The following table sets forth information concerning the total compensation paid or payable in respect of each of the last three financial years, to the Chief Executive Officer and Chief Financial Officer of the Corporation and to each of the Corporation’s other three most highly compensated executive officers (other than Mr. Lowry who is a non-executive Chairman) (the “Named Executive Officers” or “NEOs”) during the financial year ended December 31, 2009:
(1) Unit-based awards are comprised of Performance Unit Awards. For Officers, half of the long term incentive compensation is in the form of Performance Unit Awards and half is in stock options issued under the 2005 Option Plan. See discussion under
“Compensation Discussion and Analysis – Long Term Incentive Plan – Performance Unit Incentive Plan” above.
(2) Stock options granted under the 2005 Option Plan. See discussion of that plan, “Compensation Discussion and Analysis – Long Term Incentive Plan – Summary of 2005 Option Plan” above.
(3) Bonuses paid or accrued for payment in respect of the fiscal year ended December 31 for the year noted. See “Compensation Discussion and Analysis – Annual Target Bonus or Short Term Incentive Plan”. For bonuses in respect of 2007, certain Officers’
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bonus amounts included payments for such Officers foregoing rights to distributions under the 2002 Option Plan with 2007 being the last year that any such payment was payable. The 2007 bonus amounts for Mr. Coutu, Ms. Curran and Mr. Roberts also included a special bonus payment in respect of their efforts regarding the negotiation and implementation of the management services agreement between Syncrude Canada Ltd. and Imperial Oil Resources/ExxonMobil. The 2007 bonus paid to Mr. Hagerman included payments in respect of a discretionary bonus with a recognition of there being no long term incentives granted to Mr. Hagerman in 2007 as he transitioned from a full time Chief Financial Officer role to a part time executive role. No special bonuses were paid to any NEO in 2008 or in 2009.
(4) The Corporation makes monthly contributions to savings accounts for all employees administered by an independent service provider for each employee. Contributions are made by the Corporation to RRSP and non-RRSP savings accounts for employees in lieu of any retirement or pension program for employees. See “Compensation Discussion and Analysis – Pension/Savings Plan Benefits” above.
Perquisites and other personal benefits received in the aggregate did not exceed $50,000 or 10% of the total annual salary for any of the Named Executive Officers in the applicable fiscal year.
(5) Mr. Kubik held the position of Treasurer until April 2007 when he was promoted to Chief Financial Officer. His compensation for 2007 reflects eight months as Chief Financial Officer and four months as Treasurer.
(6) Mr. Hagerman was Chief Financial Officer from June 2003 until April 2007, when he moved to a part time role as Executive Vice President. Upon moving to Executive Vice President in April 2007, Mr. Hagerman’s compensation structure changed to a base salary and a discretionary bonus without any grants of long term incentives in 2007. In 2008 and in 2009, Mr. Hagerman’s compensation structure reverted to include base salary, short term incentives and long term incentives. Mr. Hagerman worked 65% of a full time position in 2009 and 50% of a full time position in 2008 and his annual compensation reflects this reduction from a full time position.
(7) Mr. Roberts worked 75% of a full time position in 2009, 66% of a full time position in 2008 and 100% in 2007. His annual compensation in 2008 and 2009 reflects this reduction from a full time position.
As part of the analysis and advice provided by Towers Perrin as independent consultants to the CGC, such consultant provided a calculation of the value of each of the Performance Unit Awards and of the stock options under the 2005 Option Plan, using a binomial valuation methodology. The model is a modified version of the widely recognized Black-Scholes pricing model and measures the annualized expected value of long term incentive awards at the time of grant using the following factors/assumptions: historical volatility of the underlying stock, market price of the underlying stock, exercise price of the option, historical and/or expected dividend yield of the underlying stock, expected exercise period and length of the option term, risk free interest rate, turnover and payout range of performance based plans. The methodology used is the same methodology generally used by this consultant in advising other clients in the oil and gas industry on long term incentive values. Therefore, the CGC feels that such methodology is objective and allows comparability to the long term compensation paid by the Peer Group when the CGC is considering the relative placement of total compensation for NEOs against their counterparts within the Peer Group. The value derived using this external national consultant binomial model has historically closely aligned with the fair market valuation used under Canadian GAAP in relation to the initial recording of the value of these long term incentives in the financial statements at the time of the relevant grants.
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Outstanding Option-Based Awards and Unit-Based Awards as at December 31, 2009
The following table provides information relating to exercisable and unexercisable stock options and unvested Performance Unit Awards as of December 31, 2009 for the Named Executive Officers.
