SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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Kerr-McGee Corporation
(Name of Registrant as Specified in Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other
than the Registrant)
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[KERR-MCGEE LOGO] KERR-MCGEE CORPORATION
KERR-MCGEE CENTER
P. O. BOX 25861
OKLAHOMA CITY, OKLAHOMA 73125
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 12, 1998
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TO THE STOCKHOLDERS:
The 1998 Annual Meeting of Stockholders of Kerr-McGee Corporation (the
"Company") will be held in the Robert S. Kerr Auditorium, Kerr-McGee Center, 123
Robert S. Kerr Avenue, Oklahoma City, Oklahoma, at 9:00 a.m. on Tuesday, May 12,
1998, for the following purposes:
1. Elect nine directors.
2. Ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountant.
3. Approve the 1998 Long Term Incentive Plan.
4. Approve the Annual Incentive Compensation Plan.
5. Transact such other business as may properly come before the meeting.
The Board of Directors has fixed March 16, 1998, as the record date for
determination of stockholders entitled to notice of and to vote at this meeting.
STOCKHOLDERS OF RECORD WILL BE ADMITTED UPON VERIFICATION OF OWNERSHIP AT
THE ADMISSIONS COUNTER AT THE MEETING. BENEFICIAL OWNERS SHOULD PRESENT EVIDENCE
OF STOCK OWNERSHIP TO THE ATTENDANT AT THE ADMISSIONS COUNTER FOR ADMITTANCE TO
THE MEETING.
To ensure your representation at the meeting, please sign and promptly mail
the enclosed proxy, which is being solicited on behalf of the Board of Directors
of the Company. A return envelope, which requires no postage if mailed in the
United States, is enclosed for such purpose. If you receive more than one form
of proxy, it is an indication that your shares are registered in more than one
account. All proxy forms received by you should be signed and mailed to ensure
that all your shares are voted.
BY ORDER OF THE BOARD OF DIRECTORS
RUSSELL G. HORNER, JR.
Secretary
March 20, 1998
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KERR-MCGEE CORPORATION
KERR-MCGEE CENTER
P. O. BOX 25861
OKLAHOMA CITY, OKLAHOMA 73125
PROXY STATEMENT FOR THE
1998 ANNUAL MEETING OF STOCKHOLDERS
March 20, 1998
The accompanying proxy is solicited on behalf of the Board of Directors (the
"Board") of Kerr-McGee Corporation (the "Company"). This Proxy Statement and the
accompanying form of proxy are first being mailed to stockholders on or before
March 20, 1998.
Proxies in the form enclosed that are properly signed and returned will be
voted as directed, unless revoked before exercise by written notice from the
stockholder to the Secretary of the Company at the address set forth above or by
the stockholders voting by ballot at the 1998 Annual Meeting. Unless directed
otherwise, returned proxies will be voted for the election of the nominees for
director listed below and on other matters as recommended by the Board of
Directors.
Under Section 216 of the Delaware General Corporation Law and the Kerr-McGee
Corporation ByLaws (the "ByLaws"), a majority of the shares of the common stock,
present in person or represented by proxy, shall constitute a quorum for
purposes of the annual meeting. In all matters other than the election of
directors, the affirmative vote of the majority of shares present in person or
represented by proxy at the annual meeting and entitled to vote on the subject
matter shall be the act of the stockholders. Abstentions will have the effect of
votes against a proposal and broker nonvotes have no effect on the vote.
Directors shall be elected by a plurality of the votes present in person or
represented by proxy at the annual meeting and entitled to vote on the election
of directors.
VOTING SECURITIES
The Company's only class of voting securities is its common stock having a
par value of $1.00 per share (the "Common Stock"), of which there were
47,709,573 shares outstanding as of the close of business on March 16, 1998, the
record date for stockholders entitled to receive notice of and to vote at this
meeting. Each share is entitled to one vote. The number of shares outstanding
does not include shares held in treasury, which will not be voted.
ITEM NO. 1
ELECTION OF DIRECTORS
In accordance with the ByLaws, the Board has designated nine as the number
of Directors to be elected at the forthcoming Annual Meeting of Stockholders.
Eight of the nominees are incumbent Directors who were elected at the 1997
Annual Stockholders' Meeting. Leroy C. Richie was elected a Director effective
January 13, 1998. Bennett E. Bidwell reached the mandatory retirement age of 70
prior to May 12, 1998 and is not standing for reelection to the Board.
All nominees have consented to serve, and the Company has no reason to
believe any nominee will be unavailable. Should any nominee become unavailable
for any reason, the proxies will be voted for a substitute nominee to be named
by the Board unless the number of Directors constituting a full board is
reduced. Each person elected Director at an annual meeting will be elected to
serve until the next Annual Stockholders' Meeting or until a successor is
elected.
Certain information with respect to the nominees for Director, including
their principal occupations during the past five years, is as follows:
<TABLE>
<CAPTION>
NAME, AGE (AS OF MARCH 1, 1998) FIRST BECAME
PRINCIPAL OCCUPATION & OTHER DIRECTORSHIPS DIRECTOR
------------------------------------------ ------------
<S> <C> <C>
[PAUL M. ANDERSON PAUL M. ANDERSON, 52 -- President and Chief Operating 1996
PHOTO] Officer of Duke Energy Corporation, a provider of energy and
energy services, since June 1997; President and Chief
Executive Officer of PanEnergy Corp, a provider of natural
gas transportation and related services in North America,
from 1995 to June 1997; President of PanEnergy Corp from
1993 to 1995; President of Panhandle Eastern Pipeline and
Group Vice President from 1991 to 1993. Director, Duke
Energy Corporation, Temple-Inland Inc. and TEPPCO Partners,
L.P.
