DEFERRED COMPENSATION PLAN

Exhibit 10.6

 

NIKE, INC.

 

DEFERRED COMPENSATION PLAN

 

(Amended and Restated Effective June 1, 2004)

 

Prepared by:

 

Lane Powell Spears Lubersky

601 S.W. Second Avenue, Suite 2100

Portland, Oregon 97204

(503) 778-2100

NIKE, INC. DEFERRED COMPENSATION PLAN

June 1, 2004 Restatement

 

TABLE OF CONTENTS

 

 

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ii

RECITALS

 

(a) NIKE, Inc. (the “Company”) adopted the Supplemental Executive Savings Plan effective February 1, 1994 (the “SESP”). The SESP was adopted to provide an opportunity for eligible employees to set aside additional amounts for retirement on a tax deferred basis and to provide a limited make-up of profit sharing contributions lost as a result of the limit on compensation under Section 401(a)(17) of the Internal Revenue Code of 1986 (the “Code”) under the Company’s 401(k) Savings and Profit Sharing Plan for employees of NIKE, Inc. (the “Profit Sharing Plan”). The SESP is a nonqualified deferred compensation plan for the benefit of a select group of management or highly-compensated employees of the Company.

 

(b) The Company adopted the Supplemental Executive Profit Sharing Plan effective as of June 1, 1995 (the “SEPSP”) to expand the make-up of profit sharing contributions lost under the Profit Sharing Plan and to separate the restoration provisions from the elective deferral provisions of the SESP.

 

(c) Effective as of January 1, 1998, the Company combined the SEPSP and the SESP and made certain other changes. The resulting plan was renamed the NIKE, Inc. Deferred Compensation Plan (the “Plan”). The Company amended and restated the Plan, effective as of January 1, 2000.

 

(d) Effective January 1, 2003, the Company amended and restated the Plan to reflect a change in trustee, the addition of an opportunity for Participants to defer payments under the Long Term Incentive Plan of NIKE, Inc., and other administrative changes in the Plan.

 

(e) Effective July 1, 2003, the Company amended and restated the Plan to clarify certain administrative provisions of the Plan.

 

(f) The Company wishes again to amend and restate the Plan to clarify treatment of long-term incentive payments made by certain of the Company’s subsidiaries and affiliates.

 

(g) Under the Plan, the Company is obligated to pay vested accrued benefits to Plan Participants and their Beneficiary or Beneficiaries from the Company’s general assets.

 

(h) In connection with the Plan, the Company has established an irrevocable trust (the “Trust”). The Company intends to make contributions to the Trust so that such contributions will be held by the Trustee and invested, reinvested and distributed, all in accordance with the provisions of this Plan and the Trust Agreement.

 

(i) The Company intends that amounts contributed to the Trust and the earnings thereon shall be used by the Trustee to satisfy the liabilities of the Company under the Plan in accordance with the procedures set forth herein.

 

(j) The Company intends that the Trust be a “grantor trust” with the principal and income of the Trust treated as assets and income of the Company for federal and state income tax purposes.

 

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(k) The Company intends that the assets of the Trust shall at all times be subject to the claims of the general creditors of the Company as provided in the Trust Agreement.

 

(l) The Company intends that the existence of the Trust shall not alter the characterization of the Plan as “unfunded” for purposes of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and shall not be construed to provide income to Plan Participants prior to actual payment of the vested accrued benefits thereunder.

 

NOW THEREFORE, the Company does hereby adopt this amended and restated Plan as follows:

 

ARTICLE I

 

TITLE AND DEFINITIONS

 

1.1 Title

 

This Plan shall be known as the NIKE, Inc. Deferred Compensation Plan.

 

1.2 Definitions

 

Whenever the following words and phrases are used in this Plan, with the first letter capitalized, they shall have the meanings specified below.

