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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A INFORMATION
PROXY STATEMENT
PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
CHECK THE APPROPRIATE BOX:
[ ] PRELIMINARY PROXY STATEMENT
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14a-6(e)(2))
[X] DEFINITIVE PROXY STATEMENT
[ ] DEFINITIVE ADDITIONAL MATERIALS
[ ] SOLICITING MATERIAL PURSUANT TO SEC. 240.14a-11(c) OR SEC. 240.14a-12
------------------------
BURLINGTON RESOURCES INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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[BURLINGTON RESOURCES LOGO]
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held April 17, 2002
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Burlington Resources Inc. will be
held on Wednesday, April 17, 2002, at 9:00 a.m. local time in the Ambassador
Room, The St. Regis Hotel, 1919 Briar Oaks Lane, Houston, Texas, for the
following purposes:
1. To elect eleven directors, each to hold office for a term of one year.
2. To consider and approve the Burlington Resources Inc. 2002 Stock
Incentive Plan.
3. To transact any other business which may be properly brought before the
meeting.
Only stockholders of record at the close of business on February 20, 2002
are entitled to notice of, and to vote at, the meeting and any adjournment
thereof.
By Order of the Board of Directors
JEFFERY P. MONTE
Corporate Secretary
March 15, 2002
BURLINGTON RESOURCES INC.
5051 WESTHEIMER
HOUSTON, TEXAS 77056-2124
Mailing Date:
March 15, 2002
PROXY STATEMENT
The enclosed proxy is solicited by the management of Burlington Resources
Inc. (the "Company") for use at the Annual Meeting of Stockholders on April 17,
2002. Shares of common stock, par value $.01 per share ("Common Stock") of the
Company represented by a properly executed proxy will be voted at the meeting.
The proxy may be revoked at any time before its exercise by sending written
notice of revocation to Mr. Jeffery P. Monte, Corporate Secretary, Burlington
Resources Inc., 5051 Westheimer, Suite 1400, Houston, Texas 77056-2124, or by
signing and delivering a proxy which is dated and received later, either
electronically or by mail, or, if the stockholder attends the meeting in person,
by giving notice of revocation to the Inspector of Election at the meeting.
February 20, 2002 was the record date for the determination of stockholders
entitled to notice of, and to vote at, the meeting. On that date there were
outstanding and entitled to vote 200,935,551 shares of Common Stock, which is
the Company's only class of voting securities. Each stockholder is entitled to
one vote for each share of Common Stock held of record. A plurality of the
shares of Common Stock present in person or represented by proxy at the meeting
is required for the election of Directors. An affirmative vote of a majority of
the shares of Common Stock present in person or represented by proxy and
entitled to vote at the meeting is required for approval of all other items
being submitted to the stockholders for their consideration. Abstentions are
counted in the number of shares present in person or represented by proxy and
entitled to vote for purposes of determining whether a proposal has been
approved, whereas broker nonvotes are not counted for those purposes.
INFORMATION ABOUT THE BOARD OF DIRECTORS
The Board of Directors of the Company held 9 meetings during 2001. The
standing committees of the Board of Directors include an Audit Committee and a
Compensation and Nominating Committee. The Audit Committee held 6 meetings
during 2001. This committee's primary purpose is to assist the Board of
Directors in overseeing management and the independent auditors in fulfilling
their responsibilities in the financial reporting process of the Company. The
Compensation and Nominating Committee held 4 meetings during 2001. This
committee reviews and recommends to the Board of Directors the compensation and
promotion of senior officers, the size and composition of the Board of
Directors, including nominees for Directors, and any proposed broad-based and
stock-based employee benefit plans. In addition, this committee grants
restricted stock, stock options and other forms of long-term incentive
compensation. During 2001, each Director attended at least 75 percent of the
meetings of the Board of Directors and the committees thereof on which such
Director served.
The Compensation and Nominating Committee will consider proposals for
nominees for Directors from stockholders which are made in writing to Mr.
Jeffery P. Monte, Corporate Secretary, Burlington Resources Inc., 5051
Westheimer, Suite 1400, Houston, Texas 77056-2124.
STOCK OWNERSHIP OF MANAGEMENT
AND CERTAIN OTHER HOLDERS
The following table sets forth information about the only known beneficial
owners of more than 5% of the Company's Common Stock as of February 20, 2002.
This information is based solely on the Company's review of Schedules 13G filed
by such beneficial owners with the Securities and Exchange Commission (the
"SEC").
PERCENT
NAME AND ADDRESS OF NUMBER OF OF
BENEFICIAL OWNER SHARES CLASS
------------------- ---------- -------
FMR Corp., Edward C. Johnson 3d and Abigail P. Johnson(1)... 11,058,030 5.51%
82 Devonshire Street
Boston, Massachusetts 02109
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NOTES
(1) In its Schedule 13G filed January 10, 2002 with respect to its securities as
of December 31, 2001, FMR Corp. states that it has sole voting power as to
2,178,813 shares and sole dispositive power with respect to 11,058,030
shares. Mr. Johnson and Ms. Johnson state that they each have sole voting
power with respect to no shares and sole dispositive power with respect to
11,058,030 shares.
The following table sets forth the number of shares of Common Stock
beneficially owned as of February 20, 2002 by each Director or nominee for
Director, the executive officers of the Company named in the Summary
Compensation Table below, and by all Directors and executive officers as a
group. No individual Director or nominee for Director or named executive officer
beneficially owns 1 percent or more of the Company's outstanding Common Stock,
nor do the Directors and executive officers as a group.
NUMBER OF SHARES
------------------------------------------
BENEFICIALLY DEFERRAL
NAME OWNED (1) PLANS (2) TOTAL
----------------------------------------------- ------------ --------- ---------
DIRECTORS
R.V. Anderson.................................. 6,000 1,778 7,778
L. I. Grant.................................... 15,762 9,272 25,034
R. J. Harding.................................. -- -- --
J. T. LaMacchia................................ 18,000 4,156 22,156
J. F. McDonald................................. 17,653 4,158 21,811
K. W. Orce..................................... 36,877(3) 6,255 43,132
D. M. Roberts.................................. 38,000 13,734 51,734
J. F. Schwarz.................................. 19,088(4) 6,842 25,930
W. Scott, Jr................................... 16,296 12,160 28,456
B. S. Shackouls................................ 680,021 129,321 809,342
W. E. Wade, Jr. ............................... 6,300 1,007 7,307
NAMED EXECUTIVE OFFICERS
L. D. Hanower.................................. 166,135 37,698 203,833
R. L. Limbacher................................ 145,470 24,646 170,116
S. J. Shapiro.................................. 66,427 6,397 72,824
J. A. Williams................................. 136,331 25,451 161,782
ALL DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (15 PERSONS)...................... 1,367,060 281,868 1,648,928
NOTES
(1) For purposes of this table, shares are considered to be "beneficially"
owned if the person directly or indirectly has sole or shared voting or
investment power with respect to such shares. In addition, a person is
deemed to beneficially own shares if that person has the right to
acquire such shares within 60 days of February 20, 2002; as a result,
the number of shares shown in this column includes for Mr. Anderson,
Ms. Grant, Mr. LaMacchia, Mr. McDonald, Mr. Orce, Mr. Roberts, Mr.
Schwarz, Mr. Scott, Mr. Wade, Mr. Shackouls, Mr. Hanower, Mr.
Limbacher, Mr. Shapiro, and
2
Mr. Williams 5,000, 10,000, 10,000, 14,553, 24,252, 13,000, 16,626,
14,553, 5,000, 609,000, 140,525, 122,100, 50,000, and 122,000 shares,
respectively, and 1,156,609 shares for all Directors and executive
officers as a group, which such person (or group) has the right to
acquire within 60 days of February 20, 2002. For Messrs. Shackouls,
Hanower, Limbacher, Shapiro and Williams, the number of shares shown in
this column includes 65,000, 15,000, 15,000, 10,000, and 15,000 shares
of Common Stock, respectively, subject to restrictions. Unless
otherwise indicated below, the Directors, nominees for Directors, and
executive officers named in the table above have sole voting and
investment authority with respect to the shares set forth in the table.
(2) These shares represent the economic equivalent of shares of Common
Stock, and were received as a result of grants under the Phantom Stock
Plan for Non-Employee Directors and several deferred compensation plans
of the Company. These share equivalents are subject to Common Stock
market price fluctuations.
(3) Includes 3,000 shares of Common Stock owned by trusts of which Mr.
Orce's wife is trustee and their children are beneficiaries. Mr. Orce
disclaims beneficial ownership of these shares.
(4) Includes 1,200 shares of Common Stock owned by Entech Enterprises,
Inc., of which Mr. Schwarz is President and Chief Executive Officer.
Mr. Schwarz disclaims beneficial ownership of these shares.
3
ELECTION OF DIRECTORS
The Board of Directors currently consists of ten Directors. In accordance
with the By-Laws of the Company, the Board of Directors has fixed the number of
Directors constituting the Board of Directors at eleven effective April 17,
2002. It is proposed to elect eleven Directors, each to hold office for a term
of one year and until his or her successor shall have been elected and
qualified. Unless otherwise instructed by the stockholder, the persons named in
the enclosed form of proxy will vote the shares represented by such proxy for
the election of the nominees named in this Proxy Statement, subject to the
condition that if any of the named nominees should be unable to serve,
discretionary authority is reserved to vote for a substitute. No circumstances
are presently known which would render any nominee named herein unable or
unwilling to serve. Holders of the voting stock may not cumulate their votes in
the election of Directors.
Except for Mr. Harding, each of the following nominees is a Director of the
Company at the present time:
REUBEN V. ANDERSON--Age--59. Member--Audit Committee. Partner, Phelps
Dunbar, Jackson, Mississippi--Law. For more than five years, Mr. Anderson's
principal occupation has been as shown above. Mr. Anderson has been a Director
of the Company since July 2001. Mr. Anderson is also a director of BellSouth,
The Kroger Company, Trustmark National Bank and Mississippi Chemical
Corporation.
LAIRD I. GRANT--Age--56. Member--Audit Committee. Managing Director, U.S.
Trust Company, Naples, Florida--Investment Management. Since October 2001, Ms.
Grant's principal occupation has been as shown above. From December 1998 to
October 2001, Ms. Grant was retired. From January 1995 to December 1998, Ms.
Grant was President, Chief Executive Officer, Chief Investment Officer, and
Director, Rockefeller & Co., Inc. a registered investment advisor. Ms. Grant has
been a Director of the Company since 1996.
ROBERT J. HARDING, FCA--Age--44. Chairman, Brascan Corporation, Toronto,
Canada -- Real Estate, Financial and Power Generation Company with Investments
in Natural Resources. Since August 1997, Mr. Harding's principal occupation has
been as shown above. From February 1992 to August 1997, Mr. Harding was
President and Chief Executive Officer of The Edper Group Limited, the
predecessor to Brascan Corporation. If elected, Mr. Harding will commence
service as a Director beginning April 2002. Mr. Harding is also a director of
BPO Properties Inc., Noranda Inc., Nexfor Inc. and Falconbridge Limited.
JOHN T. LAMACCHIA--Age--60. Member--Compensation and Nominating Committee.
Chairman and Chief Executive Officer, Tellme Networks, Inc., Mountain View,
California--Telecommunications. Since September 2001, Mr. LaMacchia's principal
occupation has been as shown above. From May 2000 to September 2001, Mr.
LaMacchia was retired. From May 1999 to May 2000, Mr. LaMacchia was President
and Chief Executive Officer of Cellnet Data Systems, Inc. From October 1993
through February 1999, Mr. LaMacchia was President and Chief Executive Officer,
Cincinnati Bell Inc. Mr. LaMacchia has been a Director of the Company since
1996. Mr. LaMacchia is also a director of Geneva Steel Holdings Corp., and The
Kroger Company. In February 2000, Cellnet Data Systems Inc. filed a voluntary
petition for bankruptcy under Chapter 11 of the United States Bankruptcy Code in
connection with the acquisition of the company's assets and assumption of
certain debt by Schlumberger Limited.
JAMES F. MCDONALD--Age--62. Member--Audit Committee. Chairman, President
and Chief Executive Officer, Scientific-Atlanta, Inc., Lawrenceville,
Georgia--Telecommunications. Since November 2000, Mr. McDonald's principal
occupation has been as shown above. From July 1993 to November 2000 Mr. McDonald
was President and Chief Executive Officer, Scientific-Atlanta, Inc. Mr. McDonald
has been a Director of the Company since 1988. Mr. McDonald is also a director
of Mirant Corporation and National Data Corporation.
KENNETH W. ORCE--Age--58. Chairman--Audit Committee. Senior Partner, Cahill
Gordon & Reindel, New York, New York--Law. For more than five years, Mr. Orce's
principal occupation has been as shown above. Mr. Orce has been a Director of
the Company since 1997. Cahill Gordon & Reindel provides legal services to the
Company and its subsidiaries.
DONALD M. ROBERTS--Age--66. Member--Audit Committee. Retired. Mr. Roberts
has been retired since September 1995. From February 1990 until September 1995,
Mr. Roberts was Vice Chairman and
4
Treasurer, United States Trust Company of New York and its parent, U.S. Trust
Corporation. Mr. Roberts has been a Director of the Company since 1993. Mr.
Roberts is also a director of York International Corporation.
JOHN F. SCHWARZ--Age--65. Member--Compensation and Nominating Committee.
Chairman, President and Chief Executive Officer, Entech Enterprises, Inc.,
Houston, Texas--Energy Investments. For more than five years, Mr. Schwarz'
principal occupation has been as shown above. Mr. Schwarz has been a Director of
the Company since 1997.
WALTER SCOTT, JR.--Age--70. Chairman--Compensation and Nominating
Committee. Chairman, Level 3 Communications, Inc., Omaha,
Nebraska -- Telecommunications and Internet Services. Since April 1998, Mr.