[LUKE R. CORBETT LUKE R. CORBETT, 51 -- Chairman of the Board and Chief 1995
PHOTO] Executive Officer of the Company since February 1997;
President and Chief Operating Officer from May 1995 through
January 1997; Group Vice President from 1992 through May
1995. Director, Devon Energy Corporation and OGE Energy
Corp.
[MARTIN C. JISCHKE MARTIN C. JISCHKE, 56 -- President of Iowa State University 1993
PHOTO] since 1991. Director, Bankers Trust Corporation.
[TOM J. MCDANIEL TOM J. MCDANIEL, 59 -- Vice Chairman of the Company since 1997
PHOTO] February 1997; Senior Vice President and Corporate Secretary
from 1989 through January 1997. Director, Devon Energy
Corporation and UMB Oklahoma Bank.
[WILLIAM C. MORRIS WILLIAM C. MORRIS, 59 -- Chairman of the Board of J. & W. 1977
PHOTO] Seligman & Co., Incorporated; Chairman of the Board of
Tri-Continental Corporation and Chairman of the Boards of
the companies in the Seligman family of investment
companies, all since December 1988. Chairman of the Board of
Carbo Ceramics, Inc., since 1987.
</TABLE>
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NAME, AGE (AS OF MARCH 1, 1998) FIRST BECAME
PRINCIPAL OCCUPATION & OTHER DIRECTORSHIPS DIRECTOR
------------------------------------------ ------------
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[JOHN J. MURPHY JOHN J. MURPHY, 66 -- Retired; Chairman of the Board of 1990
PHOTO] Dresser Industries, Inc., hydrocarbon energy products and
services, from 1983 through November 1996; Chief Executive
Officer of Dresser Industries, Inc., from 1983 to 1995.
Director, Carbo Ceramics, Inc.; PepsiCo Inc. and W. R. Grace
& Co.
[LEROY C. RICHIE LEROY C. RICHIE, 56 -- Retired; Vice President and General 1998
PHOTO] Counsel for Automotive Legal Affairs, Chrysler Corporation,
1990 through December 1997.
[RICHARD M. ROMPALA RICHARD M. ROMPALA, 51 -- Chairman of the Board, President 1996
PHOTO] and Chief Executive Officer of The Valspar Corporation, a
manufacturer of paints and related coatings, since February
1998; President and Chief Executive Officer of The Valspar
Corporation from 1995 through January 1998; President of The
Valspar Corporation in 1994; Group Vice President of PPG
Industries from 1987 to 1994; Director, Olin Corporation.
[FARAH M. WALTERS FARAH M. WALTERS, 53 -- President and Chief Executive 1993
PHOTO] Officer of University Hospitals of Cleveland and University
Hospitals Health System, Inc. since 1992. Director, LTV
Corporation.
</TABLE>
None of the above nominees is related to any executive officer of the
Company, its subsidiaries, limited liability companies or affiliates.
For additional information relating to directors and executive officers, see
"Security Ownership" and "Executive Compensation and Other Compensation."
BOARD OF DIRECTORS MEETINGS, COMPENSATION AND COMMITTEES
During 1997 the Board held seven meetings. Each director attended 75% or
more of the aggregate number of meetings of the Board and the committees of the
Board on which each such director served. Directors discharge their
responsibilities not only by attending Board and committee meetings but also
through communication with the Chairman and other members of management relative
to matters of mutual interest and concern to the Company. Board members who are
not employees of the Company are paid an annual fee of $30,000 and an additional
fee of $1,000 for each Board meeting and committee meeting attended. Directors
are reimbursed for travel expenses and lodging.
Pursuant to a Plan of Deferred Compensation, any director who is not an
employee of the Company may elect to defer compensation as a director until such
person ceases to be a director, after which the deferred compensation, together
with interest, will be paid in ten equal annual installments.
Under the Stock Deferred Compensation Plan for NonEmployee Directors, a
nonemployee director may elect to defer compensation as a director through the
purchase of Common Stock on a year-by-year basis by notifying the Company on or
before December 31 of the preceding year. The stock acquired in this
nonqualified plan may not be distributed to the nonemployee director until 185
days after the participant ceases being a director.
The Board has established and currently maintains an Audit Committee, an
Executive Compensation Committee, a Finance Committee and a Nominating Committee
as standing committees.
The Audit Committee meets periodically with the Company's independent public
accountant to review plans for the audit and the audit results and recommends
selection of the independent public accountant. The Audit Committee also meets
with the Director of Internal Auditing to review the scope and results of the
Company's internal auditing activities and assessment of the system of internal
controls. The Audit Committee consists of three independent nonemployee
directors: Farah M. Walters (Chair), Paul M. Anderson and Richard M. Rompala.
The Committee met twice during 1997.
The Executive Compensation Committee reviews the salaries and incentive pay
awards as recommended by the Chief Executive Officer for all officers of the
Company and recommends to the full Board such changes as it may deem
appropriate. The Committee also administers the Annual Incentive Compensation
Plan, the Long Term Incentive Program, the Executive Deferred Compensation Plan
and the Supplemental Executive Retirement Plan. The Executive Compensation
Committee recommends but does not fix the cash compensation of the Chief
Executive Officer. The cash compensation of the Chief Executive Officer is
determined by all of the independent nonemployee directors. The Executive
Compensation Committee consists of three independent nonemployee directors: John
J. Murphy (Chair), Martin C. Jischke and Richard M. Rompala. The Committee met
one time in 1997.
The Finance Committee reviews the annual budget, other budget and financial
matters as may be requested and strategy as may be required. The Finance
Committee consists of four independent nonemployee directors: William C. Morris
(Chair), Paul M. Anderson, Bennett E. Bidwell and John J. Murphy. The Committee
met one time in 1997.
