
(a) invested in the Interest Account and payable in the first year or
years in which the Management Committee, in its sole discretion, determines
either such payment(s) would be deductible or to forego the deduction;
(b) invested in the Interest Account and payable upon the
Participant's Termination; or
(c) invested in the Company Stock Account and payable upon the
Participant's Termination.
A Participant's election must be made prior to the deferral date and, if
(b) or (c) is elected, the election must also specify the form in which the
Account is to be
-8-
11
paid as provided in Section 6.9. If the Participant does not timely make an
election with respect to an automatic deferral, he or she shall be deemed to
have elected option (a) above. Automatic Memorandum Accounts are payable only
in cash.
6.5 Memorandum Accounts. Each year the Company shall establish a
ledger or notional account (the "Memorandum Account") for each Participant who
has elected to defer payment of his or her Incentive Award that year for the
purpose of reflecting the Company's obligation to pay the deferred Incentive
Award for such year as specified pursuant to Section 6.9; provided, however,
that all Memorandum Accounts established for a Participant that are to be paid
in the same manner, i.e., a lump sum, 60 installments or 120 installments, may
be combined into a single Memorandum Account. Similarly, a separate Special
Memorandum Account shall be established for each Special Deferral for each
Participant; however, all Special Deferrals of a Participant that are to be
paid at the same time and in the same manner may be combined into a single
Special Memorandum Account. In addition, a separate Automatic Memorandum
Account shall be established for each automatic deferral made pursuant to
Section 6.3 with respect to a Participant.
6.6 Investment of Accounts. Except as provided below, each Account
shall accrue interest on the deferred Incentive Award credited to such Account
from the date such Incentive Award is credited to the Account through the date
of its distribution (the "Interest Account"). Such interest shall be credited
to the Interest Account at the end of each calendar quarter or such other
periods as may be determined by the Management Committee. The Management
Committee shall determine, in its sole discretion, the rate of interest to be
credited periodically to the Interest Accounts.
With respect to an election to defer (or an automatic deferral of) an
Incentive Award for any year beginning after 1993, a Participant may
irrevocably request that the Management Committee credit all or a specified
percentage of his or
-9-
12
her Incentive Award deferred for that year in shares of Phantom Stock; however,
the Management Committee shall not be obligated to honor any such Participant's
request. If the Management Committee elects to honor any such request, it
shall establish a separate notional subaccount for such Participant under his
or her Account, which shall be credited with whole and fractional shares of
Phantom Stock as of the date of the Incentive Award for such year, and with
phantom (notional) dividends with respect to the Phantom Stock, which shall be
credited as being reinvested in additional shares of Phantom Stock (the
"Company Stock Account"). All credits and debits to the Company Stock Account
shall be made based on the Fair Market Value per share of the Company's common
stock on the applicable date; provided, however, with respect to an automatic
deferral pursuant to Section 6.3 that is to be invested in Phantom Stock, the
number of shares of Phantom Stock credited to the Participant's Company Stock
Account with respect to such automatic deferral shall be determined on the same
basis as if such deferral had been the exercise of a Stock Purchase Right that
year under the Company's 1993 Stock Incentive Plan. If the Management
Committee chooses to not honor any Participant's request to invest his or her
Account in shares of Phantom Stock, the Participant's deferral automatically
shall be held in the Interest Account.
6.7 Special Phantom Stock Investment Elections. Each Participant who
has an Account under the Plan on October 1, 1994 shall be given a one-time
irrevocable election to request that all or a specified percentage of his or
her Account balance as of that date, as elected by the Participant, be invested
in the Company Stock Account; however, the Management Committee shall not be
obligated to honor any such request. This election shall be in such form as
the Management Committee shall establish, and must be made prior to October 1,
1994.
6.8 Change in Section 16(b) Rules. Notwithstanding anything in the
Plan to the contrary, if the rules promulgated under Section 16(b) of the
Securities
-10-
13
Exchange Act of 1934, as amended, are amended or interpreted by the Securities
and Exchange Commission to permit "insiders" to make investment changes with
respect to their accounts under cash only type of plans like the Plan, the
Management Committee, in its sole discretion, may amend the Plan in any manner
it deems appropriate to allow Participants the ability to request, from time to
time, investment changes with respect to their Account balances under the Plan
and may also add additional notional subaccounts under the Plan for such other
investments as the Management Committee deems appropriate to offer under the
Plan.