Scott's principal occupation has been as shown above. From 1979 through March
1998, Mr. Scott was Chairman and President of Peter Kiewit Sons', Inc. Mr. Scott
has been a Director of the Company since 1988. Mr. Scott is also a director of
Berkshire Hathaway Inc., Commonwealth Telephone Enterprises, Inc., RCN
Corporation, Valmont Industries, Inc., Peter Kiewit Sons' Inc. and Kiewit
Materials Company.
BOBBY S. SHACKOULS--Age--51. Chairman of the Board, President and Chief
Executive Officer, Burlington Resources Inc., Houston, Texas. Since July 1997,
Mr. Shackouls' principal occupation has been as shown above. From December 1995
to July 1997, Mr. Shackouls was President and Chief Executive Officer of the
Company. Mr. Shackouls has been a Director of the Company since 1995. Mr.
Shackouls is also a director of The Kroger Company.
WILLIAM E. WADE, JR.--Age--59. Member--Compensation and Nominating
Committee. Retired. From January 1998 to September 1998 Mr. Wade was President
of Atlantic Richfield Company, an oil and gas company ("ARCO"). He served as an
Executive Vice President of ARCO from June 1993 to January 1998. Mr. Wade has
been a Director of the Company since July 2001.
DIRECTORS' COMPENSATION
Directors who are not officers or employees of the Company receive an
annual retainer of $55,000. Directors who are also officers or employees of the
Company do not receive any compensation for duties performed as Directors.
Directors who are not officers or employees of the Company may defer all or part
of their compensation.
The Company's 2000 Stock Option Plan for Non-Employee Directors provides
for the annual grant of a nonqualified option for 2,000 shares of Common Stock
immediately following the Annual Meeting of Stockholders to Directors who are
not employees of the Company. In addition, an option for 5,000 shares is granted
upon a Director's initial election or appointment to the Board of Directors. The
exercise price per share with respect to each option is the fair market value
(as defined in the plan) of the Common Stock on the date the option is granted.
During 2001, an annual option for 2,000 shares of Common Stock was granted to
Ms. Grant and to Messrs. LaMacchia, McDonald, Orce, Roberts, Schwarz, and Scott
pursuant to this plan. In addition, during 2001 an option for 5,000 shares of
Common Stock was granted to Messrs. Anderson and Wade upon their appointment to
the Board of Directors pursuant to this plan.
The Company's Phantom Stock Plan for Non-Employee Directors provides that
immediately following each Annual Meeting of Stockholders, a memorandum account
established for each of the Directors who is not an employee of the Company will
be credited with 1,000 shares of phantom stock. Dividends paid on Common Stock
are deemed to be reinvested in additional phantom stock pursuant to the plan.
Amounts credited to the memorandum accounts pursuant to this plan are unfunded
obligations of the Company. Upon termination of service as a Director, phantom
shares credited in the memorandum account will be valued at the fair market
value of the Company's Common Stock at that time and paid in cash.
The Company has established a Charitable Award Program for Directors who
have served on the Board of Directors for at least two years. Upon the death of
a Director, the Company will donate $1 million to one or more educational
institutions or private foundations nominated by the Director.
5
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and Directors and persons who own more than 10 percent of a
registered class of the Company's equity securities to file initial reports of
ownership and changes in ownership with the SEC and the New York Stock Exchange.
Such officers, Directors and stockholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on a review of the copies of such forms furnished to the Company by the
Company's executive officers, Directors, and persons who own more than 10
percent of a registered class of the Company's equity securities, all persons
subject to the reporting requirements of Section 16(a) filed the required
reports on a timely basis, except John A. Williams filed a late Form 4
disclosing the sale of 8,057 shares of Common Stock.
6
REPORT ON EXECUTIVE COMPENSATION
BY THE COMPENSATION AND NOMINATING COMMITTEE
The Compensation and Nominating Committee of the Board of Directors (the
"Committee") is composed entirely of Directors who are not employees of the
Company. The Committee is responsible for establishing and administering the
Company's executive compensation program.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The philosophy underlying the development and administration of the
Company's annual and long-term compensation plans is the alignment of the
interests of the Company's executives with those of the shareholders. Key
elements of this philosophy are:
- Establishing compensation plans which strengthen the Company's ability to
attract and retain executives and key employees and to deliver pay
commensurate with the Company's performance, as measured by strategic,
operating and financial objectives.
- Providing significant equity-based incentives for executives to ensure
that they are motivated over the long term to respond to the Company's
business challenges and opportunities as owners rather than just as
employees.
- Rewarding executives for superior performance when shareholders receive
an above-average return on their investment over the long term.
One of the Committee's objectives is to position executive base salaries to
be competitive with other companies in the energy sector. In 2001, executive
base salaries were at the median when compared to a group of oil and gas
companies. This compensation comparator group includes many of the companies
currently in the Dow Jones Secondary Oil Index, which is used in the Comparison
of Cumulative Total Shareholder Return, together with certain other independent
and integrated oil and gas companies. The performance of the companies in the
compensation comparator group is not considered in establishing executive base
salaries.
The Incentive Compensation Plan, or annual bonus plan, is the program by
which executives can earn additional compensation based on individual, division
and Company performance relative to certain annual objectives. At maximum award
levels, total annual cash compensation for the Company's executives is in the
top quartile of the compensation comparator group's total annual cash
compensation. The plan allows for maximum awards of up to 150 percent of base
salary. In evaluating the Company's 2001 performance, the Committee considered a
combination of strategic, operating and financial objectives, including Return
on Capital Employed, growth in Appraised Net Worth per share, Change in Earnings
Before Interest, Income Taxes, Depreciation, Amortization, and Exploration
Expenses (EBITDAX), Production and Reserve Replacement Cost. Some of these
metrics, such as Appraised Net Worth and EBITDAX, are calculated on a price
normalized basis. These measures were specifically weighted and are considered
to be critical to the Company's fundamental goal of building shareholder value.
In addition, the Committee has the discretion to override the result of these
measures based upon the Company's relative Total Shareholder Return as compared
to the Dow Jones Secondary Oil Index.
Beginning in 2002, the Company will begin to use a self-constructed peer
group for purposes of assessing its relative Total Shareholder Return. The new
peer group includes large capitalization exploration and production companies
including Anadarko Petroleum Corp., Apache Corp., Devon Energy Corporation, EOG
Resources, Inc., Noble Affiliates, Inc., Ocean Energy, Inc. and Unocal
Corporation. There will also be a change in the metrics utilized for 2002.
Change in Unit Cash Costs will be added. Production will be redefined as Change
in Production per Share. Change in EBITDAX will be eliminated as the revenue
component will be reflected in the Production metric and the cost component will
be provided by the Cash Cost metric.
The Company's long-term incentive program consists of the 1993 Stock
Incentive Plan (the "Stock Incentive Plan") and the 2001 Performance Share Unit
Plan (the "PSU Plan"). The Committee's objective is to structure the executives'
long-term incentive compensation opportunity at approximately the seventy-fifth
percentile of long-term compensation provided by the compensation comparator
group and to emphasize equity as the cornerstone of the Company's long-term
incentive compensation program. Long-term incentive
7
benefits are dependent on the Company's achievement of its strategic, operating
and financial goals, the Company's relative Total Shareholder Return as compared
to the TSR peer group, and the price of the Company's Common Stock.
Under the Stock Incentive Plan, stock options are granted to executives,
managers and key employees. The options vest no earlier than one year after the
grant date, have a term of ten years and have an exercise price equal to the
fair market value of the Common Stock on the day of grant. Restricted stock is
also granted to this group of employees. The restrictions on this stock
generally lapse on the third anniversary of the date of grant. Stock purchase
rights are also made available to the same group of employees. They give the
employee a one-time opportunity to purchase, with all or a portion of his or her
after-tax annual bonus or PSU Plan pay-out, the Company's Common Stock at a
discount of up to 25 percent of fair market value. Stock purchased under the
Plan cannot be sold for at least three years or until termination of employment.
The 1993 Stock Incentive Plan will terminate upon the approval of the Burlington
Resources Inc. 2002 Stock Incentive Plan by stockholders. The 2002 Stock
Incentive Plan does not include stock purchase rights.
Vesting of units under the PSU Plan occurs over a four year performance
period ending in December 2004 and is dependent on the Company's achievement of
its strategic, operating and financial objectives and the Company's relative
Total Shareholder Return. Up to 25 percent of the units granted are eligible to
vest and pay-out for each year of the plan. Units which do not vest in any given
year may be carried over for vesting consideration at the end of the four year
cycle.
The deferred compensation provisions of the Company's compensation plans,
including the PSU Plan, permit participants to allocate all or a portion of
their deferred compensation in a variety of investment funds, including phantom
shares of the Company's Common Stock. As an inducement for executives to
increase their exposure to the Company's Common Stock the plans permit
executives the opportunity to invest their deferred PSU Plan pay-out in phantom
shares at 75 percent of the fair market value of the Company's Common Stock,
provided that such funds may not be transferred to another investment fund for
three years or until termination of employment. Beginning in 2003, the Incentive
Compensation Plan will also allow deferrals into phantom stock at 75 percent of
fair market value.
The Omnibus Budget Reconciliation Act of 1993 places a limit on the amount
of certain types of compensation for each of the executive officers which may be
tax deductible by the Company. The Company's policy is, primarily, to design and
administer compensation plans which support the achievement of long-term
strategic objectives and enhance shareholder value. Where it is consistent with
this compensation philosophy, the Committee will also attempt to structure
compensation programs that are tax-deductible by the Company.
COMPANY PERFORMANCE AND COMPENSATION
Annual Incentive Award
The Company generally exceeded its operational objectives for the year.
Natural gas equivalent production, Return on Capital Employed and growth in
price normalized EBITDAX all exceeded objectives. Price normalized Appraised Net
Worth per share met the target. Reserve replacement costs were higher than
target.
Through several initiatives, including the acquisition of Canadian Hunter
Exploration Ltd., the Company improved its portfolio of future investment
opportunities. Through internal development and acquisitions, the Company
replaced 268 percent of production for the year and grew reserves by 19 percent
per share.
In view of these results, the Committee awarded Mr. Shackouls an annual
incentive award of $1,109,550, which represents 113.8 percent of his base
salary. Similarly, the Committee awarded the other executive officers 113.8
percent of their base salaries.
In general, the Committee reviews the base salaries for the executive group
every year and in connection with promotions or significant changes in
responsibilities. The base salary for Mr. Shackouls and for most of the other
executive officers were not adjusted in January 2002.
8
Long-Term Incentive Plan Payout
The Company's performance, for purposes of the PSU Plan pay out, was
evaluated over a one year period, beginning January 1, 2001 and ending December
31, 2001. The Committee determined that the Company's performance was average
and its Total Shareholder Return was below average, compared to the Dow Jones
Secondary Oil Index and the new self-constructed TSR peer group. The Committee
approved the vesting of 50 percent of the eligible units based upon the
Company's performance for 2001 or 25,000 units for Mr. Shackouls and 25,000
units for the other executive officers.
Pay-out under the PSU Plan, which occurred in January 2002, was based on
the number of vested units multiplied by the average closing price of the
Company's Common Stock for the 20 trading days prior to and including December
31, 2001. Aggregate payments under this plan consisted of $911,500 to Mr.
Shackouls and $911,500 to the other executive officers.
Long-Term Incentive Plan Awards
As an incentive for future performance and consistent with the objective of
targeting long-term incentive compensation at the seventy-fifth percentile when
compared to the comparator group of oil and gas companies, the Committee in
January 2002 granted Mr. Shackouls 140,000 stock options and 20,000 shares of
restricted stock. The Committee also granted the other executive officers an
aggregate of 140,000 stock options and an aggregate of 20,000 shares of
restricted stock. The grant of restricted stock vests in three years.
No new awards were made under the PSU Plan in January 2002.
STOCK OWNERSHIP
The Committee established stock ownership guidelines in 1993 to more
closely align executive management's personal financial interests with the
interests of all shareholders. The guidelines require executives, depending upon
their position, to hold the equivalent of one to four times their base pay in
the Company's stock. These targets were to be achieved by the end of 1998 or,
for new incumbents, within five years of their appointment to the position. As
of February 20, 2002, the record date for the Annual Meeting, each of the
Company's executive officers had attained the stock ownership targets currently
required by the guidelines.
COMPENSATION AND NOMINATING COMMITTEE
Walter Scott, Jr., Chairman
John T. LaMacchia
John F. Schwarz
William E. Wade, Jr.
9
PERFORMANCE GRAPH
Since 1995, the Company has compared the Cumulative Total Shareholder
Return on the Common Stock of the Company with that of the Dow Jones Secondary
Oil Index. Beginning in 2002, the Company will use a self-constructed peer group
for purposes of assessing its relative Total Shareholder Return. The new peer
group consists of Anadarko Petroleum Corp., Apache Corp., Devon Energy
Corporation, EOG Resources, Inc., Noble Affiliates, Inc., Ocean Energy, Inc. and
Unocal Corporation. The Company selected this peer group from companies in the
independent oil and gas exploration and production industry comparable to the
Company based on production and reserve size, upstream and North American
business focus, product mix and market capitalization. The Company believes that
this group is more representative of its peers than the index previously used.
Comparison of 5-Year Cumulative Total Shareholder Return(1)
[PERFORMANCE GRAPH]
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
-------- -------- -------- -------- -------- --------
Burlington Resources(2).......... $100 $ 90 $ 73 $ 68 $106 $ 80
S & P 500........................ 100 133 171 207 188 166
Secondary Oil.................... 100 100 68 79 126 116
Corporate Peers.................. 100 94 75 88 158 124
YEAR ENDED DECEMBER 31
Comparison of Cumulative Total Shareholder Return
Since the Company's Initial Public Offering(1)
[PERFORMANCE GRAPH]
7/8/88 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
------- -------- -------- -------- -------- -------- -------- -------- --------
Burlington Resources(2)....... $100 $129 $194 $155 $146 $197 $211 $177 $201
S & P 500..................... 100 105 138 133 174 187 206 209 287
Secondary Oil................. 100 106 120 115 135
Corporate Peers(3)............ 100 108 168 149 136 156 188 183 214
12/31/96 12/31/97 12/31/98 12/31/99 12/31/2000 12/31/2001
-------- -------- -------- -------- ---------- ----------
Burlington Resources(2)....... $262 $236 $191 $179 $377 $209
S & P 500..................... 353 470 604 731 665 586
Secondary Oil................. 171 171 117 135 216 198
Corporate Peers(3)............ 288 271 215 252 456 353
YEAR ENDED DECEMBER 31
10
------------------
NOTES
(1) Assumes that the value of the investment in the Company's Common Stock and
in each index was $100 on December 31, 1996 and July 8, 1988, and that all
dividends were reinvested.