The Nominating Committee recommends nominees to the Board of Directors. The
Nominating Committee will consider recommendations for the position of director
submitted by stockholders in writing to the Corporate Secretary, Kerr-McGee
Corporation, P.O. Box 25861, Oklahoma City, Oklahoma 73125. Recommendations must
be received as provided in the ByLaws by the Company not less than 70 days nor
more than 90 days prior to the first anniversary of the preceding year's Annual
Meeting and shall include: (a) all information relating to the nominee that is
required to be disclosed in the Proxy Statement for the election of directors,
including written consent, (b) any other business that the stockholder proposes
to bring before the meeting and (c) (i) the name and address of the stockholder
or beneficial owner submitting the nomination and (ii) the class and number of
shares of the Company which are owned by the stockholder or beneficial owner.
The Nominating Committee consists of four independent nonemployee directors:
Martin C. Jischke (Chair), Bennett E. Bidwell, William C. Morris and Farah M.
Walters. Luke R. Corbett serves as an ex-officio member. The Committee met one
time in 1997.
SECURITY OWNERSHIP
The following table sets forth the number of shares of Common Stock
beneficially owned as of March 1, 1998 by each director and nominee, each of the
executive officers named in the Summary Compensation Table and all directors and
officers as a group, and the percentage represented by such shares of the total
Common Stock outstanding on that date:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME OR GROUP BENEFICIALLY OWNED CLASS
------------- ------------------ ----------
<S> <C> <C>
Paul M. Anderson ............................................. 726(1) *
Bennett E. Bidwell ........................................... 2,208(1)
Luke R. Corbett .............................................. 158,848(2)
Martin C. Jischke ............................................ 3,269(1)
Tom J. McDaniel .............................................. 53,387(2)
Frank A. McPherson ........................................... 50,054(2)
William C. Morris ............................................ 11,200
John J. Murphy ............................................... 1,648(1)
Leroy C. Richie .............................................. 1,000
Richard M. Rompala ........................................... 1,139(1)
Farah M. Walters ............................................. 3,101(1)
John C. Linehan .............................................. 107,277(2)
Kenneth W. Crouch ............................................ 14,716(2)
Russell G. Horner, Jr. ....................................... 30,131(2)
All directors and executive officers as a group, including
those named above ....................................... 608,756(2) 1.28
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* The percentage of shares beneficially owned by any single director, nominee
or executive officer does not exceed 1%.
(1) Includes shares held by the Stock Deferred Compensation Plan for NonEmployee
Directors.
(2) Includes shares issuable upon the exercise of outstanding stock options that
are exercisable within 60 days of March 1, 1998: 40,000 shares for Mr.
McPherson; 132,665 shares for Mr. Corbett; 38,533 shares for Mr. McDaniel;
84,533 shares for Mr. Linehan; 10,333 shares for Mr. Crouch; 22,533 shares
for Mr. Horner; and 476,243 shares for all directors and executive officers
as a group.
ITEM NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANT
Arthur Andersen LLP, an independent public accounting firm, has been
selected as the Company's independent public accountant for 1998 in accordance
with the recommendation of the Audit Committee. This firm served in the same
capacity for the year ended December 31, 1997. Representatives of Arthur
Andersen LLP will be present at the Annual Meeting to make a statement if they
desire to do so and will be available to respond to appropriate questions from
stockholders.
The stockholders will be asked to ratify the appointment of Arthur Andersen
LLP as independent public accountant for 1998. THE BOARD OF DIRECTORS RECOMMENDS
A VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP.
If the appointment of Arthur Andersen LLP is not ratified by the
stockholders, Arthur Andersen LLP ceases to act as the Company's independent
accountant or the Board of Directors removes Arthur Andersen LLP as the
Company's independent accountant, the Board will appoint another independent
accounting firm. The engagement of a new independent accounting firm for periods
following the 1999 Annual Meeting will be subject to ratification by the
stockholders at that meeting.
ITEM NO. 3
APPROVE THE 1998 LONG TERM INCENTIVE PLAN
INTRODUCTION
The Board of Directors has approved and recommends that the stockholders
vote for the approval of the Kerr-McGee Corporation 1998 Long Term Incentive
Plan (the "Plan"). The Plan is designed to provide incentive opportunities for
key employees, to enhance the Company's ability to retain these employees, to
attract outstanding prospective employees and to ensure that amounts paid under
the Plan qualify as performance based compensation under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the applicable
regulations.
The Board's approval and recommendation of the Plan follows a review and
evaluation of the Company's existing compensation plans and comparison with long
term incentive programs offered by other comparable corporations to their
employees. While the Plan represents in part a continuation of the Company's
stock option program, which has been in effect since 1950, it also provides
flexibility in the form and payment of awards to meet changing business needs.
If the Plan is approved, the current Long Term Incentive Program (the
"Program") will be terminated, except as to outstanding options which will
remain subject to the terms of the Program. There remain available for grant
227,043 shares of Common Stock under the Program. The Plan would permit total
awards up to 2,300,000 shares, representing an additional 2,072,957 shares of
Common Stock when compared to the number of shares available under the Program.
The Plan includes provisions which provide for the grant or award of (a)
stock options, (b) Stock Appreciation Rights ("SARs"), (c) restricted stock and
(d) performance awards. The full text of the Plan appears as Exhibit A to this
Proxy Statement. The summary of the Plan which appears below is qualified by
reference to the full text of the Plan.
TERM
The Plan will be effective as of January 1, 1998, if the Plan is approved by
the stockholders. The Plan will terminate on December 31, 2007, unless
terminated earlier by the Board of Directors. Termination of the Plan will not
affect grants made prior to termination, but grants will not be made after
termination.
