KERR-McGEE CORPORATION 2002 ANNUAL INCENTIVE COMPENSATION PLAN
TABLE OF CONTENTS
I Establishment And Purpose................. 1
II Definitions............................... 1
III Administration............................ 3
IV Eligibility And Participation............. 4
V Award Determination....................... 4
VI Payment Of Final Awards................... 6
VII Termination Of Employment................. 7
VIII Rights Of Participants.................... 7
IX Change In Control......................... 7
X Miscellaneous............................. 9
KERR-McGEE CORPORATION 2002 ANNUAL INCENTIVE COMPENSATION PLAN
Establishment And Purpose
1.1 Establishment of the Plan. Kerr-McGee Corporation, a Delaware
corporation (the "Company"), hereby establishes an annual incentive compensation
plan to be known as "The Kerr-McGee Corporation 2002 Annual Incentive
Compensation Plan (the "Plan"), as set forth in this document. The Plan permits
annual cash awards to Officers of the Company, based on the achievement of
pre-established performance goals.
The Plan is effective May 14, 2002 (the "Effective Date"). The Plan
shall first apply to Awards for 2002 Plan Year performance. The Plan shall
remain in effect until terminated as provided in Article V, Section 5.8 herein.
1.2 Purpose. The purposes of the Plan are to:
(a) Provide incentives to achieve annual goals that are within group
and/or individual control and are considered key to the Company's
(b) Encourage teamwork in various segments of the Company;
(c) Reward performance with pay that varies in relation to the extent
to which the pre-established goals are achieved; and
(d) Ensure all amounts paid under the Plan be "qualified performance
based compensation" within the meaning of Section 162(m) of the Code
and its accompanying regulations.
Whenever used in the Plan, the following terms shall have the meanings
set forth below and, when the defined meaning is intended, the term is
(a) "Award Opportunity" means the various levels of incentive award
payouts which an Officer may earn under the Plan, including Target
Incentive Awards, as established by the Committee pursuant to Article
V, Sections 5.1 and 5.2 herein.
(b) "Board" or "Board of Directors" means the Board of Directors of the
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a committee of two (2) or more members of the
Board of Directors, all of whom shall be "outside directors" within the
meaning of the Regulations under Code Section 162(m), appointed by the
Board to administer the Plan, pursuant to Article III herein.
(e) "Company" means Kerr-McGee Corporation, a Delaware corporation
(including any and all Subsidiaries and Limited Liability Companies)
and any successor thereto.
(f) "Effective Date" means the date the Plan becomes effective, as set
forth in Article I, Section 1.1 herein.
(g) "Employee" means a full time, salaried employee of the Company. The
term "Employee" shall not include a person hired as an independent
contractor, leased employee, consultant or a person otherwise
designated by the Company at the time of hire as not eligible to
participate in the Plan, even if such person is determined to be an
"employee" by any governmental or judicial authority.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
(i) "Final Award" means the actual award earned during a Plan Year by
an Officer, as determined by the Committee.
(j) "Limited Liability Company" means any Limited Liability Company in
which the Company or a Subsidiary owns fifty percent (50%) or more of
the Limited Liability Company.
(k) "Officer" means an Employee who, as of the last day of the
applicable Plan Year, is an elected officer of the Company at or above
the level of Corporate Vice President, which may also be referenced in
the Plan as a Participant.
(l) "Plan Year" means the Company's fiscal year.
(m) "Retirement" means retirement of an Officer after attaining age and
service requirements of the Company's pension plan in which the Officer
participates. For this purpose, "service" shall be measured under the
rules for determining vesting service under the Kerr-McGee Corporation
Retirement Plan for U.S. Employees, determined as if the individual
were a participant in such plan.
(n) "Subsidiary" means any corporation (other than the Company) in
which the Company, a Subsidiary or a Limited Liability Company of the
Company owns fifty percent (50%) or more of the total combined voting
power of all classes of stock.
(o) "Target Incentive Award" means the award, as established by the
Committee at a competitive level, which may be paid to an Officer when
"targeted" performance results are attained.