(2) The Company's Common Stock return assumes that the .24 share of El Paso
Natural Gas Company ("EPNG") common stock distributed to the Company's
stockholders on June 30, 1992 was sold and the proceeds were reinvested in
the Company's Common Stock.
(3) The index is weighted to reflect the relative market capitalization of the
peer group companies at the beginning of each period for which a return is
indicated.
11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following information is furnished for the years ended December 31,
2001, 2000, and 1999 with respect to the Company's Chief Executive Officer and
each of the four other most highly compensated executive officers of the Company
and its subsidiaries during 2001 whose salary and bonus exceeded $100,000
("named executive officers"). Annual compensation includes amounts deferred at
the officer's election.
LONG-TERM COMPENSATION
----------------------------------------------
AWARDS
ANNUAL COMPENSATION ----------------------------
--------------------------------------- SECURITIES PAYOUTS
OTHER ANNUAL RESTRICTED UNDERLYING ---------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(5) STOCK AWARDS(2) OPTIONS LTIP PAYOUTS(3)
------------------------------ ---- -------- ---------- --------------- --------------- ---------- ---------------
Bobby S. Shackouls 2001 $975,000 $1,109,550 $ 82,260 $985,000 100,000 $ 911,500
Chairman of the Board, 2000 $910,020 $ 819,018 $ 67,010 $862,500 50,000 $2,265,842
President and Chief 1999 $825,000 $ 618,750 $109,309 $352,500 40,000 --
Executive Officer
Randy L. Limbacher 2001 $400,020 $ 455,223 $ 5,270 $246,250 25,000 $ 227,875
Senior Vice President, 2000 $375,000 $ 337,500 $ 4,794 $172,500 12,000 $ 527,209
Production 1999 $300,000 $ 225,000 $ 2,065 $176,250 20,000 --
Steven J. Shapiro(6) 2001 $400,020 $ 455,223 $ 20,078 $246,250 25,000 $ 227,875
Senior Vice President 2000 $ 75,255 $ 84,375 -- -- 50,000 --
and Chief Financial Officer
John A. Williams 2001 $400,020 $ 455,223 $ 3,252 $246,250 25,000 $ 227,875
Senior Vice President, 2000 $375,000 $ 337,500 $ 45,561 $172,500 12,000 $ 555,143
Exploration 1999 $350,040 $ 262,530 $ 25,491 $176,250 20,000 $ 47,068
L. David Hanower 2001 $365,040 $ 415,416 $ 21,375 $246,250 25,000 $ 227,875
Senior Vice President, 2000 $325,020 $ 292,518 $ 16,526 $172,500 12,000 $ 538,503
Law and Administration 1999 $275,040 $ 206,280 $ 9,506 $ 88,125 5,000 --
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION(4)
------------------------------ ---------------
Bobby S. Shackouls $123,137
Chairman of the Board, $100,057
President and Chief $ 79,595
Executive Officer
Randy L. Limbacher $ 64,376
Senior Vice President, $226,544
Production $ 34,239
Steven J. Shapiro(6) $ 82,235
Senior Vice President $ 3,750
and Chief Financial Officer
John A. Williams $317,324
Senior Vice President, $334,339
Exploration $160,420
L. David Hanower $128,563
Senior Vice President, $222,005
Law and Administration $ 26,258
---------------
NOTES
(1) Unless otherwise noted, bonus payments are reported for the year in which
the related services were performed.
(2) The value of restricted stock reported in this column is based on the
closing price of the Common Stock on the New York Stock Exchange on the date
of grant. On December 31, 2001, Messrs. Shackouls, Limbacher, Shapiro,
Williams and Hanower held 55,000, 15,000, 5,000, 15,000 and 12,500 shares,
respectively, of restricted Common Stock, having a market value, based on
the closing price of the Common Stock on such date, of $2,064,700, $563,100,
$187,700, $563,100 and $469,250, respectively. Dividends are paid on
restricted Common Stock at the same rate as paid to all stockholders.
(3) Regarding 2001, long-term incentive plan payout pursuant to the Company's
2001 Performance Share Unit Plan ("PSU Plan") for the performance period
which began January 1, 2001 and ended on December 31, 2001. Under the PSU
Plan, this payment is equal to the number of vested units multiplied by the
average closing price of the Company's Common Stock for the 20 business days
immediately preceding and including December 31, 2001. Of the units eligible
to vest in 2001, 50% were vested. Of this amount, Messrs. Williams and
Hanower deferred 100% of their payouts, and Mr. Shapiro deferred $159,513,
into phantom shares of the Company's Common Stock. Regarding 2000, long-term
incentive plan payout pursuant to the Company's 1997 Performance Share Unit
Plan ("1997 PSU Plan") for the performance period which began January 1,
1997 and ended on December 31, 2000. Under the terms of the 1997 PSU Plan,
this payment is equal to the number of vested units multiplied by the
average closing price of the Company's Common Stock for the 20 business days
immediately preceding and including the last day of the performance period.
Units vested under the 1997 PSU Plan throughout the four year performance
cycle. In aggregate, 65% of the units granted under the 1997 PSU Plan
vested.
(4) Includes matching contributions made by the Company during 2001 in the
Company's Retirement Savings Plan and Supplemental Benefits Plan for Messrs.
Shackouls, Limbacher, Shapiro, Williams and Hanower of $107,641, $59,002,
$29,064, $59,002 and $52,605, respectively. Includes matching contributions
made by the Company during 2000 in the Company's Retirement Savings Plan and
Supplemental Benefits Plan for Messrs. Shackouls, Limbacher, Shapiro,
Williams and Hanower of $91,726, $48,000, $3,750, $51,002 and $42,504,
respectively. Includes matching contributions made by the Company during
1999 in the Company's Retirement Savings Plan and Supplemental Benefits Plan
for Messrs. Shackouls, Limbacher, Williams and Hanower of $74,250, $34,001,
$41,004 and $26,258, respectively. Includes for Messrs. Shackouls, Limbacher
and Williams interest accrued during 2001 in excess of 120% of the
applicable federal interest rate with respect to salary and bonus deferrals
pursuant to the Company's Deferred Compensation Plan in the amounts of
$15,496, $5,374 and $7,490. Includes for Mr. Williams interest accrued
during 2001 in excess of 120% of the applicable federal interest rate with
respect to salary and bonus deferrals pursuant to the LL&E Deferred
Compensation Arrangement in the amount of $174,873. Includes for Messrs.
Shackouls, Limbacher and Williams interest accrued during 2000 in excess of
120% of the applicable federal interest rate with respect to salary and
bonus deferrals pursuant to the Company's Deferred Compensation Plan in the
amounts of $8,331, $2,808 and $121. Includes for Mr. Williams interest
accrued during 2000 in excess of 120% of the applicable federal interest
rate with respect to salary and bonus deferrals pursuant to the LL&E
Deferred Compensation Arrangement in the amount of $144,429. Includes for
Messrs. Shackouls, Limbacher and Williams interest accrued during 1999 in
excess of 120% of the applicable federal interest rate with respect to
salary and bonus deferrals pursuant to the Company's Deferred Compensation
Plan in the amounts of $5,345, $239 and $62. Includes for Mr. Williams
interest accrued during 1999 in excess of 120% of the applicable federal
interest rate with respect to salary and bonus deferrals pursuant to the
12
LL&E Deferred Compensation Arrangement in the amount of $119,354. Includes in
2001 for Messrs. Shapiro, Williams and Hanower, $53,171, $75,958 and $75,958,
respectively, with respect to the discount credited to PSU deferrals into the
phantom stock fund. Includes in 2000 for Messrs. Limbacher, Williams and
Hanower, $175,736, $138,786 and $179,501, respectively, with respect to the
discount credited to PSU deferrals into the phantom stock fund.
(5) For Mr. Shackouls, includes $41,177 attributed for personal use of Company
airplanes in 1999.
(6) Mr. Shapiro joined the Company October 18, 2000.
OPTIONS GRANTED IN 2001
The following information is furnished for the year ended December 31, 2001
with respect to the named executive officers for stock options which were
granted in January 2001 under the Stock Incentive Plan.
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED EXERCISE GRANT DATE
GRANTED IN TO EMPLOYEES PRICE EXPIRATION PRESENT
NAME 2001(1) IN 2001 PER SHARE DATE(1) VALUE(2)
---- ---------- ------------ --------- ---------- ----------
B. S. Shackouls........................... 98,100(3) 7.6% $50.72 1/17/11 $2,040,480
1,900(4) .6% $50.72 1/16/11 $ 36,157
R. L. Limbacher........................... 23,100(3) 1.8% $50.72 1/17/11 $ 480,480
1,900(4) .6% $50.72 1/16/11 $ 36,157
S. J. Shapiro............................. 23,100(3) 1.8% $50.72 1/17/11 $ 480,480
1,900(4) .6% $50.72 1/16/11 $ 36,157
J. A. Williams............................ 23,100(3) 1.8% $50.72 1/17/11 $ 480,480
1,900(4) .6% $50.72 1/16/11 $ 36,157
L. D. Hanower............................. 23,100(3) 1.8% $50.72 1/17/11 $ 480,480
1,900(4) .6% $50.72 1/16/11 $ 36,157
---------------
NOTES
(1) Under the terms of the Stock Incentive Plan, options are granted at fair
market value and generally may not be exercised until the employee has
completed one year of continuous employment with the Company or its
subsidiaries from the grant date. Options have a term of ten years and
generally terminate one year following an optionee's death or three years
after termination of employment, disability, retirement, termination in
certain events following a "Change in Control" of the Company, as defined in
the Stock Incentive Plan (a "Change in Control"), or other termination,
except that the Compensation and Nominating Committee may terminate options
earlier following such other termination of employment of the named
executive officers.
(2) The value has been calculated using a variation of the Black-Scholes stock
option valuation methodology. The applied model used the grant date of
January 17, 2001, with an option price of $50.72, it assumed a stock price
volatility of 39.83 percent, a risk-free rate of return of 6.03 percent and
a dividend of $0.55 per year. The value has been reduced by approximately
23.63 percent to reflect the probability of forfeiture due to termination of
employment prior to vesting or of a shortened option term due to termination
of employment prior to the expiration date.
(3) Nonqualified stock options which become exercisable on January 17, 2002.
(4) Incentive stock options which become exercisable on January 17, 2002.
13
AGGREGATED OPTION EXERCISES IN 2001 AND YEAR-END VALUES
The following information is furnished for the year ended December 31, 2001
with respect to the named executive officers for stock option exercises which
occurred during 2001.
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SECURITIES AT DECEMBER 31, 2001 AT DECEMBER 31, 2001(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
B. S. Shackouls........ -- -- 509,000 100,000 $331,997 --
R. L. Limbacher........ -- -- 97,100 25,000 $ 82,404 --
S. J. Shapiro.......... -- -- 25,000 50,000 -- --
J. A. Williams......... -- -- 97,000 25,000 $ 39,104 --
L. D. Hanower.......... 18,418 $368,380 115,525 25,000 $ 66,788 --
---------------
NOTES
(1) This amount is the aggregate of the market value of the Common Stock at the
time each stock option was exercised minus the exercise price for that
option.
(2) This amount is the aggregate of the number of in-the-money options
multiplied by the difference between the exercise price for that option and
$37.54, the closing price of the Common Stock on the New York Stock Exchange
on December 31, 2001.
LONG-TERM INCENTIVE PLAN AWARDS IN 2001
The following information is furnished for the year ended December 31, 2001
with respect to the named executive officers for grants under the PSU Plan which
occurred during 2001.
NUMBER OF UNITS MAXIMUM PERFORMANCE MAXIMUM
NAME GRANTED IN 2001 PERIOD UNTIL PAYOUT FUTURE PAYOUT(1)
---- --------------- ------------------- -----------------------
B. S. Shackouls........................ 200,000 12/31/04 200,000
R. L. Limbacher........................ 50,000 12/31/04 50,000
S. J. Shapiro.......................... 50,000 12/31/04 50,000
J. A. Williams......................... 50,000 12/31/04 50,000
L. D. Hanover.......................... 50,000 12/31/04 50,000
---------------
NOTE
(1) Under the terms of the PSU Plan, a portion of the units granted may vest
with respect to each year during the performance cycle and any remaining
unvested units may vest at the end of the performance cycle on December 31,
2004. Participants will receive a cash payment annually equal to the number
of vested units multiplied by the average closing price of the Common Stock
for the 20 business days immediately preceding and including December 31 of
the respective performance period year. In determining whether to vest
units, the Compensation and Nominating Committee evaluates the Company's
Total Shareholder Return versus the Dow Jones Secondary Oil Index (although
beginning in 2002, the Committee will use a self-constructed peer group for
purposes of assessing the Company's relative Total Shareholder Return). In
addition, the Committee evaluates the Company's performance based on a
combination of strategic, operating and financial objectives, which for 2001
included Return on Capital Employed, growth in Appraised Net Worth per
share, change in EBITDAX, Production and Reserve Replacement Cost. In 2002,
the Committee will also consider Change in Unit Cash Costs and Production
will be redefined as Change in Production per Share. Change in EBITDAX will
be eliminated. Units vest to the extent that the Committee determines that
the Company has achieved its target for these performance objectives. Under
the terms of the PSU Plan, the Compensation and Nominating Committee does
not establish thresholds or targets with respect to the vesting of units at
the time of the initial grant. In the event of a Change in Control (as
defined in the plan) of the Company, a participant will vest in a number of
units granted for each performance cycle that had not ended prior to the
date of the Change in Control
14
equal to the difference, if any, between (i) the product of the total number of
units originally granted to the participant multiplied by a fraction (the
numerator of which equals the number of days in the performance cycle from the
first day of the cycle through the date of the Change in Control and the
denominator equals the total number of days in the originally established
performance cycle) and (ii) the number of units granted to the participant
that had vested prior to the date of the Change in Control. Following a
Change in Control, the value of a unit is calculated based on the greater
of (x) the highest price at which the Common Stock traded during the 60-day
period ending on the date of the Change in Control and (y) the highest
price per share paid in connection with such Change in Control.