ADMINISTRATION
The Plan will be administered by a committee, currently the Executive
Compensation Committee of the Board of Directors, of two or more directors
appointed by the Board of Directors to administer the Plan ("the Committee").
Subject to the terms of the Plan, and to such approvals and other authority as
the Board of Directors may reserve to itself from time to time, the Executive
Compensation Committee, consistent with the terms of the Plan, will have
authority (i) to select employees to participate in the Plan, (ii) to determine
the form and terms of grants and awards, and the conditions and restrictions, if
any, subject to which grants and awards will be made and become payable under
the Plan, (iii) to adopt rules and regulations with respect to the
administration of the Plan and (iv) to amend or rescind such rules and
regulations and make such other determinations authorized under the Plan as the
Executive Compensation Committee deems necessary or appropriate.
ELIGIBILITY
Employees who participate in the Plan will be selected by the Executive
Compensation Committee from among those employees of the Company, its
subsidiaries and limited liability companies who, in the judgment of the
Executive Compensation Committee, may have a significant effect on the
profitability and growth of the Company. Currently, the Company estimates
approximately 250 employees will be eligible to participate in the Plan.
Employees who are selected to receive one of the forms of compensation provided
for under the Plan will not automatically be selected to receive another form of
compensation unless such selection is specified by the Executive Compensation
Committee or provided for by the terms of the Plan.
SECURITIES SUBJECT TO THE PROGRAM
The number of shares of Common Stock which may be issued under the Plan may
not exceed 2,300,000. If any stock option granted pursuant to the Plan
terminates, expires or lapses, or any restricted shares of Common Stock granted
pursuant to the Plan are forfeited, any shares of Common Stock subject to such
option or so forfeited shall again be made available for grant unless, in the
case of stock options granted under the Plan, related SARs have been exercised.
In the event of any increases or decreases in the number of issued and
outstanding shares of Common Stock, pursuant to stock splits, mergers,
reorganizations, recapitalizations, stock dividends or other event described
under the terms of the Plan, the Executive Compensation Committee shall make
appropriate adjustments to the number of shares subject to grants or awards
theretofore made to participants, in the exercise price per share of stock
options theretofore granted to participants and in the number and kinds of
shares which may be distributed under the Plan. Appropriate adjustments shall
also be made by the Executive Compensation Committee in the terms of SARs to
reflect any change with respect to the number of issued and outstanding shares
of Common Stock.
STOCK OPTIONS
The Plan authorizes grants of stock options to eligible employees as
determined by the Executive Compensation Committee. Subject to the provisions of
the Plan, the Executive Compensation Committee may grant options under the Plan
for such number of shares and having such terms as the Executive Compensation
Committee shall designate; however, the maximum number of options that may be
granted to any one optionee is 150,000 per calendar year. Under the terms of the
Plan, the Executive Compensation Committee shall specify whether or not any
option is intended to be an incentive stock option ("Incentive Stock Option") as
described in Section 422 of the Code or a nonstatutory or nonqualified stock
option ("Nonqualified Stock Option"). The aggregate value of Common Stock with
respect to which Incentive Stock Options are exercisable for the first time by
an individual during any calendar year under all Company plans may not exceed
$100,000. Each stock option shall have an exercise price that is not less than
the fair market value of the Common Stock on the date the option is granted.
Nonqualified Stock Options may not be exercised more than ten years and one day
from the date of grant and Incentive Stock Options may not be exercised more
than ten years from the date of grant. The Executive Compensation Committee may
establish dates on which installment portions of an option may be exercisable
during the term of the option. The Executive Compensation Committee may also
accelerate the time at which an installment portion of an outstanding option may
be exercisable.
Payment for shares received upon exercise of a stock option may be made in
cash, shares of Common Stock, shares of Common Stock subject to restrictions
under the terms of the Plan, a combination of the foregoing, through a cashless
exercise with a broker, or in such other manner as the Executive Compensation
Committee determines.
In the event an optionee's employment is terminated by reason of disability
or retirement, any outstanding option that was exercisable at the time of such
optionee's disability or retirement shall be exercisable within the period, not
to exceed four years, specified by the Executive Compensation Committee. In the
event of an optionee's death while in the employ of the Company or within three
months after the termination of employment, any outstanding option that was
exercisable at the time of optionee's death shall be exercisable for one year
thereafter by the executor or administrator of the deceased optionee's estate.
In the event an optionee ceases to be an employee for any reason other than
death, disability or retirement, any outstanding option may not be exercised
more than three months after the date of such event. Under no circumstances will
any option be exercisable after it has terminated or expired.
Because the grant of awards under the Plan is at the discretion of the
Executive Compensation Committee, it is not possible to indicate what awards
will be made to persons eligible for participation in the Plan. The initial
grants of stock options under the Plan are contingent upon approval of the Plan
by stockholders at the 1998 Annual Meeting of Stockholders, in accordance with
this Proxy Statement. The following table sets forth the Nonqualified Stock
Options to purchase shares of Common Stock exercisable at the fair market value
on January 13, 1998, $59.6563 per share, if the Plan is approved by the
Stockholders:
NAME STOCK OPTIONS
---- -------------
LUKE R. CORBETT 60,000
TOM J. MCDANIEL 15,000
JOHN C. LINEHAN 15,000
RUSSELL G. HORNER, JR. 10,000
KENNETH W. CROUCH 10,000
ALL CURRENT OFFICERS AS A GROUP 185,000
These options become excersible one third over the next three years on the
anniversary of the date of grant. If the Plan is approved by the stockholders,
these grants will be deemed made pursuant to the Plan; otherwise, they will be
deemed made pursuant to the Program. The last sale price of the Common Stock on
March 16, 1998, was $68.5625. Non-employee directors are not eligible to
participate in the Plan and no options have been granted to employees as of the
date of this Proxy Statement other than set forth in the table above.