Option-based Awards
(1) The 2005 Option Plan includes a reduction of the original exercise price to the extent that distributions paid in a twelve month period exceed the Distribution Threshold amount relevant to each option grant. Accordingly, the table shows the original exercise price and the reduced exercise price as at December 31, 2009, having given effect to the distributions paid that exceeded the relevant Distribution Threshold as of December 31, 2009. The Distribution Threshold for options granted in 2005 was $0.40; in 2006, $0.80;
in 2007, $1.20; 2008, $3.00 and in 2009 was $0.60 per Unit for each 12 month period. For a complete description of how such plan works, see “Compensation Discussion and Analysis – Long Term Incentive Plan – Summary of 2005 Option Plan.”
(2) Based on the closing price for Units as at December 31, 2009, which price was $29.91 per Unit.
(3) Performance Unit Awards have a three year cliff vesting. The first Performance Unit Awards issued in 2006 vested in January 2009 and the next vesting occurred in January 2010.
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(4) Performance Unit Awards carry the right to the cash value of a whole Unit plus distributions on those Units if the Trust meets certain performance criteria. The actual value on the vesting date can be zero or double the target amount shown. The amounts shown in this column assume that each particular Performance Unit Award grant reaches target and does not adjust the value shown for the distribution amounts that would be paid on the Units. See “Compensation Discussion and Analysis – Long Term Incentive Plan – Performance Unit Incentive Plan” for further details. In computing the amount, we have used the closing price of the Units on December 31, 2009, which was $29.91.
Incentive Plan Awards – Value Vested or Earned During the Most Recently Completed Financial Year The following table provides the value, if any, of options that vested during 2009, which options relate to grants made in 2006, 2007 and 2008. The table provides the theoretical value on the date that the options vested, as well as the value as at year end.
Name
Option-based awards – Value vested during the year
Unit-based
Marcel R. Coutu January 24, 2009 January 28, 2009
Trudy M. Curran January 24, 2009 January 28, 2009
Allen R. Hagerman January 24, 2009 March 27, 2009
Trevor R. Roberts January 24, 2009 January 28, 2009
(1) The “in-the-money” value on the date of vesting does not include the amounts that the original exercise price may have decreased by distributions actually paid in excess of the Distribution Threshold for the options granted under the 2005 Option Plan. See
“Compensation Discussion and Analysis – Long Term Incentive Plan – Summary of 2005 Option Plan” for further details. If the date of vesting fell on a non-trading day, the Unit price on the next following trading day was taken. For example, January 24, 2009 was a Saturday, so we have applied the January 26, 2009 trading price.
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(2) In order to reflect the actual value of any of the options that were still issued and outstanding at year end, we have calculated the “in-the money” amount at year end based on “in-the closing price for Units as at December 31, 2009, which price was $29.91 per Unit.
(3) Performance Unit Awards have a three year cliff vesting. The first Performance Unit Awards issued in 2006 vested in January 2009.
See “Compensation Discussion and Analysis – Long Term Incentive Plan – Performance Unit Incentive Plan”.
(4) Canadian Oil Sands does not have any non-equity incentive plans.
Termination and Change of Control Benefits (a) Employment Agreements
The Corporation has entered into employment agreements with Mr. Coutu (the President and Chief Executive Officer), Mr. Kubik (the Chief Financial Officer), Mr. Hagerman (the Executive Vice President), Ms.
Curran (the General Counsel and Corporate Secretary) and Mr. Roberts (the Chief Operations Officer) (collectively, the “Designated Officers”). No other officers or employees have such employment agreements. Under the employment agreement of each Designated Officer (other than the President and Chief Executive Officer), if a
“change of control” occurs and there is a “constructive dismissal” within 365 days of the change of control, the Designated Officer will have the right to terminate his or her employment with the Corporation at any time within 180 days of the constructive dismissal by giving 30 days’ written notice. In such case, the Designated Officer will be entitled to a severance payment and outplacement services. If the Corporation terminates the employment agreement at any time within 365 days following a change of control other than for cause, it will become obligated to pay a cash amount equal to two times the Designated Officer’s annual base salary, annual target bonus and value of benefits and perquisites and to provide for the costs of professional outplacement services up to a combined maximum cost of $25,000 for a maximum period of six months following termination of employment.
In the employment agreement with the President and Chief Executive Officer, in the event of a “change of control” or “constructive dismissal”, Mr. Coutu will have the right to terminate his employment with the Corporation at any time within 180 days thereafter upon 30 days’ prior written notice, in which case he will be entitled to the same severance payment and outplacement services as would be payable by the Corporation in the event that it terminated Mr. Coutu’s employment without cause. In the case of Mr. Coutu, if the Corporation terminates his employment agreement at any time other than for cause, the Corporation will become obligated to pay to Mr. Coutu a cash amount equal to 2.5 times the aggregate of his annual base salary, annual target bonus, the value of his health and dental benefits and savings contributions, and to provide for the costs of professional outplacement services up to a combined maximum cost of $25,000 for a maximum period of six months following termination of employment.