PENSION PLAN
Benefit accruals under the qualified pension plan of the Company and its
subsidiaries (the "Pension Plan") and the nonqualified Supplemental Benefits
Plan (the "Supplemental Benefits Plan") are based on the gross amount of
earnings, including incentive bonuses, but excluding all commissions and other
extra or added compensation or benefits of any kind or nature. Estimated annual
benefit levels under the Plans, based on earnings and years of credited service
at age 65, are as follows:
PENSION PLAN TABLE
AVERAGE YEARS OF SERVICE AT AGE 65
PENSION -------------------------------------------------------------
EARNINGS(1) 15 20 25 30 35
--------------------- -------- -------- ---------- ---------- ----------
400,000 93,990 125,320 156,650 187,980 219,310
500,000 117,990 157,320 196,650 235,980 275,310
600,000 141,990 189,320 236,650 283,980 331,310
700,000 165,990 221,320 276,650 331,980 387,310
800,000 189,990 253,320 316,650 379,980 443,310
900,000 213,990 285,320 356,650 427,980 499,310
1,000,000 237,990 317,320 396,650 475,980 555,310
1,100,000 261,990 349,320 436,650 523,980 611,310
1,200,000 285,990 381,320 476,650 571,980 667,310
1,300,000 309,990 413,320 516,650 619,980 723,310
1,400,000 333,990 445,320 556,650 667,980 779,310
1,500,000 357,990 477,320 596,650 715,980 835,310
1,600,000 381,990 509,320 636,650 763,980 891,310
1,700,000 405,990 541,320 676,650 811,980 947,310
1,800,000 429,990 573,320 716,650 859,980 1,003,310
1,900,000 453,990 605,320 756,650 907,980 1,059,310
2,000,000 477,990 637,320 796,650 955,980 1,115,310
2,100,000 501,990 669,320 836,650 1,003,980 1,171,310
2,200,000 525,990 701,320 876,650 1,051,980 1,227,310
2,300,000 549,990 733,320 916,650 1,099,980 1,283,310
2,400,000 573,990 765,320 956,650 1,147,980 1,339,310
2,500,000 597,990 797,320 996,650 1,195,980 1,395,310
2,600,000 621,990 829,320 1,036,650 1,243,980 1,451,310
2,700,000 645,990 861,320 1,076,650 1,291,980 1,507,310
2,750,000 657,990 877,320 1,096,650 1,315,980 1,535,310
---------------
NOTE
(1) Average pension earnings for a given year include salary and bonus payments.
Under the Pension Plan, the maximum benefit payable in 2002 is $160,000 and
the maximum amount of compensation that may be considered is $200,000.
Pension Plan benefits are not reduced by Social Security benefits.
15
The Pension Plan formula (as amended as of January 1, 1999) for normal
retirement benefits at age 65 is 1.1 percent of the highest three-year average
earnings, plus 0.5 percent of the highest three-year average earnings in excess
of one-third of the FICA taxable wage base in effect during the year of
termination, times the number of years of credited service. An early retirement
supplement equal to 1 percent of the highest three-year average earnings up to
one-third of the FICA taxable wage base in effect in the year of termination,
times the number of years of credited service, is payable until age 65. Both the
basic benefit and the early retirement supplement are reduced by 2 percent for
each year the employee's actual retirement date precedes the date the employee
would have attained age 65. Years of credited service under the Pension Plan at
age 65 for Messrs. Shackouls, Limbacher, Shapiro, Williams, and Hanower would be
22, 37, 16, 23, and 34, respectively.
EMPLOYMENT AGREEMENTS AND SEVERANCE PLANS
The Company has an agreement with Mr. Shackouls which provides for his
employment as Chairman of the Board, President and Chief Executive Officer of
the Company at a minimum annual salary of $825,000, effective for three years
from the date the Company notifies him that it does not wish to extend the term.
The Agreement shall terminate automatically on the date of the Company's Annual
Meeting of Stockholders following Mr. Shackouls' 60th birthday. This agreement
provides that upon termination of employment within two years after a Change in
Control of the Company, Mr. Shackouls will be entitled to the greater of the
benefits under the employment agreement or the Company's Executive Change in
Control Severance Plan (the "Change in Control Severance Plan"). Pursuant to
this agreement, Mr. Shackouls is entitled to additional years of credited
service under the Supplemental Benefits Plan if he remains employed by the
Company until age 55 or is terminated by the Company prior to age 55.
The Change in Control Severance Plan provides severance benefits following
a Change in Control for certain officers of the Company and its subsidiaries,
including the named executive officers listed in the Summary Compensation Table,
in an amount equal to (i) three times the sum of annual salary plus the bonus
amount defined in the plan and (ii) a pro rata bonus amount for the year in
which the change in control occurs. The Change in Control Severance Plan also
provides for the continuation of life, health, survivor benefit and long-term
disability insurance for a period of up to 36 months subsequent to a
participant's termination of employment following a Change in Control as well as
a supplemental pension payable under the Supplemental Benefits Plan calculated
by adding three years of additional credited pension service and certain other
benefits. Benefits are payable under the Change in Control Severance Plan for
any termination of employment within two years of the date of a Change in
Control, except where termination is by reason of death, disability, for cause,
instituted by the employee for other than good reason or the employee is offered
employment with a divested operating unit of the Company. The Change in Control
Severance Plan also provides that the Company will pay legal fees and expenses
incurred by a participant to enforce rights or benefits under this plan.
The Company also has an agreement with Mr. Shapiro which provides that if
(i) Mr. Shapiro is still employed by the Company on his 55th birthday or (ii)
before his 55th birthday, Mr. Shapiro's employment with the Company is
involuntarily terminated by the Company (other than for "Cause" or as a result
of his death or "Permanent Disability," each as defined in the Company's Key
Executive Severance Protection Plan), Mr. Shapiro will receive upon termination
of his employment with the Company a supplemental pension benefit equal to the
difference between the benefit calculated using his actual service and the
benefit calculated assuming Mr. Shapiro had an additional three (3) years of
credited service. This supplemental pension benefit will be calculated using the
provisions of the qualified Pension Plan and the non-qualified Supplemental
Benefits Plan in effect at the time Mr. Shapiro's employment with the Company is
terminated.
The Company also has an agreement with Mr. Williams under which he waived
his rights under the termination agreement he previously executed while at LL&E.
The agreement provides that if Mr. Williams' employment is terminated under
certain defined circumstances prior to September 30, 2002, he will be paid $3
million, reduced by $83,333 a month for every month he is employed after
September 1999. Any benefits
16
paid under this agreement are not payable in addition to any other severance or
termination benefits, but will be reduced by the payments under any other
termination or severance plan.
The Company has also agreed to provide certain employees formerly employed
in the Company's Seattle, Washington office, including Mr. Hanower, with
additional pension related benefits based on projected compensation if their
employment terminates prior to eligibility for early retirement.
The Internal Revenue Code of 1986, as amended (the "Code"), imposes an
excise tax on payments to certain employees following a Change in Control if the
payments meet certain requirements and exceed certain limits set forth in the
Code. If payments under the Change in Control Severance Plan (the "Severance
Payments") are subject to this excise tax, the Company will pay an additional
amount to the participant (the "Gross-Up Payment") such that the participant
retains, after payment of the excise tax on the Severance Payments and the
Gross-Up Payment and any income tax and Medicare tax on the Gross-Up Payment, an
amount equal to the Severance Payments.
PROPOSAL TO APPROVE THE
BURLINGTON RESOURCES INC. 2002 STOCK INCENTIVE PLAN
On January 9, 2002, the Compensation and Nominating Committee of the Board
of Directors and the Board of Directors approved the Company's 2002 Stock
Incentive Plan (the "Stock Incentive Plan") and approved its submission to the
stockholders for their approval. The purpose of the Stock Incentive Plan is to
promote the interests of the Company and its stockholders by strengthening the
Company's ability to attract and retain officers and key employees for the
Company and its subsidiaries by furnishing suitable recognition of their ability
and industry which contributed materially to the success of the Company and to
align the interests and efforts of the Company's officers and key employees to
the long term interests of the Company's stockholders. The Stock Incentive Plan
succeeds the Company's 1993 Stock Incentive Plan, which will terminate upon
stockholder approval of the 2002 Stock Incentive Plan but will remain in effect
for options granted prior to its termination. The Stock Incentive Plan provides
for the grant of stock options, stock appreciation rights ("SARs"), and
restricted shares of the Company's Common Stock ("Restricted Stock").
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS YOU VOTE FOR THIS PROPOSAL.
The following is a summary of the Stock Incentive Plan and is qualified in
its entirety by the full text thereof which is attached to this Proxy Statement
as EXHIBIT A.
ADMINISTRATION OF THE STOCK INCENTIVE PLAN
The Stock Incentive Plan will be administered by the Board of Directors or,
in the event the Board of Directors appoints and/or authorizes a committee to
administer the Stock Incentive Plan, by such committee (the "Plan
Administrator"). The Board of Directors has appointed the Compensation and
Nominating Committee of the Board of Directors as the Plan Administrator.
The Plan Administrator has the discretion to decide when and to whom to
grant stock options, SARs and Restricted Stock and to establish the terms and
conditions relating to such awards. The Plan Administrator has full authority to
construe and interpret the Stock Incentive Plan, to establish, amend and rescind
rules and regulations relating to the Stock Incentive Plan, to grant options,
SARs and Restricted Stock, to administer the Stock Incentive Plan and to take
all such steps and make all such determinations in connection with the Stock
Incentive Plan and the awards granted thereunder as it may deem necessary or
advisable, which determination is final and binding upon participants in the
Stock Incentive Plan. No member of the Plan Administrator is eligible to receive
awards or grants under the Stock Incentive Plan.
ELIGIBILITY
To be eligible for selection by the Plan Administrator to receive a grant
under the Stock Incentive Plan, an individual must be an officer, including all
of the Company's executive officers, or key employee of the
17
Company or its subsidiaries as of the date of such grant and a person who, in
the judgment of the Plan Administrator, holds a position of responsibility and
is able to contribute substantially to the Company's continued success.
Non-employee directors of the Company are not eligible to participate in the
Stock Incentive Plan.
SHARES AVAILABLE FOR THE PLAN
Subject to certain adjustments, the maximum number of shares for which
options, SARs and Restricted Stock may at any time be granted under the Stock
Incentive Plan is 7,500,000 shares of Common Stock. Of this total, the number of
shares for which Restricted Stock may be granted under the Stock Incentive Plan
may not exceed 2,000,000 shares of Common Stock. The Stock Incentive Plan
provides that an employee may not receive options for more than 750,000 shares
of Common Stock in any one year. The closing price for the Company's Common
Stock on the New York Stock Exchange on February 20, 2002 was $34.86.
In the event of a recapitalization, stock split, stock dividend, exchange
of shares, merger, reorganization, change in corporate structure or shares of
the Company or similar event, the Board of Directors, upon the recommendation of
the Plan Administrator, may make appropriate adjustments in the number of shares
authorized for the Plan and, with respect to outstanding grants, may make
appropriate adjustments in the number of shares and the option price.
STOCK OPTIONS
Grant of Options. Options may be granted to eligible employees in such
number and at such times during the term of the Stock Incentive Plan as the Plan
Administrator determines, taking into account the duties of the respective
employees, their present and potential contributions to the success of the
Company, and such other factors as the Plan Administrator deems relevant. An
option granted under the Stock Incentive Plan may be either an Incentive Stock
Option (an "ISO"), which is intended to meet the requirements defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or a
Nonqualified Stock Option (an "NSO").
Terms and Conditions of Options. The price per share of Common Stock at
which each option is exercisable (the "option price") is determined by the Plan
Administrator at the time of grant, but may not be less than 100% of the fair
market value of the Common Stock on the date the option is granted. Repricing of
outstanding options is not permitted under the Stock Incentive Plan. Options are
exercisable at such time and under such conditions as are set forth in the
option grant, but in no event may any ISO be exercisable subsequent to the day
before the tenth anniversary of the date on which the option is granted, nor
will any other option be exercisable later than the tenth anniversary of the
date of its grant. In general, an optionee may not exercise an option until he
or she has completed one year of continuous employment with the Company or one
of its subsidiaries from and including the date on which the option is granted,
or such longer period as the Plan Administrator may determine in a particular
case. This requirement is waived in the event of the death or permanent
disability of an optionee before such period of continuous employment is
completed. In addition, upon the occurrence of a change of control (as defined
in the Stock Incentive Plan), all outstanding options, to the extent not then
currently exercisable, will become exercisable in full.
STOCK APPRECIATION RIGHTS
The Plan Administrator may grant SARs to eligible employees in connection
with any option granted under the Stock Incentive Plan, either at the time of
the grant of such option or at any time thereafter during the term of the
option. Such SARs cover the same shares covered by the related option (or such
lesser number of shares of Common Stock as the Plan Administrator may determine)
and are subject to the same terms and conditions as the related options and such
further terms and conditions as are determined by the Plan Administrator. A SAR
entitles the holder of the related option to surrender to the Company the
unexercised, related option, or any portion thereof, and to receive from the
Company in exchange therefor an amount equal to the excess of the Fair Market
Value (as defined in the Stock Incentive Plan) of a share of Common Stock on the
date of exercise over the option price times the number of shares covered by the
option, or portion thereof, which is surrendered.