(p) "Maximum Incentive Award" means the award, as established by the
Committee which is intended to reward outstanding performance, and
which may be paid to an Officer when outstanding performance results
are attained; however, in no case can the Maximum Incentive Award for
an individual Officer exceed $3,000,000.
(q) "Total Disability" shall normally have such meaning as that defined
under the Company's group insurance plan covering total disability and
determinations of Total Disability normally shall be made by the
insurance company providing such coverage on the date on which the
employee, whether or not eligible for benefits under such insurance
plan, becomes Totally Disabled. In the absence of such insurance plan,
the Committee shall make such determination.
3.1 The Committee. The Plan shall be administered by a Committee which
initially shall be a subcommittee of the Executive Compensation Committee of the
Board. Subject to the terms of this Plan, the Board may appoint a successor
Committee to administer the Plan. The members of the Committee shall be
appointed by, must be members of, and shall serve at the discretion of the
3.2 Authority of the Committee. Subject to the provisions herein, the
Committee shall have the full power to determine the size and types of Award
Opportunities and Final Awards, to determine the terms and conditions of Award
Opportunities in a manner consistent with the Plan, to construe and interpret
the Plan and any agreement or instrument entered into under the Plan, to
establish, amend or waive rules and regulations for the Plan's administration,
and (subject to the provisions of Article IV herein) to amend the terms and
conditions of any outstanding Award Opportunity to the extent such terms and
conditions are within the sole discretion of the Committee as provided in the
Plan. Further, the Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan. As permitted by law,
the Committee may delegate its authority hereunder.
3.3 Decisions Binding. All determinations and decisions of the
Committee as to any disputed question arising under the Plan, including
questions of construction and interpretation, shall be final, binding and
conclusive upon all parties.
Eligibility And Participation
4.1 Eligibility. Each Officer who is an Officer as of the last day of a
Plan Year shall be eligible to participate in the Plan for that Plan Year.
4.2 No Right to Participate. No Employee shall at any time have a right
to be selected for participation in the Plan despite having previously
participated in the Plan.
5.1 Performance Measures and Performance Goals. For each Plan Year, the
Committee shall establish ranges of attainment of the performance goals which
will correspond to various levels of Award Opportunities. Each performance goal
range shall include a level of performance at which one hundred percent (100%)
of the Target Incentive Award may be earned. In addition, each range shall
include levels of performance above and below the one hundred percent (100%)
performance level at which a greater or lesser percent of the Target Incentive
Award may be earned.
After the performance goals are established, the committee will align
the achievement of the performance goals with the Award Opportunities (as
described in Article V, Section 5.2 herein), such that the level of achievement
of the pre-established performance goals at the end of the Plan Year will
determine the Final Awards.
The Committee may establish one or more Company-wide performance
measures which must be achieved for any Officer to receive a Final Award payment
for that Plan Year.
Following the completion of each Plan Year, if the performance goals
were met, the Committee shall certify in writing prior to payment of Final
Awards that the performance goals for such Plan Year were satisfied.
5.2 Award Opportunities. No later than ninety (90) days after the
beginning of each Plan Year, the Committee shall establish, in writing, Award
Opportunities which correspond to various levels of achievement of the
pre-established performance goals. The established Award Opportunities may vary
in relation to the job classification of each Officer or among Officers in the
same job classification. Except as provided in Article V, Section 5.7 herein,
Award Opportunities for Officers shall be established as a function of each
Officer's Base Salary (as defined below). No later than ninety (90) days after
the beginning of each Plan Year, the Committee shall establish, in writing,
various levels of Final Awards which may be paid with respect to specified
levels of attainment of the pre-established performance goals.
For purposes of this Article V, "Base Salary" shall mean, as to any
specific Plan Year, an Officer's actual base salary paid while an Officer. Base
salary shall not be reduced by any voluntary salary reductions or any salary
reduction contributions made to any salary reduction plan, defined contribution
plan or other deferred compensation plans of the Company, but shall not include
any payments under this Plan, the 1998, 2000 and 2002 Long Term Incentive Plans,
or any other bonuses, incentive pay or special awards. In the event an Employee
becomes an Officer during the Plan Year, then only the salary earned while an
Officer will be taken into account for awards under this Plan. The Officer shall
be eligible to receive any other applicable cash-based compensation from other
Company bonus plans for that part of the year in which he was not an Officer.