STOCK APPRECIATION RIGHTS
The Plan also authorizes the Executive Compensation Committee to affix stock
appreciation rights ("SARs") to stock options either at the time the option is
granted or at any date prior to the option's expiration. SARs provide an
optionee the right to surrender all or a portion of an option and receive from
the Company a payment, in shares of Common Stock, cash, or a combination
thereof, equal to the excess of the fair market value of the shares of Common
Stock for which the SAR is exercised over the aggregate option exercise price of
such shares under the related option at the time of surrender. In addition, each
outstanding SAR will be automatically exercised on the day prior to the
expiration of the related option if the fair market value of the Common Stock on
such date exceeds the relevant option exercise price. SARs are exercisable only
to the extent that the related options are exercisable. The exercise of any
option will result in an immediate forfeiture of its related SAR, and the
exercise of a SAR will cause an immediate forfeiture of its related option.
RESTRICTED STOCK
The Plan provides that not more than 450,000 shares of the 2,300,000 shares
of Common Stock authorized under this Plan, subject to certain restrictions, may
be awarded to eligible employees under the Plan from time to time as determined
by the Executive Compensation Committee. The Executive Compensation Committee
will determine the nature and extent of the restrictions on such shares, the
duration of such restrictions, and any circumstance under which restricted
shares will be forfeited. Restricted shares will be deposited with the Company
during the period of any restriction thereon and, except as otherwise provided
by the Executive Compensation Committee during any such period of restriction,
recipients shall have all of the rights of a holder of Common Stock, including
but not limited to the right to receive dividends and voting rights. The
Executive Compensation Committee may establish rules concerning the termination
of employment of a recipient of restricted Common Stock (by reason of
retirement, disability, death or otherwise) prior to the lapse of any applicable
restrictions.
LONG TERM PERFORMANCE AWARDS
The Plan permits the Executive Compensation Committee to grant performance
awards to eligible employees under the Plan from time to time as determined by
the Executive Compensation Committee. Performance awards may include performance
units (i.e., award units valued by reference to financial measures or property
other than Common Stock) and performance shares (i.e., award amounts valued by
reference to shares of Common Stock).
Under the terms of the Plan, the Executive Compensation Committee will
establish the time period of not less than one year over which performance will
be measured (the "Performance Period") and the criteria to be used by the
Executive Compensation Committee to evaluate the Company's performance with
respect to each Performance Period. Such criteria may include financial or
operating measures of the Company, such as return on equity, return on assets,
return on average capital employed, earnings per share or others as established
by the Executive Compensation Committee, or may be based on the Company's
performance compared with one or more selected companies. Payment of earned
performance awards may be made to participants in cash, shares of Common Stock,
restricted Common Stock, other property or a combination of the foregoing as
determined by the Executive Compensation Committee.
AMENDMENT
The Board may at any time terminate or amend the Plan in any respect, except
that the Board may not, without further approval of the stockholders of the
Company, amend the Plan so as to (i) increase the number of shares of Common
Stock which may be issued under the Plan (except for adjustments in the number
of shares permitted with respect to certain mergers, consolidations or
recapitalizations as described under "Stock Options" above) or change terms of
the Plan relating to the establishment of the exercise prices under options
granted, (ii) extend the duration of the Plan beyond December 31, 2007 or (iii)
increase the maximum dollar amount of Incentive Stock Options which an
individual optionee may exercise during any calendar year beyond that permitted
in the Code and applicable rules and regulations of the Treasury Department. No
amendment or termination of the Plan shall, without the consent of the optionee
or participant in the Plan, alter or impair any of the rights or obligations
under any options or other rights theretofore granted such person under the
Plan.
CHANGE IN CONTROL
In the event of a change in control, any outstanding options that have not
yet vested shall vest effective as of such date, restrictions on Restricted
Stock shall lapse, and participants shall earn no less than the participant
would have earned if the performance period terminated as of such date. A change
in control shall be deemed to have occurred if any person acquires 25% or more
of the outstanding Common Stock, the stockholders approve a merger or
consolidation of the Company with any other corporation, the stockholders
approve a complete liquidation or disposition of all of the Company's assets, or
a change in the majority of the Board of Directors, as described in the Plan,
occurs within a period of 24 months.
FEDERAL INCOME TAX EFFECTS
The federal income tax consequences applicable to the Company in connection
with an Incentive Stock Option, Nonqualified Stock Option, SARs, restricted
stock or performance awards are complex and depend, in large part, on the
surrounding facts and circumstances. Under current federal income tax laws, a
participant will generally recognize income with respect to a grant of
restricted stock, stock options, SARs or performance awards, as follows:
(a) Payments in respect of performance awards. Any cash and/or the fair market
value of any Common Stock received as payments in respect of performance
awards under the Plan will constitute ordinary income to the employee in the
year in which paid, and the Company will be entitled to a deduction in the
same amount.
(b) Incentive Stock Options. The grant of an Incentive Stock Option will not
result in any immediate tax consequences to the Company or the optionee. An
optionee will not realize taxable income, and the Company will not be
entitled to any deduction, upon the timely exercise of an Incentive Stock
Option, but the excess of the fair market value of the Common Stock acquired
over the option price will be an item of tax preference for purposes of the
alternative minimum tax. If the optionee does not dispose of the Common
Stock acquired within one year after its receipt (or within two years after
the date the option was granted), gain or loss realized on the subsequent
disposition of the Common Stock will be treated as long term capital gain or
loss and the Company will not be entitled to any deduction. If the optionee
disposes of the Common Stock acquired less than one year after its receipt
(or within two years after the option was granted) the optionee will realize
ordinary income in an amount equal to the lesser of (i) the excess of the
fair market value of the Common Stock acquired on the date of exercise over
the exercise price; or (ii) if the disposition is a taxable sale or
exchange, the amount of any gain realized. Upon such a disqualifying
disposition, the Company will be entitled to a deduction in the same amount
and at the same time as the optionee realizes such ordinary income. Any
amount realized by the optionee in excess of the fair market value of the
Common Stock on the date of exercise will be taxed to the optionee as
capital gain.