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RESTRICTED STOCK
Restricted Stock may be granted to eligible employees in such number and at
such times as the Plan Administrator determines, taking into account the duties
of the respective participants, their present and potential contributions to the
success of the Company, and such other factors as the Plan Administrator deems
relevant. In addition, the Board of Directors has authorized the Chief Executive
Officer to grant up to an aggregate of 200,000 shares of Restricted Stock to
non-executive, management employees provided the maximum awarded to any
individual does not exceed 2,000 shares per grant. Employees who receive
Restricted Stock have all the rights of stockholders with respect to such
shares, including the right to vote the shares and receive all dividends or
other distributions made or paid with respect to such shares. During a period of
years following the date of grant, as determined by the Plan Administrator,
which in no event will be less than one year, the Restricted Stock may not be
sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or
disposed of by the recipient, except in the event of death or permanent
disability. Restricted Stock is forfeited if the employee terminates employment
with the Company for any reason before the expiration of the restriction period
or if the employee attempts to sell, exchange, transfer, pledge or otherwise
dispose of such Restricted Stock; provided, however, that the Plan Administrator
may waive or modify such restrictions. In addition, all restrictions on
Restricted Stock lapse upon the employee's death or permanent disability or any
termination of employment determined by the Plan Administrator to end such
restrictions. All such restrictions terminate immediately upon a change of
control (as defined in the Stock Incentive Plan).
TERM OF THE STOCK INCENTIVE PLAN
The Stock Incentive Plan shall be effective upon approval by the
stockholders of the Company at this Annual Meeting of Stockholders or any
continuation thereof. Grants under the Stock Incentive Plan may be made from
time to time within the period commencing upon approval of the plan by the
stockholders of the Company and ending ten (10) years after the earlier of the
adoption of the plan by the Board of Directors and the approval of the plan by
the stockholders. Grants made under the Stock Incentive Plan may extend beyond
that date and the terms and conditions of the Stock Incentive Plan will continue
to apply to such grants and to shares of Common Stock acquired upon exercise
thereof.
AMENDMENT OF THE STOCK INCENTIVE PLAN
The Board of Directors and the Plan Administrator shall each independently
have the authority from time to time to amend the Stock Incentive Plan as it
deems desirable without further approval of the stockholders. Notwithstanding
the foregoing, any increase in the number of shares available under the Stock
Incentive Plan for grants as ISOs and any change in the designation of the group
of employees eligible to receive ISOs under the Stock Incentive Plan shall be
subject to stockholder approval in accordance with Section 422 of the Code.
FEDERAL INCOME TAX CONSEQUENCES OF STOCK INCENTIVE PLAN
The following discussion summarizes the material federal income tax
consequences of participation in the Stock Incentive Plan. This discussion is
general in nature and does not address issues related to the tax circumstances
of any particular employee. The discussion is based on federal income tax laws
in effect on the date hereof and is, therefore, subject to possible future
changes in law. This discussion does not address state, local or foreign
consequences.
ISOs. An optionee will not recognize any income upon either grant or
exercise of an ISO, although the exercise may subject the optionee to
alternative minimum tax liability in the year of exercise because the excess of
the fair market value of the shares at the time of exercise over the purchase
price of the shares is included in income for purposes of the alternative
minimum tax. The treatment of any gain realized upon sale or other disposition
of the Company Common Stock received upon exercise of an ISO will depend on the
holding period. If the optionee does not dispose of the stock received within
either one year after exercise of the ISO or two years after grant, any gain
realized upon disposition will be characterized as long-term capital gain. If
the optionee disposes of his or her shares within either one year after exercise
of the ISO or two years after grant, such disposition will be a disqualifying
disposition. In the case of a disqualifying disposition, the
19
portion of the gain realized on disposition equal to the excess of the fair
market value of the shares at the time the ISO was exercised over the option
price will be ordinary income taxable as compensation in the year of
disposition. The balance, if any, of the gain will be capital gain.
If the optionee sells the shares in a disqualifying disposition at a price
that is below the fair market value of the shares at the time the ISO was
exercised, the optionee's ordinary income will be limited to the excess of the
amount realized upon the disposition over the adjusted basis in the shares.
In the event of a disqualifying disposition in which ordinary income is
realized by the optionee, the Company will only withhold income taxes from the
optionee's compensation with respect to that ordinary income element if the
optionee elects to have withholding imposed.
The Company is entitled to a deduction with respect to an ISO only in the
taxable year of the Company in which a disqualifying disposition occurs. In that
event, the deduction would be equal to the ordinary income, if any, recognized
by the optionee upon disposition of the shares, provided that the deduction is
not otherwise disallowed under the Code.
Nonqualified Stock Options. An optionee will not recognize any income upon
either grant or vesting of a Nonqualified Stock Option. Upon exercise of any
part of a Nonqualified Stock Option, the optionee will recognize ordinary income
in an amount equal to the difference between the option exercise price and the
then fair market value of the shares acquired. The Company must withhold taxes
from the optionee's compensation with respect to the ordinary income recognized
by the optionee upon exercise.
In general, upon a subsequent disposition of the shares, the optionee's
basis for determining taxable gain or loss would be the amount paid for such
shares plus the amount that was includable in the optionee's income at the time
of exercise. Any gain recognized on such disposition would generally be taxed as
long-term or short-term capital gain depending on the length of time the
optionee is deemed to have held these shares and the holding period in effect at
the time. The Company will be entitled to a deduction for federal income tax
purposes upon exercise of a Nonqualified Stock Option in an amount equal to the
ordinary income recognized by the optionee, provided that the deduction is not
otherwise disallowed under the Code.
The treatment of SARs is essentially the same as the treatment of the
related options granted under the Stock Incentive Plan.
Restricted Stock. The recipient of Restricted Stock will not be subject to
tax upon its grant, unless the recipient makes an election under Section 83(b)
of the Code. Assuming no election under Section 83(b) is made, the holder will
be subject to tax at ordinary income tax rates at the time of the expiration or
earlier termination of the Restriction Period in an amount equal to the fair
market value of the Restricted Stock at the time that the Restriction Period
lapses or terminates. Any further gain would be capital gain. If a holder makes
an election under Section 83(b) of the Code, the holder will be subject to tax
at ordinary income rates based on the fair market value of the Restricted Stock
at the date of grant. Any further gain would be capital gain. The Company must
withhold taxes and will be entitled to a deduction with respect to the amount of
ordinary income recognized by the employee, unless otherwise disallowed under
the Code.
Tax Effect of Change in Control Provisions. If vesting is accelerated for
any grant under the Stock Incentive Plan, exercise by the holder could result in
the imposition of an additional 20% excise tax on, and denial of a deduction to
the Company for, all or a portion of the total payments made to the employee
upon the Change in Control. The applicability and amount of the excise tax will
depend on the amount of the payments subject to the Change in Control
provisions, including the amount of payments received under the Severance
Protection Plan, and the other circumstances of the employee.
Cap on Company Deductions for Certain Compensation. Under the Omnibus
Reconciliation Act of 1993 (the "Act"), certain compensation payments in excess
of $1 million are subject to a cap on deductibility for the Company. The
limitation on deductibility applies with respect to that portion of a
compensation payment for a taxable year in excess of $1 million to either the
chief executive officer of the corporation or any one of the other four highest
paid executives. Certain performance-based compensation is not subject to the
cap on deductibility. Stock options and SARs can qualify for this
performance-based exception, but only if
20
they are granted at fair market value, the total number of shares that can be
granted to an executive for any period is stated, and shareholder and Board
approval is obtained. The ISO, Nonqualified Stock Option, and SAR portions of
the Stock Incentive Plan have been drafted to comply with these
performance-based criteria.
Restricted Stock does not satisfy the definition of performance-based
compensation unless the granting or vesting of the Restricted Stock is based
upon the attainment of specified performance goals.
REPORT BY AUDIT COMMITTEE
The primary responsibility of the Audit Committee of the Board of Directors
is to assist the Board of Directors in overseeing management and the independent
auditors in fulfilling their responsibilities in the financial reporting process
of the Company. The Audit Committee is composed of five independent directors
and operates under a written charter adopted and approved by the Board of
Directors on April 19, 2000. During the fiscal year 2001, the Audit Committee
held six meetings.
It is not the responsibility of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are in all
material respects complete and accurate in accordance with generally accepted
accounting principles. This is the responsibility of management and the
independent auditors. It is also not the responsibility of the Audit Committee
to assure compliance with laws and regulations and the Company's Code of
Conduct.
Based on the Audit Committee's review of the audited financial statements,
its discussions with management regarding the audited financial statements, its
receipt of written disclosures and the letter from independent auditors required
by Independence Standards Board Standard No. 1, its discussions with the
independent auditors regarding such auditor's independence, the audited
financial statements, the matters required to be discussed by the Statement on
Auditing Standards 61 as amended and other matters the Audit Committee deemed
relevant and appropriate, the Audit Committee recommended to the Board of
Directors that the audited financial statements for the fiscal year ended
December 31, 2001 be included in the Company's Annual Report on Form 10-K for
such fiscal year.
AUDIT COMMITTEE
Kenneth W. Orce, Chairman
Reuben V. Anderson
Laird I. Grant
James F. McDonald
Donald M. Roberts
AUDITORS
The Board of Directors has appointed PricewaterhouseCoopers L.L.P. ("PWC")
as independent public accountants for the year ending December 31, 2002.
Representatives of PWC will be present at the Annual Meeting with the
opportunity to make a statement and to respond to appropriate questions.
AUDIT FEES
The aggregate fees billed for professional services rendered by PWC for the
audit of the Company's financial statements for the fiscal year ended December
31, 2001, and the reviews of the financial statements included in the Company's
Forms 10-Q for such fiscal year were $1,851,000.
21
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
PWC did not provide the Company any financial information systems design
and implementation services as used in Paragraph (c)(4)(ii) of Rule 2-01 of
Regulation S-X for the fiscal year ended December 31, 2001.
ALL OTHER FEES
The aggregate fees billed for services rendered by PWC, other than for
audit services and financial information systems design and implementation
services, for the fiscal year ended December 31, 2001 were $1,150,350. These
services included work for benefit plan audits, tax compliance and consulting,
registration statements and business continuity planning consultation.
GENERAL
The Audit Committee of the Company's Board of Directors has considered
whether the provision of services by PWC covered by "Financial Information
Systems Design and Implementation Fees" and "All Other Fees" above is compatible
with maintaining PWC's independence.
None of the hours expended on PWC's engagement to audit the Company's
financial statements for the fiscal year ended December 31, 2001, were
attributed to work performed by persons other than PWC's full-time, permanent
employees.
EXPENSES OF SOLICITATION
The expenses of preparing and mailing this Proxy Statement and the
accompanying form of proxy and the cost of solicitation of proxies on behalf of
the management will be borne by the Company. In addition, D. F. King & Co. has
been retained to aid in the solicitation at an estimated fee of $10,000. Proxies
may be solicited by personal interview, mail and telephone. Brokerage houses,
other custodians and nominees will be asked whether other persons are beneficial
owners of the shares which they hold of record and, if so, they will be supplied
with additional copies of the proxy materials for distribution to such
beneficial owners. The Company will reimburse parties holding stock in their
names or in the names of their nominees for their reasonable expenses in sending
proxy material to their principals.
ELECTRONIC PROXY VOTING
Registered shareholders can vote their shares via (1) a toll-free telephone
call from the U.S. and Canada; or (2) the Internet; or (3) by mailing their
signed proxy card. The telephone and Internet voting procedures are designed to
authenticate shareholders' identities, to allow shareholders to vote their
shares and to confirm that their instructions have been properly recorded. The
Company has been advised by counsel that the procedures which have been put in
place are consistent with the requirements of applicable law. Specific
instructions to be followed by any registered shareholder interested in voting
via telephone or the Internet are set forth on the enclosed proxy card.
OTHER MATTERS
Management knows of no other matters which are likely to be brought before
the meeting. However, if any other matters, not now known or determined, come
before the meeting, the persons named in the enclosed form of proxy or their
substitutes will vote such proxy in accordance with their judgment in such
matters.
ANNUAL REPORT
This Proxy Statement does not include information regarding executive
officers called for by Item 401(b) of Regulation S-K because such information is
furnished in the Company's 2001 Annual Report to stockholders and such
information is incorporated herein by reference thereto. A copy of the Company's
2001 Annual Report to Stockholders is being mailed with this Proxy Statement to
each stockholder of record.
22
Stockholders not receiving a copy of such Annual Report may obtain one by
writing or calling Mr. Jeffery P. Monte, Corporate Secretary, Burlington
Resources Inc., 5051 Westheimer, Suite 1400, Houston, Texas 77056-2124,
telephone (713) 624-9500.
SUBMISSION OF STOCKHOLDER PROPOSALS
FOR THE 2003 ANNUAL MEETING
Stockholder proposals for inclusion in the Proxy Statement to be issued in
connection with the 2003 Annual Meeting of Stockholders must be mailed to Mr.
Jeffery P. Monte, Corporate Secretary, Burlington Resources Inc., 5051
Westheimer, Suite 1400, Houston, Texas 77056-2124, and must be received by the
Corporate Secretary on or before November 15, 2002.
Stockholder proposals submitted outside of the procedures set forth above,
including nominations for Directors, must be mailed to Mr. Jeffery P. Monte,
Corporate Secretary, at the address above and must be received by the Corporate
Secretary on or before January 14, 2003. If a proposal is received after that
date, the Company's proxy for the 2003 Annual Meeting may confer discretionary
authority to vote on such matter without any discussion of such matter in the
proxy statement for the 2003 Annual Meeting.
By Order of the Board of Directors
JEFFERY P. MONTE
Corporate Secretary
23
EXHIBIT A
BURLINGTON RESOURCES INC.