 

(a) “ Account ” means for each Participant the bookkeeping account maintained by the Retirement Committee that is credited with amounts equal to (1) the portion of the Participant’s Salary that he or she elects to defer, (2) the portion of the Participant’s Bonus that he or she elects to defer, (3) the portion of the Participant’s Incentive Payments that he or she elects to defer, (4) the portion of the Participant’s Fees that he or she elects to defer, (5) the portion of the Participant’s Long Term Incentive Payment that he or she elects to defer, (6) Company or Participating Employer contributions, if any, made to the Plan for the Participant’s benefit, and (7) adjustments to reflect deemed earnings pursuant to Section 4.1(e).

 

(b) “ Actuarial Equivalent ” means the actuarial present value determined by the actuary appointed by the Company, in accordance with generally accepted actuarial principles, with a discount for mortality using the 1983 Group Annuity Mortality Table and a discount for interest at the 30-year Treasury rate for July 1999 (5.98%).

 

(c) “ Beneficiary ” or “Beneficiaries” means the beneficiary last designated in writing by a Participant in accordance with procedures established by the Retirement Committee to receive the benefits specified hereunder in the event of the Participant’s death. No Beneficiary designation shall become effective until it is filed with the Retirement Committee during the Participant’s lifetime.

 

(d) “ Board of Directors ” or “Board” means the Board of Directors of the Company.

 

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(e) “ Bonus ” means any cash-based incentive compensation (other than Incentive Payments and Long Term Incentive Payments) that is payable to a Participant in addition to the Participant’s Salary.

 

(f) “ Change of Control ” means any of the following:

 

(1) The purchase or other acquisition by any person, entity or group of persons, within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “Act”), or any comparable successor provisions, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of forty percent or more of either the outstanding shares of Class A and Class B common stock or the combined voting power of the Company’s then outstanding voting securities entitled to vote generally;

 

(2) The approval by the stockholders of the Company of a reorganization, merger, or consolidation with respect to which persons who were stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than fifty percent of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated Company’s then-outstanding securities;

 

(3) A liquidation or dissolution of the Company; or

 

(4) A sale of all or substantially all of the Company’s assets.

 

(g) “ Code ” means the Internal Revenue Code of 1986, as amended.

 

(h) “ Company ” means NIKE, Inc. and any successor corporation to NIKE, Inc.

 

(i) “ Company Stock ” means NIKE, Inc. Class B common stock.

 

(j) “ Compensation ” means the Bonus, Incentive Payments, Fees, and Salary that the Participant earns for services rendered to the Company or a Participating Employer. For purposes of Sections 6.2 and 7.2 only, “Compensation” also includes Long Term Incentive Payments.

 

(k) “ Consultant ” means any person, including an advisor but excluding Directors, engaged by the Company or a Participating Employer to render services to the Company or a Participating Employer and designated by the Retirement Committee as eligible to participate in the Plan.

 

(l) “ Director ” means a non-Employee member of the Board.

 

(m) “ Director’s 1999 Transition Retirement Benefit ” means the Actuarial Equivalent of the Director’s Retirement Annuity as determined on September 1, 1999, divided by the fair market value of Company stock on September 1, 1999, and stated in units representing shares of Company Stock.

 

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(n) “ Director’s Retirement Annuity ” means the projected annual retirement benefit payable to a Retired Director in the amount of eighteen thousand dollars ($18,000), reduced proportionately for each year of service completed as a Director less than ten (but with no benefit if five or fewer years of service).

 

(o) “ Disability ” means a Participant’s long-term disability as defined in the Company’s or Participating Employer’s long-term disability plan for employees.

 

(p) “ Distributable Amount ” means the amount credited to a Participant’s Account.

 

(q) “ Distribution Event ” means, with respect to each Participant, the Participant’s termination of Service for any reason, including Retirement, death or Disability, or, if specified by the Participant, a specific date. A Participant’s Distribution Event election shall be made in writing at such time, on such form and subject to such terms and conditions as the Retirement Committee may specify.

 

(r) “ Eligible Employee ” means any Employee who is designated in writing as eligible to participate in the Plan by the Retirement Committee from among a select group of management or highly-compensated Employees of the Company or a Participating Employer.

 

(s) “ Employee ” means a common law employee of the Company or a Participating Employer performing services regularly in the United States or, if not performing services regularly in the United States, a common law employee of the Company or Participating Employer who is on U.S. payroll and participating in a Company-sponsored Global Transfer Program.