(c) Nonqualified Stock Options. The grant of a Nonqualified Stock Option will
not result in any immediate tax consequences to the Company or the optionee.
Upon the exercise of a Nonqualified Stock Option, the optionee will
generally realize ordinary income. However, an employee who is subject to
the restrictions of Section 16(b) of the Securities Exchange Act of 1934
with respect to the stock acquired will realize as ordinary income at the
time of the lapse of the restrictions an amount equal to the excess of the
fair market value of the Common Stock at the time of such lapse over the
option price, unless the employee elects to be taxed on the date of
exercise. The Company will be entitled to a deduction at the same time as,
and equal in amount to, the income realized by the optionee.
(d) Stock Appreciation Rights. Upon the exercise of any SAR, any cash received
and the fair market value on the exercise date of any Common Stock received
will constitute ordinary income to the grantee. The Company will be entitled
to a deduction in the same amount and at the same time.
(e) Restricted Stock. An employee generally will not realize taxable income upon
an award of restricted stock. However, an employee who receives restricted
stock, either as a grant or in payment of a performance award, will realize
as ordinary income at the time of the lapse of the restrictions an amount
equal to the fair market value of the Common Stock at the time of such lapse
unless the employee elects to realize ordinary income on the date of receipt
of the restricted Common Stock. At the time the employee realizes ordinary
income, the Company will be entitled to deduct the same amount as the
ordinary income realized by the employee.
(f) Code Section 162(m). Payments or grants under the Plan are intended to
qualify as "qualified performance based compensation" under the Code and the
applicable regulations.
ACCOUNTING
During the period that SARs are outstanding, the Company will accrue as an
expense the amount, if any, by which the fair market value of the Common Stock
exceeds the exercise price of any related option.
APPROVAL OF THE PLAN
Adoption of the Plan will require the affirmative vote of a majority of the
shares of Common Stock present or represented by proxy and entitled to vote
thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSED
KERR-MCGEE CORPORATION 1998 LONG TERM INCENTIVE PLAN.
ITEM NO. 4
APPROVE THE ANNUAL INCENTIVE COMPENSATION PLAN
INTRODUCTION
The Board of Directors has approved and recommends that the stockholders
vote for the approval of the Kerr-McGee Corporation Annual Incentive
Compensation Plan (the "AICP"). The AICP is intended to enhance the link between
pay and performance by providing officers with the opportunity to receive an
annual cash award based on the achievement of pre-established performance goals.
The material terms of the AICP are being submitted to stockholders for their
approval so payments to officers under the Plan may qualify as "performance
based" compensation under Section 162(m) of the Code. As described in the Report
on Executive Compensation on page 13 of this Proxy Statement, Section 162(m)
generally limits to $1 million the annual corporate federal income tax deduction
for "nonperformance based" compensation paid to the Chief Executive Officer or
any of the four other highest paid officers of a publicly held corporation.
Nonperformance based compensation includes salary, bonus and income from the
exercise of stock options under the Long Term Incentive Plan ("LTIP"), which
will also contain the necessary provision to be deductible under Section 162(m)
if the LTIP is approved by the Stockholders.
(See Item No. 3.)
The Board's approval and recommendation of the AICP follows a review and
evaluation of the Company's existing compensation plans and comparison with
incentive compensation plans offered by other comparable corporations to their
key employees. The AICP will afford greater flexibility in the form and payment
of awards to meet changing business needs.
The full text of the AICP appears as Exhibit B to this Proxy Statement. The
summary of the AICP appears below and is qualified by reference to the full text
of the AICP.
TERM
The AICP will be effective as of January 1, 1998, if approved by the
Stockholders.
PURPOSES
The purposes of the AICP are to provide incentives to achieve annual goals
that are within group and/or individual control and are considered key to the
Company's success, encourage teamwork in various segments of the Company, reward
performance with pay that varies in relation to the extent to which the
pre-established goals are achieved and ensure the income tax deductibility of
compensation paid under the AICP.
ADMINISTRATION
The AICP will be administered by a committee, currently the Executive
Compensation Committee of the Board of Directors, of two or more "outside"
directors appointed by the Board of Directors to administer the AICP
("Committee"). Subject to the terms of the AICP, the Committee has authority to
determine the size, terms and conditions of awards under the AICP, to construe
and interpret the AICP and to make all other determinations which may be
necessary or advisable for AICP administration.
ELIGIBILITY
All officers of the Company, at or above the level of corporate Vice
President, are eligible to participate in the AICP.
AWARDS UNDER THE AICP
Not later than 90 days after the beginning of each fiscal year, the
Committee will select one or more performance measures, establish written
performance goals with respect to each selected performance measure and
determine the award opportunities for that fiscal year.
The performance measures may be based on any combination of corporate,
divisional and/or individual goals. For each performance measure, the Committee
will establish performance goals which will be used to determine award
opportunities. For example, for a particular fiscal year, the Committee may
select the Company's return on average capital employed as a performance
measure, establish various levels of Company pretax income as performance goals
and link each such performance goal to an award opportunity. The performance
measures, performance goals and award opportunities may vary among officers and
from year to year.
Following completion of each fiscal year, if the performance goals were met,
the Committee will so certify in writing prior to payment of final awards. As
soon as practicable after the end of the fiscal year, final awards will be
computed for each officer as determined by the Committee. Except as provided in
the AICP, the Committee has discretion to reduce or eliminate any or all final
awards that would otherwise be paid.