2002 STOCK INCENTIVE PLAN
SECTION 1
PURPOSE
The purpose of the Burlington Resources Inc. 2002 Stock Incentive Plan (the
"Plan") is to promote the interests of Burlington Resources Inc. (the "Company")
and its stockholders by strengthening the Company's ability to attract and
retain officers and key employees in the employ of the Company and its
subsidiaries by furnishing suitable recognition of their ability and industry
which contributed materially to the success of the Company and to align the
interests and efforts of the Company's officers and key employees to the long
term interests of the Company's stockholders. The Plan provides for the grant of
stock options, stock appreciation rights and restricted stock in accordance with
the terms and conditions set forth below.
SECTION 2
DEFINITIONS
Unless otherwise required by the context, the following terms when used in
the Plan shall have the meanings set forth in this Section 2:
2.1. BENEFICIARY
The person or persons designated by the Participant pursuant to Section
6.4(f) to whom payments are to be paid pursuant to the terms of the Plan in the
event of the Participant's death.
2.2. BOARD OF DIRECTORS
The Board of Directors of the Company.
2.3. CAUSE
The Company may terminate the Participant's employment for Cause. As used
in the Plan, the term "Cause" shall have the following meaning: (i) in the case
of a Participant covered by the Company's Executive Change in Control Severance
Plan, the term "Cause" shall have the same meaning as set forth in the Company's
Executive Change in Control Severance Plan, as it may be amended from time to
time, and (ii) in the case of any Participant not covered by clause (i) above,
the term "Cause" shall have the same meaning as set forth in the Company's
Employee Change in Control Severance Plan, as it may be amended from time to
time.
2.4. CHANGE IN CONTROL
As used in the Plan, the term "Change in Control" shall have the same
meaning as set forth in the Company's Executive Change in Control Severance
Plan, as it may be amended from time to time.
2.5. CODE
The Internal Revenue Code of 1986, as amended and in effect from time to
time, and the temporary or final regulations of the Secretary of the U.S.
Treasury adopted pursuant thereto.
24
2.6. COMMON STOCK
The Common Stock of the Company, $.01 par value per share, or such other
class of shares or other securities as may be applicable pursuant to the
provisions of Section 5.
2.7. EXCHANGE ACT
The Securities Exchange Act of 1934, as amended.
2.8. FAIR MARKET VALUE
As applied to a specific date, the mean between the highest and lowest
quoted selling prices at which Common Stock was sold on such date as reported in
the NYSE-Composite Transactions by The Wall Street Journal on such date or, if
no Common Stock was traded on such date, on the next preceding day on which
Common Stock was so traded. Notwithstanding the foregoing, upon the exercise,
during the thirty (30) day period following a Change in Control, of a stock
appreciation right granted in connection with a Nonqualified Option, Fair Market
Value on the date of exercise shall be deemed to be the greater of (i) the
highest price per share of Common Stock as reported in the NYSE-Composite
Transactions by The Wall Street Journal during the sixty (60) day period ending
on the day preceding the date of exercise of the stock appreciation right and
(ii) if the Change in Control is one described in clause (b) of Section 2.7 of
the Company's Executive Change in Control Severance Plan or results from a
tender or exchange offer for Common Stock, the highest price per share paid for
Common Stock in connection with such Change in Control.
2.9. GOOD REASON
As used in the Plan, the term "Good Reason" shall have the following
meaning: (i) in the case of a Participant covered by the Company's Executive
Change in Control Severance Plan, the term "Good Reason" shall have the same
meaning as set forth in the Company's Executive Change in Control Severance
Plan, as it may be amended from time to time, and (ii) in the case of any
Participant not covered by clause (i) above, the term "Good Reason" shall have
the same meaning as set forth in the Company's Employee Change in Control
Severance Plan, as it may be amended from time to time.
2.10. INCENTIVE STOCK OPTION
An option intended to meet the requirements of an Incentive Stock Option as
defined in Section 422 of the Code, as in effect at the time of grant of such
option, or any statutory provision that may hereafter replace such Section.
2.11. INSIDER PARTICIPANT
Any person who is selected by the Plan Administrator to receive options,
stock appreciation rights and/or Restricted Stock hereunder and who is subject
to the requirements of Section 16 of the Exchange Act, and the rules and
regulations issued thereunder.
2.12. MAXIMUM ANNUAL EMPLOYEE GRANT
The Maximum Annual Employee Grant set forth in Section 6.1.
2.13. NONQUALIFIED OPTION
An option not intended to meet the requirements of an Incentive Stock
Option.
25
2.14. OPTION PRICE
The price per share of Common Stock at which each option is exercisable.
2.15. PARTICIPANT
An eligible employee to whom an option, stock appreciation right or
Restricted Stock is granted under the Plan as set forth in Section 4.
2.16. PERMANENT DISABILITY
As used in the Plan, the term "Permanent Disability" shall have the
following meaning: (i) in the case of a Participant covered by the Company's
Executive Change in Control Severance Plan, the term "Permanent Disability"
shall have the same meaning as set forth in the Company's Executive Change in
Control Severance Plan, as it may be amended from time to time, and (ii) in the
case of any Participant not covered by clause (i) above, the term "Permanent
Disability" shall have the same meaning as set forth in the Company's Employee
Change in Control Severance Plan, as it may be amended from time to time, except
that, prior to a Change in Control, the determination of "Permanent Disability"
for a person not covered by clause (i) above shall be made by the Company's
Benefits Committee rather than the Company's Chief Executive Officer.
2.17. PLAN ADMINISTRATOR
The Board of Directors or the committee appointed and/or authorized
pursuant to Section 3 to administer the Plan.
2.18. RESTRICTED STOCK
Common Stock granted under the Plan that is subject to the requirements of
Section 8 and such other restrictions as the Plan Administrator deems
appropriate.
2.19. RULE 16B-3
Rule 16b-3 of the General Rules and Regulations under the Exchange Act.
2.20. SUBSIDIARY
An entity, including, without limitation, a corporation, limited liability
company or joint venture, in which the Company owns (directly or indirectly) a
significant equity interest and which entity is designated by the Plan
Administrator as a subsidiary for purposes of the Plan.
SECTION 3
ADMINISTRATION
3.1. The Plan shall be administered by the Board of Directors or, in the
event the Board of Directors shall appoint and/or authorize a committee or
committees to administer the Plan, by such committee or committees. Such
committee shall be a compensation committee comprised solely of two or more
"outside directors" within the meaning of Section 162(m) of the Code and the
regulations thereunder. The administrator of the Plan shall hereinafter be
referred to as the "Plan Administrator."
In the event a member of the Board of Directors (or the committee) may be
eligible, subject to the restrictions set forth in Section 4, to participate in
or receive or hold options, stock appreciation rights and/or Restricted Stock
under the Plan, no member of the Board of Directors or the committee shall vote
with respect to the granting of options, stock appreciation rights and/or
Restricted Stock hereunder to himself or herself, as the case may be, and, if
state corporate law does not permit a committee to grant options, stock
appreciation rights and Restricted Stock to directors, then any option, stock
appreciation right or Restricted
26
Stock granted under the Plan to a director for his or her services as such shall
be approved by the full Board of Directors.
The members of any committee serving as Plan Administrator shall be
appointed by the Board of Directors for such term as the Board of Directors may
determine. The Board of Directors may from time to time remove members from, or
add members to, the committee. Vacancies on the committee, however caused, may
be filled by the Board of Directors.
With respect to grants made under the Plan to officers and directors of the
Company who are subject to Section 16 of the Exchange Act, the Plan
Administrator shall be constituted at all times so as to meet the requirements
of Rule 16b-3 so long as any of the Company's equity securities are registered
pursuant to Section 12(b) or 12(g) of the Exchange Act.
3.2. Except for the terms and conditions explicitly set forth in the Plan,
the Plan Administrator shall have full authority to construe and interpret the
Plan, to establish, amend and rescind rules and regulations relating to the
Plan, to select persons eligible to participate in the Plan, to grant options,
stock appreciation rights and Restricted Stock thereunder, to administer the
Plan, to make recommendations to the Board of Directors, to take all such steps
and make all such determinations in connection with the Plan and the options,
stock appreciation rights and Restricted Stock granted thereunder as it may deem
necessary or advisable, which determination shall be final and binding upon all
Participants, so long as such interpretation and construction with respect to
Incentive Stock Options correspond to the requirements of Section 422 of the
Code. The Plan Administrator shall cause the Company at its expense to take any
action related to the Plan which may be required or necessary to comply with the
provisions of any federal or state law or any regulations issued thereunder.
3.3. Each member of any committee acting as Plan Administrator, while
serving as such, shall be considered to be acting in his or her capacity as a
director of the Company. Members of the Board of Directors and members of any
committee acting under the Plan shall be fully protected in relying in good
faith upon the advice of counsel and shall incur no liability except for gross
negligence or willful misconduct in the performance of their duties.
3.4. The fact that a member of the Board of Directors is, or shall
theretofore have been or thereafter may be, a person who has received or is
eligible to receive an option, stock appreciation right and/or Restricted Stock
shall not disqualify him or her from taking part in and voting at any time as a
member of the Board of Directors in favor of or against any amendment or repeal
of the Plan.
SECTION 4
ELIGIBILITY
To be eligible for selection by the Plan Administrator to receive a grant
of an option, stock appreciation right or Restricted Stock under the Plan, an
individual must be an officer or a key employee of the Company, or of any
Subsidiary, as of the date on which the Plan Administrator grants to such
individual such option, stock appreciation right or Restricted Stock and a
person who, in the judgment of the Plan Administrator, holds a position of
responsibility and is able to contribute substantially to the Company's
continued success.
SECTION 5
SHARES AVAILABLE FOR THE PLAN
5.1. Subject to Section 5.3, the maximum number of shares for which
options, stock appreciation rights and Restricted Stock may at any time be
granted under the Plan is seven million five hundred thousand (7,500,000) shares
of Common Stock, all such shares to be held in the Company's treasury or out of
the authorized but unissued shares of the Company, or partly out of each, as
shall be determined by the Board of Directors. Upon (a) the expiration or
termination in whole or in part of unexercised options and stock appreciation
rights or the surrender of an option, or portion thereof, upon exercise of a
related stock
27
appreciation right for cash or (b) the forfeiture of Restricted Stock, shares of
Common Stock which were subject thereto shall again be available for grants of
options, stock appreciation rights and Restricted Stock under the Plan.
5.2. Notwithstanding the foregoing, and subject to Section 5.3, the number
of shares for which Restricted Stock may be granted pursuant to Section 8 of the
Plan may not exceed two million (2,000,000) shares of Common Stock.
5.3. In the event of a recapitalization, stock split, stock dividend,
exchange of shares, merger, reorganization, change in corporate structure or
shares of the Company or similar event, the Board of Directors, upon the
recommendation of the Plan Administrator, may make appropriate adjustments in
the number of shares authorized for the Plan, the Maximum Annual Employee Grant
and, with respect to outstanding options, stock appreciation rights and
Restricted Stock, the Plan Administrator may make appropriate adjustments in the
number of shares and the Option Price.
SECTION 6
STOCK OPTIONS
6.1. Options may be granted to eligible employees in such number and at
such times during the term of the Plan as the Plan Administrator shall
determine, the Plan Administrator taking into account the duties of the
respective employees, their past, present and potential contributions to the
success of the Company, and such other factors as the Plan Administrator shall
deem relevant in accomplishing the purposes of the Plan; provided, that the
maximum number of shares with respect to which an option or options may be
granted to any eligible employee in any one (1) calendar year will not exceed
seven hundred fifty thousand (750,000) shares (the "Maximum Annual Employee
Grant"). The granting of an option shall take place when the Plan Administrator
by resolution, written consent or other appropriate action determines to grant
such an option to a particular Participant at a particular price. Each option
shall be evidenced by a written instrument delivered by or on behalf of the
Company containing provisions not inconsistent with the Plan.
6.2. An option granted under the Plan may be either an Incentive Stock
Option or a Nonqualified Option.
6.3 Each provision of the Plan and each Incentive Stock Option granted
thereunder shall be construed so that each such option shall qualify as an
Incentive Stock Option, and any provision thereof that cannot be so construed
shall be disregarded, unless the Participant agrees otherwise. Incentive Stock
Options may be granted only to persons who are employees of the Company or of a
subsidiary of the Company (within the meaning of Section 424(f) of the Code) at
the time of grant. The total number of shares which may be purchased upon the
exercise of Incentive Stock Options granted under the Plan shall not exceed the
total specified in Section 5.1. Incentive Stock Options, in addition to
complying with the other provisions of the Plan relating to options generally,
shall be subject to the following conditions:
(a) A Participant must not, immediately before an Incentive Stock
Option is granted, own stock representing more than ten percent (10%) of
the voting power or value of all classes of stock of the Company or a
subsidiary of the Company (within the meaning of Section 424(f) of the
Code). This requirement is waived if (i) the Option Price of the Incentive
Stock Option to be granted is at least one hundred ten percent (110%) of
the Fair Market Value of the stock subject to the option, determined at the
time the option is granted, and (ii) the option is not exercisable more
than five (5) years from the date the option is granted.
(b) To the extent that the aggregate Fair Market Value (determined at
the time of the grant of the option) of the stock with respect to which
Incentive Stock Options are exercisable for the first time by the
Participant during any calendar year exceeds One Hundred Thousand Dollars
($100,000), such options shall be treated as Nonqualified Options.
(c) Any other terms and conditions which the Plan Administrator
determines, upon advice of counsel, must be imposed for the option to be an
Incentive Stock Option.
28
6.4. Except as otherwise provided in Section 6.3, all Incentive Stock
Options and Nonqualified Options under the Plan shall be granted subject to the
following terms and conditions:
(a) OPTION PRICE
The Option Price shall be determined by the Plan Administrator at the
time of grant, but shall not be less than one hundred percent (100%) of the
Fair Market Value of the Common Stock on the date the option is granted.
Repricing of outstanding stock options shall not be permitted under the
Plan.
(b) DURATION OF OPTIONS
Options shall be exercisable at such time and under such conditions as
set forth in the option grant, but in no event shall any Incentive Stock
Option be exercisable subsequent to the day before the tenth anniversary of
the date on which the option is granted, nor shall any other option be
exercisable later than the tenth anniversary of the date of its grant.