 

(t) “ Fees ” means, (i) in the case of non-employee members of the Board, annual cash fees paid by the Company, including retainer fees, Retirement Committee fees and meeting fees, paid by the Company as compensation for serving on the Board, and (ii) in the case of any other non-employee service provider, the cash fees paid to such individual for services rendered to the Company.

 

(u) “ Fund ” or “Funds” means one or more of the investment funds selected by the Retirement Committee pursuant to Section 3.3.

 

(v) “ Incentive Payment ” means that portion of Compensation that is variable and is directly related to a Participant’s sales performance. Long Term Incentive Payments are not included in Incentive Payments for purposes of the Plan.

 

(w) “ Initial Election Period ” means the 30-day period following the Eligible Employee’s date of hire (or appointment to the Board or commencement of services as a Consultant, as applicable) or, if later, upon first becoming an Eligible Employee, Director or Consultant.

 

(x) “ Investment Return ” means, for each Fund, an amount equal to the pre-tax rate of gain or loss on the assets of such Fund (net of applicable fund and investment charges) from one Valuation Date to the immediately following Valuation Date.

 

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(y) “Long Term Incentive Payment” means:

 

(1) an amount payable to a Participant under the Long Term Incentive Plan;

 

(2) for payments made on or after August 1, 2004, an amount payable to a Participant under a plan or program established by a Participating Employer, and approved by the Company, to provide incentives to Employees of the Participating Employer to attain specified performance targets over a multi-year period; and

 

(3) an amount payable under the NIKE, Inc. 1990 Stock Incentive Plan pursuant to an award with terms similar to awards made under the Long Term Incentive Plan.

 

(z) “ Long Term Incentive Plan ” means the Long Term Incentive Plan of NIKE, Inc., as amended from time to time.

 

(aa) “ Participant ” means any Consultant, Director or Eligible Employee who elects to defer Compensation in accordance with Section 3.1.

 

(bb) “ Participating Employer ” means an entity directly or indirectly controlled by the Company or in which the Company has a significant equity or investment interest, which the Retirement Committee has designated as a Participating Employer in this Plan.

 

(cc) “Payment Commencement Date” means:

 

(1) in the case of distributions which are paid in the form of a cash lump sum payment under Sections 7.1(a) and 7.1(b), as soon as administratively practicable after the end of the calendar quarter during which the Participant terminates Service;

 

(2) in the case of distributions which are paid in the form of quarterly installments under Section 7.1(a), on or before the January 31 following the Plan Year during which the Participant terminates Service;

 

(3) in the case of distributions on account of Plan termination, distributions otherwise payable under (1) or (2) may be subject to earlier distribution at the discretion of the Committee.

 

(dd) “ Plan ” means the NIKE, Inc. Deferred Compensation Plan set forth herein, now in effect, or as amended from time to time.

 

(ee) “ Plan Year ” means the calendar year.

 

(ff) “ Predecessor Plans ” means the NIKE, Inc. Supplemental Executive Savings Plan and the NIKE, Inc. Supplemental Executive Profit Sharing Plan.

 

(gg) “ Profit Sharing Plan ” means the 401(k) Savings and Profit Sharing Plan for Employees of NIKE, Inc.

 

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(hh) “ Retirement ” means the Participant’s termination of employment if at the time thereof the Participant has completed at least sixty (60) whole months of Service.

 

(ii) “ Retired Director ” or “Director’s Retirement” means the cessation of a Director’s services on the Board on or after age 65 with ten (10) years of service, but no later than age 72 if the Director commenced service as a Director after the Company’s 1993 fiscal year.

 

(jj) “ Retirement Committee ” means the Retirement Committee appointed by the Board to administer the Plan in accordance with Article VIII. Unless specified otherwise by the Board, the “Retirement Committee” shall mean the Retirement Committee established under the Profit Sharing Plan.