The AICP provides that the maximum award payable to any officer in
connection with any one fiscal year shall not exceed 200% of the officer's
Target Incentive Award.
The AICP provides that the performance measures which may serve as
determinants of an officer's award opportunities are limited to the Company's
pretax income, net income, earnings per share, revenues, expenses, return on
assets, return on equity, return on investment, net profit margin, operating
profit margin, operating cash flow, total stockholder return, capitalization,
liquidity, results of customer satisfaction surveys and other measures of
quality, safety, productivity or process improvement. Such performance goals may
be determined solely by reference to the performance of the Company, its
subsidiaries or limited liability companies, a division or unit of the Company,
or based upon comparisons of any of the performance measures relative to other
companies. In establishing a performance goal with respect to any of these
performance measures, the Committee may exclude the impact of any event or
occurrence which the Committee determines should appropriately be excluded such
as 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 the U.
S. generally accepted accounting principles.
An officer's award opportunities will be established as a function of the
officer's base salary. Base salary means, as to any specific fiscal year, the
officer's regular annual salary rate as of the last day of the fiscal year. The
regular annual salary rate is not 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 does
not include any payments under the AICP, or any other bonuses, stock options,
incentive pay or special awards.
The Committee has discretion to reduce or eliminate the amount of an award
otherwise payable to an officer. Except to the extent permitted by the following
paragraph, the Committee may not exercise discretion to increase the award
otherwise payable to an officer.
In the event that changes are made to Code Section 162(m) or the Regulations
thereunder to permit greater flexibility with respect to any Award Opportunities
under the AICP, the Committee may exercise such greater flexibility consistent
with the terms of the AICP without regard to the restrictive provisions of the
AICP.
PAYMENT OF AWARDS
Awards under the AICP are payable within 75 days after the award is approved
by the Committee. Subject to the terms of the Company's Executive Deferred
Compensation Plan, an officer may defer the receipt of some or all of the
officer's award. If all or a portion of an officer's award is not deductible by
the Company under Section 162(m), the Committee may, in its discretion, require
that payment of the nondeductible portion of such award be deferred under a
Company sponsored deferred compensation plan.
CHANGE IN CONTROL
In the event of a change in control of the Company, the officers will, in
the sole discretion of the Committee, receive a payment of the officer's target
incentive award or final award for the fiscal year during which the change in
control occurs. In these circumstances, the Committee will determine the final
award based on performance during the fiscal year until the date of the change
in control and the officer's base salary as of a date on or before the change in
control. This award shall be paid to the officer within 75 days after the
effective date of the change in control. A change in control shall be deemed to
have occurred if any person acquires 25% or more of the outstanding Common
Stock, the stockholders approve a merger or consolidation of the Company with
any other corporation, the stockholders approve a complete liquidation or
disposition of all of the Company's assets or a change in the majority of the
Board of Directors, as described in the AICP, occurs in a period of 24 months.
AMENDMENTS
The Board of Directors may modify, amend, suspend or terminate the AICP at
any time. No such modification, amendment, suspension or termination may,
without the officer's consent, reduce the officer's right to a payment or
distribution under the AICP to which an officer is entitled.
OTHER MATTERS
As discussed above, awards which may be paid under the AICP for fiscal 1998
and future years are dependent on the attainment of performance goals
established annually by the Committee, as well as the Committee's authority,
subject to the terms of the AICP, to reduce or eliminate such awards.
Accordingly, the amounts, if any, which may be paid under the AICP in the future
cannot presently be determined. If the material terms of the AICP are not
approved by the stockholders, no future payments will be made under the AICP to
officers, and the Executive Compensation Committee will review the Company's
executive compensation program in light of such vote and the principles
described in its Report on Executive Compensation.
APPROVAL OF THE AICP
Adoption of the AICP will require the affirmative vote of a majority of the
shares of Common Stock present or represented by proxy and entitled to vote
thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSED
KERR-MCGEE CORPORATION ANNUAL INCENTIVE COMPENSATION PLAN.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table includes individual compensation information on the
Chief Executive Officer and the four other most highly paid executive officers
for services rendered in all capacities for the fiscal years ended December 31,
1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
NO. OF
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION (1) YEAR SALARY BONUS OPTIONS (3) COMPENSATION (4)
- - ------------------------------- ---- ----------- ------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Frank A. McPherson, 1997 $342,308(2) $ -0- -0- $ 4,038
Retired as Chairman of 1996 698,077 800,000 40,000 43,077
the Board and Chief 1995 668,385 775,000 40,000 40,103
Executive Officer
effective February 1, 1997
Luke R. Corbett, 1997 582,212 400,000 50,000 34,933
Chairman of the 1996 413,847 475,000 22,000 26,023
Board and Chief 1995 379,816 440,000 21,000 22,789
Executive Officer 50,000(5)
Tom J. McDaniel, 1997 293,077 150,000 16,000 17,585
Vice Chairman of 1996 269,231 245,000 11,000 17,346
the Board 1995 259,231 260,000 15,000 15,554
John C. Linehan, 1997 295,000 150,000 16,000 17,700
Executive Vice 1996 294,231 265,000 18,000 18,846
President and Chief 1995 283,846 280,000 17,000 17,031
Financial Officer
Russell G. Horner, Jr., 1997 252,693 130,000 8,000 15,162
Senior Vice President, 1996 224,231 205,000 13,000 13,454
General Counsel and 1995 213,231 180,000 9,000 12,794
Corporate Secretary
Kenneth W. Crouch, 1997 230,000 115,000 9,000 13,800
Senior Vice President 1996 215,113 155,000 3,000 12,907
1995 199,232 75,000 3,500 11,954
</TABLE>
- - -----------------
(1) Effective February 1, 1997 upon Mr. McPherson's retirement, Luke R. Corbett
became Chairman of the Board and Chief Executive Officer. Also on that date,
Tom J. McDaniel became Vice Chairman and John C. Linehan was named Executive
Vice President and Chief Financial Officer.