(c) EXERCISE OF OPTIONS
Subject to Section 6.4(j), an optionee may not exercise an option
until he or she has completed one (1) year of continuous employment with
the Company or one of its Subsidiaries from and including the date on which
the option is granted, or such longer period as the Plan Administrator may
determine in a particular case. This requirement is waived in the event of
death or Permanent Disability of an optionee before such period of
continuous employment is completed. Thereafter, shares of Common Stock
covered by an option may be purchased at one time or in such installments
during the option period as may be provided in the option grant. Any shares
not purchased on the applicable installment date may be purchased at one
time or in such installments over the balance of the option period as may
be provided in the option grant. To the extent that the right to purchase
shares has accrued thereunder, options may be exercised from time to time
by written notice to the Company stating the number of shares with respect
to which the option is being exercised.
(d) PAYMENT
The purchase price of shares purchased under options shall be paid in
full to the Company upon the exercise of the option by delivery of
consideration equal to the product of the Option Price and the number of
shares purchased. Such consideration may be either (i) in cash or check
acceptable to the Company or (ii) at the discretion of the Plan
Administrator, in Common Stock already owned by the Participant for at
least six (6) months, or any combination of cash and Common Stock. The Fair
Market Value of such Common Stock as delivered shall be valued as of the
day prior to delivery. The Plan Administrator can determine at the time the
option is granted that additional forms of payment will be permitted. To
the extent permitted by the Plan Administrator and applicable laws and
regulations (including, but not limited to, federal tax and securities laws
and regulations and state corporate law), an option may also be exercised
by delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds to pay the purchase price of shares
purchased under the option. If specifically authorized in the option grant,
shares of Common Stock with a Fair Market Value equal to all or a portion
of the purchase price of shares purchased under options may be withheld
from the shares issuable to the Participant upon the exercise of the
option. The Fair Market Value of such Common Stock as is withheld shall be
valued as of the day prior to exercise of the option.
(e) RESTRICTIONS
The Plan Administrator shall determine and reflect in the option
grant, with respect to each option, the nature and extent of the
restrictions, if any, to be imposed on the shares of Common Stock which may
be purchased thereunder, including, but not limited to, restrictions on the
transferability of such shares acquired through the exercise of such
options for such periods as the Plan Administrator may determine.
29
(f) NONTRANSFERABILITY OF OPTIONS
During a Participant's lifetime, an option may be exercisable only by
the Participant and options granted under the Plan and the rights and
privileges conferred thereby shall not be subject to execution, attachment
or similar process and may not be transferred, assigned, pledged or
hypothecated in any manner (whether by operation of law or otherwise) other
than by will or by the applicable laws of descent and distribution.
Notwithstanding the foregoing, to the extent permitted by applicable law
and Rule 16b-3, the Plan Administrator may permit a recipient of a
Nonqualified Option to (i) designate in writing during the Participant's
lifetime a Beneficiary to receive and exercise the Participant's
Nonqualified Options in the event of such Participant's death (as provided
in Section 6.4(i)) or (ii) transfer a Nonqualified Option. Any other
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of
any option under the Plan or of any right or privilege conferred thereby,
contrary to the provisions of the Plan, or the sale or levy or any
attachment or similar process upon the rights and privileges conferred
hereby, shall be null and void.
(g) PURCHASE FOR INVESTMENT
The Plan Administrator shall have the right to require that each
Participant or other person who shall exercise an option under the Plan,
and each person into whose name shares of Common Stock shall be issued
pursuant to the exercise of an option, represent and agree that any and all
shares of Common Stock purchased pursuant to such option are being
purchased for investment only and not with a view to the distribution or
resale thereof and that such shares will not be sold except in accordance
with such restrictions or limitations as may be set forth in the option.
This Section 6.4(g) shall be inoperative during any period of time when the
Company has obtained all necessary or advisable approvals from governmental
agencies and has completed all necessary or advisable registrations or
other qualifications of shares of Common Stock as to which options may from
time to time be granted as contemplated in Section 9.
(h) TERMINATION OF EMPLOYMENT
Upon the termination of a Participant's employment with the Company
and its Subsidiaries for any reason other than death or Permanent
Disability, the Participant's option shall be exercisable only to the
extent that it was then exercisable and, unless the term of the option
expires sooner, such option shall expire according to the following
schedule; provided, however, that the Plan Administrator may at any time
determine in a particular case that specific limitations and restrictions
under the Plan shall not apply:
(i) RETIREMENT
The option shall expire, unless exercised, thirty-six (36) months
after the Participant's retirement from the Company or any Subsidiary.
(ii) DISABILITY
The option shall expire, unless exercised, thirty-six (36) months
after the Participant's Permanent Disability.
(iii) INVOLUNTARY TERMINATION
The option shall expire, unless exercised, twenty-four (24) months
after a Participant is terminated as an employee by the Company or any
Subsidiary for any reason other than Cause or Permanent Disability,
unless the Chief Executive Officer of the Company shall have determined
in a specific case that the option should terminate when the
Participant's employment status ceases; provided, however, that for
officers and directors who are subject to Section 16 of the Exchange
Act, such determination shall be made by the Plan Administrator.
30
(iv) TERMINATION FOLLOWING A CHANGE IN CONTROL
The option shall expire, unless exercised, within thirty-six (36)
months of a Participant's termination of employment (other than a
termination by the Company or a Subsidiary for Cause or a voluntary
termination by the Participant other than for Good Reason) following a
Change in Control, provided that said termination of employment occurs
within two (2) years following a Change in Control.
(v) DEATH OF PARTICIPANT
Upon the death of a Participant, whether during the Participant's
period of employment or during the thirty-six (36) month period referred
to in Section 6.4(h)(i), (ii) or (iv) or the twenty-four (24) month
period referred to in Section 6.4(h)(iii), the option shall expire,
unless the term of the option expires sooner, thirty-six (36) months
after the date of the Participant's death, unless the option is
exercised within such thirty-six (36) month period by the Participant's
Beneficiary, legal representatives, estate or the person or persons to
whom the Participant's option rights shall have passed by will or the
laws of descent and distribution; provided, however, that the Plan
Administrator may determine in a particular case that specific
limitations and restrictions under the Plan shall not apply.
(vi) ALL OTHER TERMINATIONS
In the event of a termination not described in subsections (i),
(ii), (iii), (iv) or (v) of this Section 6.4(h), including, without
limitation, termination for Cause or voluntary terminations, the option
shall expire upon termination of employment.
Leaves of absence for such period and purposes conforming to the
personnel policy of the Company or of its Subsidiaries, as applicable,
shall not be deemed terminations or interruptions of employment.
Notwithstanding other Plan provisions pertaining to the times at
which options may be exercised, no option shall continue to be
exercisable, pursuant to this Section 6.4(h), at a time that would
violate the maximum duration of Section 6.4(b).
(i) CHANGE IN CONTROL
Notwithstanding other Plan provisions pertaining to the times at which
options may be exercised, all outstanding options, to the extent not then
currently exercisable, shall become exercisable in full upon the occurrence
of a Change in Control. However, a Participant may elect, by filing a
written election with the Plan Administrator prior to such Change in
Control, that this accelerated exercisability shall not apply to any or all
of the Incentive Stock Options held by the Participant as the Participant
may designate.
(j) RIGHTS AS STOCKHOLDER
A Participant shall have none of the rights of a stockholder until the
shares of Common Stock are issued to the Participant.
SECTION 7
STOCK APPRECIATION RIGHTS
7.1. The Plan Administrator may grant stock appreciation rights to
eligible employees in connection with any option granted under the Plan, either
at the time of the grant of such option or at any time thereafter during the
term of the option. Such stock appreciation rights shall cover the same shares
covered by the options (or such lesser number of shares of Common Stock as the
Plan Administrator may determine) and shall, except as provided in Section 7.3,
be subject to the same terms and conditions as the related options and such
further terms and conditions not inconsistent with the Plan as shall from time
to time be determined by the Plan Administrator.
31
7.2. Each stock appreciation right shall entitle the holder of the related
option to surrender to the Company unexercised the related option, or any
portion thereof, and to receive from the Company in exchange therefor an amount
equal to the excess of the Fair Market Value of one (1) share of Common Stock on
the date the right is exercised over the Option Price per share times the number
of shares covered by the option, or portion thereof, which is surrendered.
Payment shall be made in shares of Common Stock valued at Fair Market Value as
of the date the right is exercised, or in cash, or partly in shares and partly
in cash, at the discretion of the Plan Administrator. Stock appreciation rights
may be exercised from time to time upon actual receipt by the Company of written
notice stating the number of shares of Common Stock with respect to which the
stock appreciation right is being exercised. The value of any fractional shares
shall be paid in cash.
7.3. Stock appreciation rights are subject to the following restrictions:
(a) Each stock appreciation right shall be exercisable at such time or
times that the option to which it relates shall be exercisable or at such
other times as the Plan Administrator may determine. In the event of death
or Permanent Disability of a Participant during employment but before the
Participant has completed such period of continuous employment, such stock
appreciation right shall be exercisable only within the period specified in
the related option.
(b) Except in the event of a Change in Control, the Plan Administrator
in its sole discretion may approve or deny in whole or in part a request to
exercise a stock appreciation right. Denial or approval of such request
shall not require a subsequent request to be similarly treated by the Plan
Administrator.
(c) The right of a Participant to exercise a stock appreciation right
shall be canceled if and to the extent the related option is exercised. To
the extent that a stock appreciation right is exercised, the related option
shall be deemed to have been surrendered, unexercised and canceled.
(d) A holder of stock appreciation rights shall have none of the
rights of a stockholder until shares of Common Stock, if any, are issued to
such holder pursuant to such holder's exercise of such rights.
(e) The acquisition of Common Stock pursuant to the exercise of a
stock appreciation right shall be subject to the same terms and conditions
as would apply to the acquisition of Common Stock acquired upon acquisition
of the related option, as set forth in Section 6.4.
SECTION 8
RESTRICTED STOCK
8.1. Restricted Stock may be granted to eligible employees in such number
and at such times during the term of the Plan as the Plan Administrator shall
determine, the Plan Administrator taking into account the duties of the
respective Participants, their past, present and potential contributions to the
success of the Company, and such other factors as the Plan Administrator shall
deem relevant in accomplishing the purposes of the Plan. The granting of
Restricted Stock shall take place when the Plan Administrator by resolution,
written consent or other appropriate action determines to grant such Restricted
Stock to a particular Participant. Each grant shall be evidenced by a written
instrument delivered by or on behalf of the Company containing provisions not
inconsistent with the Plan. The Participant receiving a grant of Restricted
Stock shall be recorded as a stockholder of the Company and, subject to the
provisions hereof, shall have all the rights of a stockholder with respect to
such shares, including the right to vote the shares and receive all dividends or
other distributions made or paid with respect to such shares; provided, however,
that the shares themselves, and any new, additional or different shares or
securities which the Participant may be entitled to receive with respect to such
shares by virtue of a stock split or stock dividend or any other change in the
corporate or capital structure of the Company, shall be subject to the
restrictions hereinafter described.
8.2. A grant of Restricted Stock shall entitle a Participant to receive,
on the date or dates designated by the Plan Administrator, upon payment to the
Company of consideration determined by the Plan Administrator, if any, the
number of shares of Common Stock selected by the Plan Administrator. The Plan
Administrator may require, under such terms and conditions as it deems
appropriate or desirable, that the
32
certificates for Restricted Stock delivered under the Plan may be held in
custody by a bank or other institution, or that the Company may itself hold such
shares in custody until the Restriction Period (as defined in Section 8.3)
expires or until restrictions thereon otherwise lapse, and may require, as a
condition of any receipt of Restricted Stock, that the Participant shall have
delivered a stock power endorsed in blank relating to the shares of Restricted
Stock.
8.3. During a period of years following the date of grant, as determined
by the Plan Administrator, which shall in no event be less than one (1) year
(the "Restriction Period"), the Restricted Stock may not be sold, assigned,
transferred, pledged, hypothecated or otherwise encumbered or disposed of by the
recipient, except in the event of death or Permanent Disability, the Plan
Administrator's waiver or modification of such restrictions in the agreement
evidencing the grant of Restricted Stock or by resolution of the Plan
Administrator adopted at any time; provided, however, that not more than three
percent (3%) of the maximum number of shares for which options, stock
appreciation rights and Restricted Stock may be granted under the Plan (as
defined in Section 5.1) shall be granted with a Restriction Period of less than
three (3) years.
8.4. Except as provided in Section 8.5 or 8.6, upon the termination of a
Participant's employment with the Company and its Subsidiaries for any reason
before the expiration of the Restriction Period, all shares of Restricted Stock
still subject to restriction shall be forfeited by the Participant to the
Company. In addition, in the event of any attempt by the Participant to sell,
exchange, transfer, pledge or otherwise dispose of shares of Restricted Stock in
violation of the terms of the Plan, such shares shall be forfeited to the
Company.
8.5. The Restriction Period for any Participant shall be deemed to end and
all restrictions on shares of Restricted Stock shall lapse upon the
Participant's death or Permanent Disability or any termination of employment
determined by the Plan Administrator to end the Restriction Period.
8.6. The Restriction Period for any Participant shall be deemed to end and
all restrictions on shares of Restricted Stock shall terminate immediately upon
a Change in Control.
8.7. When the restrictions imposed by Section 8.3 expire or otherwise
lapse with respect to one (1) or more shares of Restricted Stock, the Company
shall deliver to the Participant (or the Participant's legal representative,
Beneficiary or heir) one (1) share of Common Stock for each share of Restricted
Stock. At that time, the written instrument referred to in Section 8.1, as it
relates to such shares, shall be terminated.
8.8. Subject to Section 8.2, each Participant entitled to receive
Restricted Stock under the Plan shall be issued a certificate for such shares.
Such certificate shall be registered in the name of the Participant.