 

(kk) “ Salary ” means the Employee’s base salary for the Plan Year. Salary excludes any other form of compensation such as restricted stock, proceeds from stock options or stock appreciation rights, severance payments, moving expenses, car or other special allowance, adjustments for overseas employment other than the 12.5% transfer premium, or any other amounts included in an Eligible Employee’s taxable income that is not compensation for services. Deferral elections shall be computed before taking into account any reduction in taxable income by salary reduction under Code Sections 125 or 401(k), or under this Plan.

 

(ll) “ Service ” means performance of services for the Company (including any entity that is directly or indirectly controlled by the Company or any entity in which the Company has a significant equity or investment interest, as determined by the Company for purposes of this Plan) or a Participating Employer as an Employee, Director or Consultant.

 

(mm) “ Valuation Date ” means each date on which Accounts are valued. The Retirement Committee shall establish the Valuation Dates under the Plan.

 

(1) For purposes of determining the value of each Participant’s Account balance, the Valuation Date means each day that the New York Stock Exchange is open for trading.

 

(2) For purposes of Unscheduled Withdrawals and Unforeseeable Emergencies, the Valuation Date means the date the Retirement Committee approves a request for an Unscheduled Withdrawal or Unforeseeable Emergency withdrawal.

 

(3) For purposes of calculating lump sum payments under Section 7.1, the Valuation Date means the last day of the calendar quarter preceding the Payment Commencement Date.

 

(4) For purposes of calculating the dollar amount of quarterly installment payments, the Valuation Date means the December 31 immediately preceding the year in which the installments are paid. As of the last day of each calendar quarter of each year in which installments are paid, the dollar amount of the quarterly installment payment will be deducted from the Participant’s Account based on the value of the Participant’s deemed investments on the last day of the calendar quarter.

 

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(5) For purposes of determining the amount of the final installment payment, the Valuation Date means the December 31 of the Plan Year in which the final installment payment is made. The final installment payment will be equal to the Participant’s remaining Account balance as of the Valuation Date.

 

(6) Any valuation under this Plan shall be based on the closing market prices of the investment Funds on the applicable Valuation Date or, if the Valuation Date is not a day on which the New York Stock Exchange is open for trading, the preceding such trading day.

 

(7) Payment amounts and deductions from Accounts are based on asset values as of the Valuation Date even though actual payments to the Participant may be delayed for an administratively reasonable period of time to allow for processing and reporting of payments and withholding of applicable taxes.

 

ARTICLE II

 

PARTICIPATION

 

2.1 Participation

 

An Eligible Employee, Director or Consultant shall become a Participant in the Plan by electing to defer a portion of his or her Compensation in accordance with Section 3.1.

 

ARTICLE III

 

DEFERRAL ELECTIONS

 

3.1 Elections to Defer Compensation

 

(a) Initial Election Period . Each Eligible Employee, Director or Consultant may elect to defer Compensation by filing an election with the Retirement Committee that conforms to the requirements of this Section 3.1, on a form provided by the Retirement Committee, no later than the last day of his or her Initial Election Period. Until modified, Deferral Elections filed with respect to the 1998 Plan Year shall supersede any and all prior deferral elections made in connection with the Predecessor Plans.

 

(b) General Rule . The amount of Compensation that an Eligible Employee, Director or Consultant may elect to defer is as follows:

 

(1) Any whole percentage of Salary up to 100%;

 

(2) Any whole percentage of Bonus up to 100%;

 

(3) Any whole percentage of Incentive Payments up to 100%;

 

(4) Any whole percentage of Fees up to 100%;

 

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provided, however, that no election under this Section 3.1 or Section 3.4 shall be effective to reduce the Compensation and Long Term Incentive Payments paid to an Eligible Employee to an amount that is less than the amount necessary to pay applicable employment taxes (e.g., FICA, hospital insurance) payable with respect to amounts deferred hereunder, amounts necessary to satisfy any other benefit plan withholding obligations, any resulting income taxes payable with respect to Compensation that cannot be so deferred, and any amounts necessary to satisfy any wage garnishment or similar type obligations.