6.9 Payment of Accounts. Except as provided below, upon a
Participant's Termination or on any Special Deferral payment date, the Company
shall pay to such Participant (or to his or her Beneficiary in case of the
Participant's death) an amount in cash equal to the balance then credited to
his or her affected Account(s) as follows:
(a) a lump sum payment; or
(b) in 60 consecutive substantially equal monthly installments; or
(c) in 120 consecutive substantially equal monthly installments,
whichever form of payment has been elected by the Participant. However, if a
Participant elects to receive the distribution of a Company Stock Account in
installments, his or her Company Stock Account automatically shall be converted
into an Interest Account as of the Participant's date of Termination or Special
Deferral payment date, as the case may be.
Payment of Accounts shall commence or be made in the month following the
month in which the Participant's Termination or Special Deferral payment date
occurs; provided, however, if the Management Committee determines that all or
part of a payment to be made to a Participant pursuant to this Section 6.9
would be nondeductible by the Company or a subsidiary for Federal tax purposes
due to the limitations of Section 162(m) of the Internal Revenue Code, so much
of the payment, if any, that would be deductible in the year of Termination (or
Special Deferral payment date) shall be paid to the Participant immediately
following his or her Termination (or Special Deferral
-11-
14
payment date) and, unless the Management Committee, in its sole discretion,
directs otherwise, the balance of the Account shall be paid to the Participant
(i) with respect to a Termination, not later than the end of the third month of
the next following year and (ii) with respect to a Special Deferral payment
date, in the first year in which the Management Committee, in its sole
discretion, determines either that such payment would be deductible or to
forego the deduction, in each case such delayed payment being based on the
value of the Account at the time of such actual payment.
Notwithstanding anything in the Plan to the contrary however, each
Participant who has an Account under the Plan on October 1, 1994 shall be given
a one-time irrevocable election to select, within the distribution options
specified above, the manner in which one or more of such Accounts is to be paid
on his or her Termination; provided, however, no such distribution election
shall be effective with respect to any Termination (or Special Deferral payment
date) occurring prior to January 1, 1995, unless such Termination is due to the
Participant's death, Permanent Disability occurring after October 1, 1994, or
involuntary termination by the Company or a subsidiary (whether a termination
is involuntary shall be determined by the Committee). Such distribution
election shall be in such form as established by the Management Committee and
must be made prior to October 1, 1994.
Further, if the Management Committee determines at any time that
Participants may be given the ability to change their election as to the form
of distribution of their Account(s) without causing the loss of any exempt
treatment to "insiders" for securities laws purposes, the Management Committee
may amend the Plan to provide for such election changes as it deems
appropriate.
-12-
15
6.10 Acceleration of Payments. Notwithstanding a Participant's
election to the contrary, the Management Committee, in its sole discretion, may
accelerate the payment of all or part of the unpaid balance of a Participant's
Account(s) in the event of the Participant's Termination, or upon its
determination that the Participant (or his or her Beneficiary in the case of
the Participant's death) has incurred a "severe financial hardship" resulting
from a sudden and unexpected illness or accident of such person or of a
dependent, a loss of such person's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of such person. The Management Committee in making its
determination of severe financial hardship may consider such factors and
require such information as it deems appropriate, but, in any case, payment may
not be made to the extent that such hardship is or may be relieved (i) through
reimbursement or compensation by insurance or otherwise or (ii) by liquidation
of such person's assets, to the extent liquidation of such assets will not
itself cause severe financial hardship. However, notwithstanding the
foregoing, the Management Committee shall not accelerate the payment of any
Company Stock Account maintained for a Participant if such acceleration would
cause the loss on any exempt treatment under the Plan for "insiders" for
securities laws purposes.
6.11 Payment of Burlington Northern Inc. Deferred Incentive Awards.
Incentive Awards that were deferred by a Participant under the Burlington
Northern Inc. Incentive Compensation Plan, together with interest accrued
thereon, shall be paid by the Company in accordance with the terms of this Plan
and shall be in lieu of payment by Burlington Northern Inc.
6.12 Payment Upon Change in Control. Notwithstanding any other
provision of this Plan, in the event of a Change in Control of the Company, the
maximum bonus amount attributable to the year in which the Change in Control
-13-
16
occurs shall become fully vested and payable within 30 days after the date of
the Change in Control.