8.9. Notwithstanding the foregoing provisions of this Section 8, the Board
of Directors may delegate to any officer of the Company the right to grant
Restricted Stock to non-executive, management employees of the Company and its
Subsidiaries pursuant to this Section 8, subject to such limitations on the
number of shares of Restricted Stock that may be granted by such officer to any
individual employee and in the aggregate and such other limitations as the Board
of Directors may prescribe. If the Board of Directors delegates such authority
to an officer, such officer shall (subject to such limitations and conditions as
the Board of Directors may impose) have the powers of the Plan Administrator
with respect to the Restricted Stock granted by the officer pursuant to such
authority, including without limitation the power to establish the terms of such
Restricted Stock consistent with this Section 8 and the power to end the
Restriction Period early pursuant to Section 8.5.
8.10. Notwithstanding the foregoing provisions of this Section 8, unless
the Plan Administrator determines otherwise, a Participant may irrevocably
elect, by filing an election with the Plan Administrator in a form prescribed by
the Plan Administrator no later than the date which is 12 months prior to the
date on which the restrictions are otherwise scheduled to expire with respect to
any Restricted Stock, that such Restricted Stock be forfeited, and that such
Participant receive in lieu thereof a credit to a deferred compensation account
under the Company's Deferred Compensation Plan in an amount equal to the Fair
Market Value of the number of shares of Common Stock corresponding to the number
of shares of Restricted Stock as to which the election is made; provided,
however, that such deferred compensation account shall be forfeited if the
Restricted Stock covered by the deferral election would have been forfeited if
no election had
33
been made pursuant to this Section 8.10. Any such deferral into a deferred
compensation account under the Company's Deferred Compensation Plan shall be
governed in all respects by the terms of the Company's Deferred Compensation
Plan, and the Participant's election shall include such elections as to method
of payment and investment of accounts as may be permitted under the Company's
Deferred Compensation Plan.
SECTION 9
REGULATORY APPROVALS AND LISTING
9.1. The Company shall not be required to issue any certificate for shares
of Common Stock upon the exercise of an option or stock appreciation right
granted under the Plan prior to:
(a) the obtaining of any approval or ruling from the Securities and
Exchange Commission, the Internal Revenue Service or any other governmental
agency which the Company, in its sole discretion, shall determine to be
necessary or advisable;
(b) the listing of such shares on any stock exchange on which the
Common Stock may then be listed; or
(c) the completion of any registration or other qualification of such
shares under any federal or state laws, rulings or regulations of any
governmental body which the Company, in its sole discretion, shall
determine to be necessary or advisable.
9.2. All certificates for shares delivered pursuant to Section 8.8 in
respect of Restricted Stock awards shall be subject to such stop-transfer orders
and other restrictions as the Plan Administrator may deem advisable under the
rules, regulations and other requirements of the Securities and Exchange
Commission, any stock exchange upon which Common Stock is then listed and any
applicable federal or state securities laws, and the Plan Administrator may
cause a legend or legends to be placed on any such certificates to make
appropriate reference to such restrictions. The foregoing provisions of this
Section 9.2 shall not be effective if and to the extent that the shares of
Common Stock delivered under the Plan are covered by an effective and current
registration statement under the Securities Act of 1933, as amended, or if and
so long as the Plan Administrator determines that application of such provisions
is no longer required or desirable. In making such determination, the Plan
Administrator may rely upon an opinion of counsel for the Company.
SECTION 10
EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall be effective upon approval by the stockholders of the
Company in April of 2002. Options, stock appreciation rights and Restricted
Stock may be granted pursuant to the Plan from time to time within the period
commencing upon approval of the Plan by the stockholders of the Company and
ending ten (10) years after the earlier of the adoption of the Plan by the Board
of Directors and the approval of the Plan by the stockholders. Options, stock
appreciation rights and Restricted Stock theretofore granted may extend beyond
that date, and the terms and conditions of the Plan shall continue to apply
thereto and to shares of Common Stock acquired thereunder.
SECTION 11
GENERAL PROVISIONS
11.1. Nothing contained in the Plan, or in any option, stock appreciation
right or Restricted Stock granted pursuant to the Plan, shall confer upon any
employee any right with respect to continuance of employment by the Company or a
Subsidiary, or interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of such employee at any time with or
without assigning any reason therefor.
34
11.2. Grants, vesting or payment of options, stock appreciation rights or
Restricted Stock shall not be considered as part of a Participant's salary or
used for the calculation of any other pay, allowance, pension or other benefit
unless otherwise permitted by other benefit plans provided by the Company or a
Subsidiary, or required by law or by contractual obligations of the Company or a
Subsidiary.
11.3. The right of a Participant or Beneficiary to the payment of any
compensation under the Plan may not be assigned, transferred, pledged or
encumbered, nor shall such right or other interests be subject to attachment,
garnishment, execution or other legal process.
11.4. Leaves of absence for such periods and purposes conforming to the
personnel policy of the Company or a Subsidiary, as applicable, shall not be
deemed terminations or interruptions of employment. The foregoing
notwithstanding, with respect to Incentive Stock Options, employment shall not
be deemed to continue beyond the first ninety (90) days of such leave unless the
Participant's reemployment rights are guaranteed by statute or contract.
11.5. Subject to Section 6.4(h) in the event a Participant is transferred
from the Company to a Subsidiary, or vice versa, or is promoted or given
different responsibilities, the options, stock appreciation rights and/or
Restricted Stock granted to the Participant prior to such date shall not be
affected.
11.6. The Plan shall be construed and governed in accordance with the laws
of the State of Texas, except that it shall be construed and governed in
accordance with applicable federal law in the event that such federal law
preempts state law.
11.7. Appropriate provision shall be made for all taxes required to be
withheld in connection with the exercise, grant or other taxable event with
respect to options, stock appreciation rights and Restricted Stock under the
applicable laws or regulations of any governmental authority, whether federal,
state or local and whether domestic or foreign. Unless otherwise provided in the
option grant, a Participant is permitted to deliver shares of Common Stock
(including shares acquired pursuant to the exercise of an option other than the
option currently being exercised, to the extent permitted by applicable
regulations) for payment of withholding taxes on the exercise of an option or
stock appreciation right or upon the vesting of the Restricted Stock. The Fair
Market Value of such Common Stock as delivered shall be valued as of the day
prior to delivery. At the election of the Plan Administrator or, subject to
approval of the Plan Administrator at its sole discretion, at the election of a
Participant, shares of Common Stock may be withheld from the shares issuable to
the optionee upon exercise of an option or stock appreciation right or upon the
vesting of the Restricted Stock to satisfy tax withholding obligations (but not
in excess of minimum required withholding obligation). The Fair Market Value of
such Common Stock as is withheld shall be valued as of the day prior to exercise
of the option or stock appreciation right or the vesting of the Restricted
Stock.
Tax advice should be obtained by the Participant prior to the Participant's
(x) entering into any transaction under or with respect to the Plan, (y)
designating or choosing the time of distributions under the Plan, or (z)
disposing of any shares of Common Stock issued under the Plan.
SECTION 12
AMENDMENT, TERMINATION OR DISCONTINUANCE OF THE PLAN
12.1. Subject to Section 12.2, the Board of Directors and the Plan
Administrator shall each independently have the authority from time to time to
make such amendments to the Plan as it may deem desirable without further
approval of the stockholders of the Company, including, but not limited to, any
amendment necessary to ensure that the Company may obtain any regulatory
approval referred to in Section 9; provided, however, that no change in any
option, stock appreciation right or Restricted Stock theretofore granted may be
made without the consent of the Participant which would impair the right of the
Participant to acquire or retain Common Stock or cash that the Participant may
have acquired as a result of the Plan.
12.2. Any increase in the number of shares available under the Plan for
grant as Incentive Stock Options and any change in the designation of the group
of employees eligible to receive Incentive Stock Options under the Plan shall be
subject to stockholder approval in accordance with Section 422 of the Code.
35
12.3. The Board of Directors may at any time suspend the operation of or
terminate the Plan with respect to any shares of Common Stock or rights not at
the time subject to any option, stock appreciation right or grant of Restricted
Stock.
SECTION 13
COMPLIANCE WITH RULE 16b-3
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
Exchange Act, the Plan shall comply in all respects with Rule 16b-3 and, if any
Plan provision is later found not to be in compliance with such Section, that
provision shall be deemed null and void, and in all events the Plan shall be
construed in favor of its meeting the requirements of Rule 16b-3.
Notwithstanding anything in the Plan to the contrary, the Board of Directors, in
its absolute discretion, may bifurcate the Plan so as to restrict, limit or
condition the use of any provision of the Plan to Insider Participants without
so restricting, limiting or conditioning the Plan with respect to other
Participants.
36
[BURLINGTON RESOURCES LOGO]
--------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT NOTICE OF
YOUR MANAGEMENT WILL APPRECIATE THE PROMPT ANNUAL MEETING
RETURN OF YOUR SIGNED PROXY SO THE SHARES YOU OF STOCKHOLDERS
OWN WILL BE REPRESENTED AT THE ANNUAL MEETING OF AND
STOCKHOLDERS. PROXY STATEMENT
--------------------------------------------------------------------------------
TO BE HELD IN THE AMBASSADOR ROOM,
THE ST. REGIS HOTEL,
1919 BRIAR OAKS LANE
HOUSTON, TEXAS
APRIL 17, 2002
9:00 A.M.
332-PS-02
[BURLINGTON RESOURCES LOGO]
March 15, 2002
To our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
Burlington Resources Inc. to be held at 9:00 a.m., local time, on Wednesday,
April 17, 2002, in the Ambassador Room of The St. Regis Hotel, 1919 Briar Oaks
Lane, Houston, Texas. Detailed information about the meeting is contained in the
accompanying Notice of Annual Meeting and Proxy Statement.
Regardless of whether you plan to attend the meeting, it is important that your
shares be voted. The Company has Internet and telephone voting options for your
convenience. We ask that you vote as soon as possible, by using either the
Internet or telephone options or by signing and returning your proxy by mail in
the envelope provided.
Sincerely,
/s/ BOBBY S. SHACKOULS
Bobby S. Shackouls
Chairman of the Board,
President and Chief Executive Officer
[0332 - BURLINGTON RESOURCES] [FILE NAME: ZBRL62.ELX][LOGOS - ZBURL, ZBRSIG]
[VERSION - (3)] [02/26/02] [ORIG. 02/12/02]
DETACH HERE ZBRL62
PROXY
SOLICITED BY THE BOARD OF DIRECTORS
BURLINGTON RESOURCES INC. ANNUAL MEETING OF STOCKHOLDERS
APRIL 17, 2002
The undersigned hereby appoints Bobby S. Shackouls and L. David
Hanower, and each or either of them, with full power of substitution, as the
proxy or the proxies (the "Proxies") of the undersigned to represent and vote,
as designated, all of the shares of stock of the Company which the undersigned
may be entitled to vote at the Annual Meeting of Stockholders to be held in the
Ambassador Room, The St. Regis Hotel, 1919 Briar Oaks Lane, Houston, Texas on
April 17, 2002 at 9:00 a.m. local time, and at any adjournment or postponement
of such meeting with all powers which the undersigned would possess if present
at such Annual Meeting. In the election of directors, this proxy will be voted
in accordance with the specifications so made on the reverse side. If no
direction is given, this proxy will be voted FOR Proposal 1 and Proposal 2. Said
proxies shall have discretionary authority as to any other matters that may
properly come before the meeting, in accordance with and as described in the
Notice of Annual Meeting of Stockholders and Proxy Statement.
SEE REVERSE (IMPORTANT-TO BE SIGNED AND DATED ON REVERSE SIDE) SEE REVERSE
SIDE SIDE
[BURLINGTON RESOURCES LOGO]
C/O EQUISERVE
P.O. BOX 43068
PROVIDENCE, RI 02940
VOTE BY TELEPHONE
It's fast, convenient, and immediate!
Call Toll-Free on a Touch-Tone Phone
1-877-PRX-VOTE (1-877-779-8683).
FOLLOW THESE FOUR EASY STEPS:
1. READ THE ACCOMPANYING PROXY STATEMENT AND PROXY CARD.
2. CALL THE TOLL-FREE NUMBER 1-877-PRX-VOTE (1-877-779-8683).
3. ENTER YOUR VOTER CONTROL NUMBER LOCATED ON YOUR PROXY CARD ABOVE YOUR
NAME.
4. FOLLOW THE RECORDED INSTRUCTIONS.
YOUR VOTE IS IMPORTANT!
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VOTE BY INTERNET
It's fast, convenient, and your vote is immediately confirmed and posted.
FOLLOW THESE FOUR EASY STEPS:
1. READ THE ACCOMPANYING PROXY STATEMENT AND PROXY CARD.
2. GO TO THE WEBSITE http://www.eproxyvote.com/br
3. ENTER YOUR VOTER CONTROL NUMBER LOCATED ON YOUR PROXY CARD ABOVE YOUR
NAME.
4. FOLLOW THE INSTRUCTIONS PROVIDED.
YOUR VOTE IS IMPORTANT!
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DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET
[0332 - BURLINGTON RESOURCES] [FILE NAME: ZBRL61.ELX][LOGO- ZBURL]
[VERSION - (3)] [03/01/02] [ORIG. 02/12/02]
DETACH HERE ZBRL61
PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL
1.
1. Election of Directors.
NOMINEES: (01) R. V. Anderson, (02) L.I. Grant, (03) R.J. Harding,
(04) J.T. LaMacchia, (05) J.F. McDonald, (06) K.W. Orce,
(07) D.M. Roberts, (08) J.F. Schwarz, (09) W. Scott, Jr.,
(10) B.S. Shackouls and (11) W. E. Wade, Jr.
FOR [ ] [ ] WITHHELD
[ ]
--------------------------------------
For all nominees except as noted above
Signature: Date:
-------------------------- --------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL
2.
FOR AGAINST ABSTAIN
2. Adoption of 2002 Stock Incentive Plan. [ ] [ ] [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
MARK HERE FOR COMMENTS [ ]
Please sign exactly as your name appears. If acting as attorney, executor,
trustee or in other representative capacity, sign name and title. Joint owners
should each sign.
Signature: Date:
-------------------------- --------------------------