A trigger of the “change of control” provisions under the employment agreements for each of the Designated Officers also triggers an immediate vesting of all issued and outstanding options held by the particular Designated Officer as well as a vesting of the performance awards based on a truncated performance period.
Each of the employment agreements generally define a “change of control” to include: (a) the sale to a person not affiliated with the Trust or the Corporation, or their subsidiaries, of assets having a value greater than 50% of the fair market value of the consolidated assets of such parties prior to such sale; and (b) any change in the holding of Units or securities of the Corporation by a person not affiliated with the Trust or the Corporation as a result of which such person, jointly or in concert with others, is in a position to exercise effective control of the Trust or the Corporation. A person or group of persons holding more than 30% of the outstanding Units, or units of other securities which would entitle such person(s) to cast at least 30% of the votes attaching to all units of the Trust that may be cast for the election of directors of the Corporation are deemed to be in a position to exercise effective control of the Trust or the Corporation (unless such person(s) holds such Units or other securities in the ordinary course of business as an investment manager and is not using such holding to exercise effective control). The employment agreements also define “constructive dismissal” to include: a material decrease in the title, position, responsibilities, powers or reporting relationships of the executive; a reduction in the annual base compensation salary; a requirement to relocate to another city; or any material reduction in the value of the employment benefits (other than the annual target bonus).
The Arrangement will not result in any change of control, termination or other payments being made to any directors, officers or employees of Canadian Oil Sands pursuant to employment, change of control or
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similar agreements. In connection with the completion of the Arrangement, all executive employment agreements will be amended such that references to the Trust will be replaced with references to New COSL and references to the existing incentives will reflect the treatment of the employee equity rights under the Arrangement and refer to the new incentive plans going forward.
(b) 2005 Option Plan
The 2005 Option Plan provides that, in the event of a “Change of Control” of the Trust (as defined in the 2005 Option Plan), all outstanding options that have been granted under the 2005 Option Plan will become vested and exercisable in full.
In addition, the 2005 Option Plan provides that the exercise period and vesting period may be shortened upon certain events such as disability, death, termination for cause and termination without cause, all as more clearly defined in the 2005 Option Plan. In addition, in certain circumstances, the Board has discretion to provide for accelerated vesting of options and in other circumstances there will be automatic acceleration of vesting.
The Arrangement will not result in a “Change of Control” pursuant to the 2005 Option Plan.
(c) Performance Unit Incentive Plan
In the event of a “Change of Control” of the Trust (as defined in the Performance Unit Incentive Plan), Performance Unit Awards will be paid immediately upon the Change of Control being completed based on the performance achieved from the date of grant to the date of the Change of Control, adjusted for the abridgement period.
The Performance Unit Incentive Plan also provides for the payout and/or termination of Performance Unit Awards in the event of the cessation of employment or death of a holder based on the performance achieved from the date of grant to the date of death or cessation of employment, adjusted for the abridged measurement period.
The Arrangement will not result in a “Change of Control” pursuant to the Performance Unit Incentive Plan.
(d) Estimated Termination Payments and Benefits
The following table sets forth estimates of the amounts payable to each of the Named Executive Officers upon the specified termination events, assuming that each such event took place on the last business day of fiscal year 2009. For the purposes of the table, we have assumed that the earning of the actual awards under the 2009 short term incentive program was known on the last business day of the fiscal year 2009.
Marcel R.
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Options under 2005 Option Plan (Disability) Options under 2005 Option Plan (Death) Performance Unit Awards (Disability)
Retirement (there is no policy that allows employees to retire. Employees can only resign, be terminated or suffer a death or disability)
0 0 0 0 0
Notes:
(1) For the purposes of the calculation, we assumed that for Messrs. Kubik, Hagerman and Roberts and Ms. Curran there was a change of control and they were constructively dismissed such that the double trigger under their change of control agreements came into effect.
If the second requirement, the constructive dismissal did not occur, then they would only have been entitled to the immediate vesting and truncation of the Performance Unit Awards and the vesting of all outstanding options and no other payments would be made to such individuals.
(2) We assumed that the individual has been classified as being under long term disability for which Canadian Oil Sands has no insurance policy. If the individual was under short term disability and returned to work within the year, then under the provisions of the short term disability policy, the individual would receive their normal base salary payment for the year and be treated as if such disability did not exist.