8-KOther Events

EXXON MOBIL CORP 8-K Report, Corporate Update (Jan 4, 2017)

Filed January 4, 2017For Securities:XOM

Summary

Exxon Mobil Corporation (XOM) filed an 8-K on January 4, 2017, to report on a Cancellation and Exchange Agreement entered into with its retired Chairman and CEO, R.W. Tillerson. This agreement was necessitated by Mr. Tillerson's nomination as U.S. Secretary of State, requiring him to sever all ongoing financial ties with the company to comply with federal conflict of interest standards. The agreement details the handling of Mr. Tillerson's substantial deferred compensation and stock awards, which amount to approximately $7 million less than he would have otherwise received. Key components include the surrender of unpaid incentive awards and restricted stock in exchange for a cash payment to an irrevocable trust. This trust is designed to mirror the original payout schedule and conditions, with strict limitations on distributions and significant forfeiture provisions if Mr. Tillerson engages in the oil and gas business after leaving government service.

Key Highlights

  • 1R.W. Tillerson, former Chairman and CEO, entered into a Cancellation and Exchange Agreement due to his nomination as U.S. Secretary of State.
  • 2The agreement addresses the need for Mr. Tillerson to divest all ongoing financial ties with ExxonMobil to comply with federal conflict of interest standards.
  • 3Mr. Tillerson will surrender approximately $3.9 million in unpaid deferred cash bonus units (Earnings Bonus Units) with no compensation.
  • 4He will also surrender 2,026,000 shares of restricted stock and restricted stock units.
  • 5In exchange for surrendered stock awards, a cash payment will be made to an irrevocable Ethics-Compliance Trust, discounted by approximately $3 million.
  • 6The Trust is structured to pay out funds to Mr. Tillerson according to the original 10-year schedule, with forfeiture if he re-enters the oil and gas industry post-government service.
  • 7Vested benefits from defined contribution and benefit plans will be paid normally, and a $13 million death benefit coverage will be cancelled, with efforts to secure substitute coverage.

Frequently Asked Questions

The primary reason for this filing is to disclose a Cancellation and Exchange Agreement between ExxonMobil and R.W. Tillerson. This agreement is necessary because Mr. Tillerson was nominated to be the U.S. Secretary of State, and he needed to terminate his financial ties with the company to avoid conflicts of interest.

Mr. Tillerson will forfeit approximately $3.9 million in deferred cash bonus units and surrender 2,026,000 restricted stock units. In exchange for the stock awards, an irrevocable trust will be funded with an amount equal to their market value, but this payment will be discounted by approximately $3 million. The net effect is a reduction of about $7 million in compensation and benefits he would have otherwise received. His vested retirement plan benefits will be paid normally, but other benefits like retiree medical and a $13 million death benefit will be terminated.

The Trust is designed to mimic the original payment schedule for Mr. Tillerson's stock awards over 10 years, with distributions only possible upon death for acceleration. Crucially, any remaining assets in the Trust will be forfeited to charity if Mr. Tillerson becomes involved in the oil and gas business after leaving government service. Trust assets can only be invested according to federal ethics guidelines, and Mr. Tillerson cannot pledge or transfer his interest in the Trust.

This agreement primarily addresses the specific situation of R.W. Tillerson's transition to public service. While it involves a significant financial adjustment for Mr. Tillerson and a contingent payment to a trust, it does not fundamentally alter ExxonMobil's ongoing business operations or financial outlook. The company is taking steps to comply with ethical guidelines and ensure a clean break for its former CEO transitioning to a government role.