For purposes of this Plan a "Change in Control" shall be deemed to
occur:
(i) if any person (as such term is used in sections 13(d) and
14(d)(2) of the Exchange Act (as defined in Section 7.7)) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of securities of the Company representing 20% or
more of the combined voting power of the Company's then outstanding
securities,
(ii) upon the first purchase of the Company's common stock
pursuant to a tender or exchange offer (other than a tender or exchange
offer made by the Company),
(iii) upon the approval by the Company's stockholders of a
merger or consolidation, a sale or disposition of all or substantially
all of the Company's assets or a plan of liquidation or dissolution of
the Company, or
(iv) if, during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board
cease for any reason to constitute at least a majority thereof, unless
the election or nomination for the election by the Company's
stockholders of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at
the beginning of the period.
SECTION 7
GENERAL PROVISIONS
7.1 Unfunded Obligation. The amounts to be paid to Participants
pursuant to this Plan are unfunded obligations of the Company. The Company is
not required to segregate any monies from its general funds, to create any
trusts, or to make any special deposits with respect to this obligation. Title
to and beneficial ownership of any investments, including trust investments,
which the Company may
-14-
17
make to fulfill this obligation shall at all times remain in the Company. Any
investments and the creation or maintenance of any trust or notional accounts
shall not create or constitute a trust or a fiduciary relationship between the
Management Committee or the Company and a Participant, or otherwise create any
vested or beneficial interest in any Participant or his or her Beneficiary or
his or her creditors in any assets of the Company whatsoever. The Participants
(and Beneficiaries) shall have no claim against the Company for any changes in
the value of any Accounts and shall be general unsecured creditors of the
Company with respect to any payment due under this Plan.
7.2 Incapacity of Participant or Beneficiary. If the Management
Committee finds that any Participant or Beneficiary to whom a payment is
payable under the Plan is unable to care for his or her affairs because of
illness or accident or is under a legal disability, any payment due (unless a
prior claim therefore shall have been made by a duly appointed legal
representative) at the discretion of the Management Committee, may be paid to
the spouse, child, parent or brother or sister of such Participant or
Beneficiary or to any person whom the Management Committee has determined has
incurred expense for such Participant or Beneficiary. Any such payment shall
be a complete discharge of the obligations of the Company under the provisions
of the Plan.
7.3 Nonassignment. The right of a Participant or Beneficiary to the
payment of any amounts under the Plan may not be assigned, transferred, pledged
or encumbered in any manner nor shall such right or other interests be subject
to attachment, garnishment, execution or other legal process.
7.4 No Right to Continued Employment. Nothing in the Plan shall be
construed to confer upon any Participant any right to continued employment with
the Employers, nor interfere in any way with the right of an Employer to
terminate the employment of such Participant at any time without assigning any
reason therefor.
-15-
18
7.5 Withholding Taxes. Appropriate taxes shall be withheld from the
Participant's Incentive Award with respect to all deferrals made under the Plan
and from all payments made to Participants and Beneficiaries pursuant to the
Plan.
7.6 Termination and Amendment. The Compensation and Nominating
Committee of the Board may from time to time amend, suspend or terminate the
Plan, in whole or in part, and if the Plan is suspended or terminated, the
Compensation and Nominating Committee may reinstate any or all of its
provisions. The Management Committee may also amend the Plan; provided,
however, it may not suspend or terminate the Plan, or substantially increase
the obligations of the Company under the Plan (provided, however, the addition
of new notional subaccounts for investments shall not be deemed an increase in
the obligations of the Company), or expand the classification of employees who
are eligible to participate in the Plan. No amendment, suspension or
termination of the Plan may impair the right of a Participant or his or her
Beneficiary to receive the benefit accrued hereunder prior to the effective
date of such amendment, suspension or termination.
7.7 Compliance with Securities Laws. It is the intention of the
Company that, so long as any of the Company's equity securities are registered
pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), this Plan shall be construed to meet the
requirements for exemption from Section 16 of the Exchange Act and, if any Plan
provision is later found to be contrary to meeting the requirements for such
exemption, that provision shall be deemed null and void. Notwithstanding
anything in the Plan to the contrary, the Compensation and Nominating
Committee, in its absolute discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to
Participants who are officers and directors subject to Section 16 of the
Exchange Act without so restricting, limiting or conditioning the Plan with
respect to other Participants.
-16-
19
7.8 Applicable Law. Except to the extent preempted by applicable
federal law, the Plan shall be construed and governed in accordance with the
laws of the State of Texas.
-17-