5.3 Computation of Final Awards. Awards will be computed and paid based
on the attainment of the pre-established performance goals. Awards for
proxy-named Officers will be funded with up to 1.5% of cash flow in aggregate
with no more than 0.5% of cash flow being allocated to any individual as
calculated by the Committee. Subject to Section 5.7 herein, the Committee may
establish performance goals based on the Company's Pretax Income, Net Income,
Earnings Per Share, Revenue, Expenses, Return on Assets, Return on Equity,
Return on Investment, Net Profit Margin, Operating Profit Margin, Operating Cash
Flow, Total Stockholder Return, Capitalization, Liquidity, Reserve Adds or
Replacement, Finding and Development Costs, Results of Customer Satisfaction
Surveys and other measures of Quality, Safety, Productivity, Cost Management or
Process Improvement or other measures the Committee approves. Such performance
goals may be determined solely by reference to the performance of the Company, a
Subsidiary, a Limited Liability Company or a division or unit of any of the
foregoing, or based upon comparisons of any of the performance measures relative
to other companies. The Committee may also exclude the impact of any event or
occurrence which the Committee determines should appropriately be excluded such
as, for example, a restructuring or other nonrecurring charge, an event either
not directly related to the operations of the Company or not within the
reasonable control of the Company's management, or a change in accounting
standards required by U. S. generally accepted accounting principles.
5.4 Threshold Levels of Performance. The Committee may establish
minimum levels of performance goal achievement, below which no payouts of Final
Awards shall be made to any Officer.
5.5 No Mid-Year Change in Award Opportunities. Except as provided in
Article V, Section 5.7 herein, each Officer's Final Award shall be based
exclusively on the Award Opportunity levels established by the Committee
pursuant to Article V, Section 5.2 above.
5.6 Award Adjustments. The Committee shall have the discretion to
reduce or eliminate the amount of the Final Award otherwise payable to an
5.7 Possible Modifications. In the event that changes are made to Code
Section 162(m) or the Regulations thereunder (or their interpretation) to permit
greater flexibility with respect to any Award Opportunities under the Plan, the
Committee may exercise such greater flexibility consistent with the terms of the
AICP and, to the extent of such changes, without regard to otherwise applicable
restrictive provisions of the AICP.
5.8 Amend and Terminate. The Board, without notice, at any time, may
modify or amend, in whole or in part, any or all of the provisions of the Plan,
or suspend or terminate it entirely.
Payment Of Final Awards
6.1 Form and Timing of Payment. Unless a deferral election is made by
an Officer pursuant to Article VI, Section 6.2 herein, or deferral of all or a
portion of an Officer's Final Award is required by Article VI, Section 6.3, each
Officer's Final Award shall be paid within seventy-five (75) days after the
Award is approved in writing by the Committee.
6.2 Voluntary Deferral of Final Award Payouts. An Officer may defer
receipt of some or all payments otherwise due under the Plan pursuant to the
terms of a deferred compensation plan sponsored by the Company under which such
deferral is permitted.
6.3 Deferral of Final Award Payouts. In the event that all or a portion
of an Officer's Final Award is not deductible by the Company due to limits
contained in Code Section 162(m) or any successor Code Section, the Committee
may, in its discretion, require that payment of the nondeductible portion of
such Final Award be deferred under a deferred compensation plan sponsored by the
Termination Of Employment
If before an Award is actually paid to an Officer with respect to a
Performance Period the Officer ceases to be a regular, full time employee of the
Corporation, any of its Subsidiaries or any of its Limited Liability Companies
for a reason other than death, Total Disability or Retirement, the Officer's
eligibility under the Plan shall terminate and no Award will be paid. In the
event a participating Officer (who was an officer as of the first day of a Plan
Year) terminates employment due to death, Total Disability or Retirement, such
Officer shall be entitled to a pro rata portion of the Final Award calculated on
actual Base Salary earned by such Officer.