 

(c) Minimum Deferrals . For each full Plan Year during which the Eligible Employee is a Participant, the minimum dollar amount that may be deferred under this Section 3.1 is $5,000 ($1,000 in the case of Directors and Consultants).

 

(d) Effect of Initial Election . An election to defer Salary, Incentive Payments or Fees made during an Initial Election Period shall be effective as to Salary, Incentive Payments, and Fees earned beginning with the first pay period beginning after the Initial Election Period. Employees who first became Eligible Employees during a Plan Year may make an election to defer Bonuses payable in subsequent Plan Years by making deferral elections in accordance with subsections 3.1(e) and (f).

 

(e) Duration of Deferral Election . A Compensation deferral election made under paragraph (a) or paragraph (f) of this Section 3.1 shall remain in effect, notwithstanding any change in the Participant’s Compensation until modified or terminated as provided herein. A Participant may irrevocably elect at any time to reduce the percentage to be deferred from Salary, Incentive Payments, and Fees earned in the remainder of the Plan Year to zero, but a Participant may not make any other election change during a Plan Year. Subject to the minimum deferral requirement of subsection (c) of this Section, the percentage of Salary, Bonus, Incentive Payments and Fees designated by the Participant for deferral may be modified by filing a new election, in accordance with the terms of this Section, with the Committee not later than December 15 (or such earlier date as the Committee may establish) of the year immediately preceding the beginning of the Plan Year for which the election shall be in effect. A Participant’s deferral election shall terminate with respect to future Compensation upon the Participant’s ceasing to be an Eligible Employee, Director or Consultant.

 

(f) Elections Other Than Elections During the Initial Election Period . Any Eligible Employee, Director or Consultant who fails to elect to defer Compensation during his or her Initial Election Period may subsequently become a Participant by filing an election, on a form provided by the Retirement Committee, to defer Compensation as described in paragraph (b) above. An election to defer Compensation must be filed no later than December 15 (or such earlier date as the Retirement Committee may establish) and will be effective for Salary, Incentive Payments and Fees earned beginning with the first pay period beginning on and after the beginning of the next succeeding Plan Year and for any Bonus payable in the next succeeding Plan Year.

 

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(g) Director’s 1999 Transition Election . Any Director as of September 1, 1999, shall have made an election on or before September 24, 1999, to either remain eligible for the Director’s Retirement Annuity or to convert such annuity to the Director’s 1999 Transition Retirement Benefit, in either case such benefit not payable until the Director’s Retirement. In the event an electing Director converted the Director’s Retirement Annuity, such election shall be irrevocable and paid as provided herein.

 

3.2 Company or Participating Employer Contributions

 

(a) Eligibility . An Eligible Employee who qualifies for a contribution for a Plan Year under the Profit Sharing Plan (or a Participating Employer’s qualified retirement plan, if applicable) shall be eligible for a Company or Participating Employer contribution under this Plan for such Plan Year if he or she either (i) makes a Deferral Election under 3.1 for the Plan Year, or (ii) receives compensation under the Profit Sharing Plan (or Participating Employer’s qualified retirement plan, if applicable) exceeding the Code § 401(a)(17) limit of $200,000 (as indexed) for its Plan Year, or both.

 

(b) Contribution . An Eligible Employee who is eligible under subsection 3.2(a) shall be credited with a “Restoration Amount” for each Plan Year. “Restoration Amount” means the amount by which the Eligible Employee’s allocated share of the “Profit Sharing Contribution” (as defined in the Profit Sharing Plan or the Participating Employer’s qualified retirement plan) for the corresponding Plan Year under the Profit Sharing Plan or Participating Employer’s qualified retirement plan would be higher if calculated on the basis of Compensation as defined in this Plan (i) determined before any reduction for deferral of Compensation under this Plan; and (ii) without regard to the Code § 401(a)(17) limit.

 

(c) Discretionary Contributions . In addition to contributions in accordance with Section 3.2(b), the Company or Participating Employer may, in its sole discretion, make discretionary contributions to the Accounts of one or more Participants at such times and in such amounts as the Board, the Participating Employer or the Retirement Committee may determine.

 

(d) Director’s Retirement Contr