Rights Of Participants
8.1 Employment. Nothing in the Plan shall interfere with or limit in
any way the right of the Company to terminate any Officer's employment at any
time, nor confer upon any Officer any right to continue in the employ of the
8.2 Nontransferability. No right or interest of any Officer in the Plan
shall be assignable or transferable, or subject to any lien, directly, by
operation of law or otherwise, including, but not limited to, execution, levy,
garnishment, attachment, pledge and bankruptcy.
Change In Control
In the event of a Change in Control, each Participant shall, in the
sole discretion of the Committee (except as otherwise provided in a
Participant's continuity agreement with the Company), receive a full payment of
the Participant's Target Incentive Award for the Plan Year during which such
Change in Control occurs, as determined by the Committee. In such circumstances
the Committee shall determine the Final Award based upon such performance during
the Plan year until the date of the Change in Control. Such amounts shall be
paid in cash to each participant within seventy-five (75) days after the
effective date of the Change in Control.
For purposes of the Plan, a "Change in Control" shall be deemed to have occurred
(a) Any person ("Person") as defined in Section 3(a)(9) of the Exchange
Act and as used in Section 13(d) and 14(d) thereof, including a "group" as
defined in Section 13(d) of the Exchange Act, but excluding the Company and any
subsidiary and any employee benefit plan sponsored or maintained by the Company
or any subsidiary (including any trustee of such plan acting as trustee),
directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), of securities of the Company representing 25% or more
of the combined voting power of the Company's then outstanding securities (other
than indirectly as a result of the Company's redemption of its securities); or
(b) The consummation of any merger or other business combination of the
Company, sale of 50% or more of the Company's assets, liquidation or dissolution
of the Company or combination of the foregoing transactions (the "Transactions")
other than a Transaction immediately following which the shareholder of the
Company and any trustee or fiduciary of any Company employee benefit plan
immediately prior to the Transaction own at least 60% of the voting power,
directly or indirectly, of (A) the surviving corporation in any such merger or
other business combination; (B) the purchaser or successor to the Company's
assets; (C) both the surviving corporation and the purchaser in the event of any
combination of Transactions; or (D) the parent company owning 100% of such
surviving corporation, purchaser or both the surviving corporation and the
purchaser, as the case may be; or
(c) Within any twenty-four month period, the persons who were directors
immediately before the beginning of such period (the "Incumbent Directors")
shall cease (for any reason other than death) to constitute at least a majority
of the Board or the board of directors of a successor to the Company. For this
purpose, any director who was not a director at the beginning of such period
shall be deemed to be an Incumbent Director if such director was elected to the
Board by, or on the recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as Incumbent Directors (so long
as such director was not nominated by a person who commenced or threatened to
commence an election contest or proxy solicitation by or on behalf of a Person
(other than the Board) or who has entered into an agreement to effect a Change
in Control or expressed an intention to cause such a Change in Control); or
(d) A majority of the members of the Board of Directors in office
immediately prior to a proposed transaction determine by a written resolution
that such proposed transaction, if taken, will be deemed a Change in Control and
such proposed Transaction is consummated.
10.1 Governing Law. The Plan, and all agreements hereunder, shall be
governed by and construed in accordance with the laws of the State of Oklahoma.
10.2 Withholding Taxes. The Company shall have the right to deduct from
all payments under the Plan any foreign, federal, state or local income or other
taxes required by law to be withheld with respect to such payments. Before
payment of any Final Award may be deferred under Article VI, the Company may
require that the Officer pay or agree to withholding for any foreign, federal,
state or local income or other taxes which may be imposed on any amount
10.3 Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular, and the singular shall include the plural.
10.4 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
10.5 Costs of the Plan. All costs of implementing and administering the
Plan shall be borne by the Company.
10.6 Successors. All obligations of the Company under the Plan shall be
binding upon and inure to the benefit of any successor to the Company, whether
the existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
10.7 Other Plans. Nothing contained in this Plan shall prevent the
Board from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
10.8 Construction. The Committee shall have such duties and powers as
may be necessary to discharge its responsibilities under this Plan, including,
but not limited to, the ability to construe and interpret the Plan and resolve
any ambiguities with respect to any of the terms and provisions hereof as
written and as applied to the operation of the Plan.
By: /s/Matthew R. Simmons
Matthew R. Simmons
Director and Chair of the
Executive Compensation Committee