(2) Mr. McPherson retired on February 1, 1997. He agreed to continue as a
consultant to the Company for a period of two years following his
retirement, which period may be extended by the Company for one additional
year. Amounts shown as salary for 1997 include salary for the year through
retirement on February 1, 1997 and the amount he received as a consultant
for the months of February through December 1997.
(3) The Company has never granted free-standing Stock Appreciation Rights
("SARs") and has not granted tandem SARs since January 1991.
(4) Consists entirely of 401(k) Company contributions pursuant to the Employee
Stock Ownership Plan and amounts contributed under the nonqualified benefits
restoration plan. Company contributions pursuant to the Employee Stock
Ownership Plan for 1997 were $9,600 each to Messrs. Corbett, McDaniel,
Linehan, Horner and Crouch. Mr. McPherson received $4,038. Amounts
contributed under the nonqualified benefits restoration plan for 1997 on
behalf of Messrs. McPherson, Corbett, McDaniel, Linehan, Horner and Crouch
were: none, $25,333, $7,985, $8,100, $5,562 and $4,200, respectively. The
amounts contributed by the Company to the Kerr-McGee Corporation Benefits
Restoration Plan on behalf of such persons are identical to the amounts that
would have been contributed pursuant to the Employee Stock Ownership Plan
except for the Code limitations.
(5) On May 9, 1995, upon being named President and Chief Operating Officer, a
one-time option for 50,000 shares was granted at an exercise price of $54.50
per share, which was 100% of the fair market value of a share of Common
Stock on May 9, 1995.
STOCK OPTIONS
The following table contains information concerning stock options granted
during the fiscal year ended December 31, 1997 to the named executives:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT
NO. OF OF TOTAL
SECURITIES OPTIONS PER GRANT
UNDERLYING GRANTED TO SHARE DATE
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION PRESENT
NAME GRANTED (1) FISCAL YEAR 1997 PRICE DATE VALUE(2)
---- ----------- ---------------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Frank A. McPherson ..... -0- --- --- --- ---
Luke R. Corbett ........ 50,000 15.33% 73.50 January 14, 2007 $766,000
Tom J. McDaniel ........ 16,000 4.90% 73.50 January 14, 2007 245,120
John C. Linehan ........ 16,000 4.90% 73.50 January 14, 2007 245,120
Russell G. Horner, Jr. . 8,000 2.45% 73.50 January 14, 2007 122,560
Kenneth W. Crouch ...... 9,000 2.76% 73.50 January 14, 2007 137,880
</TABLE>
- - -----------------
(1) All stock options granted in 1997 were nonqualified stock options. The
exercise price per option is 100% of the fair market value of a share of
Common Stock on the date of grant. No option expires more than ten years
from the date of grant. At or after the grant of an option, the Executive
Compensation Committee may, in its discretion, grant a participant a SAR. A
SAR is only exercisable during the term of the associated option. No SARs
were granted in 1997, nor have any been granted since 1991. Options may also
provide that, upon a change in control all options and any accompanying SARs
held for more than six months shall become immediately exercisable in full.
A change in control shall be deemed to have occurred if any person acquires
25% or more of the outstanding Common Stock, the stockholders approve a
merger or consolidation of the Company with any other corporation, the
stockholders approve a complete liquidation or disposition of all of the
Company's assets, or a change in the majority of the Board of Directors, as
described in the Plan, occurs within a period of 24 months.
(2) The present value was computed in accordance with the Black-Scholes option
pricing model, with assumptions consistent with the Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation", as
permitted by the rules of the Securities and Exchange Commission. Based on
Black-Scholes, the value on January 14, 1997, was $15.32 per option. The
Company believes, however, that it is not possible to accurately determine
the value of options at the time of grant using any option pricing model,
including Black-Scholes, since any valuation depends on numerous
assumptions. The model assumes: (a) an expected option term of 5.8 years,
(b) interest rate of 6.36% which represents the U. S. Treasury Strip Rate at
the date of grant with maturity corresponding to the expected option term,
(c) volatility of 17.259% calculated using monthly stock prices for the 5.8
years prior to the date of the grant and (d) dividends at an average annual
dividend yield of 3.06% for the ten years prior to December 31, 1997.
OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth information for the named executives with
respect to options/SARs exercised during 1997 and the value of unexercised
options/SARs held as of December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS
ACQUIRED ON VALUE DECEMBER 31, 1997 AT DECEMBER 31, 1997(1)
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frank A. McPherson .... 136,800 $3,218,638 40,000(2) -0- $ -0- $ -0-
Luke R. Corbett ....... 623 73,688 101,666 88,334 1,446,235 292,481
Tom J. McDaniel ....... -- -- 24,533 28,334 379,080 96,562
John C. Linehan ....... 791 108,563 67,533 33,667 1,159,598 109,443
Russell G. Horner, Jr. -- -- 12,534 19,667 147,084 57,937
Kenneth W. Crouch ..... 2,500 46,844 7,333 12,167 84,912 15,149
</TABLE>
- - -----------------
(1) Options/SARs are "in-the-money" if the fair market value of the Common Stock
exceeds the exercise price. At December 31, 1997 the closing price of the
Common Stock on the New York Stock Exchange was $63.9375.
(2) Options generally vest one-third each year, beginning one year after the
grant date. All of Mr. McPherson's options vested upon his retirement.
RETIREMENT PLANS
The Company maintains retirement plans for all employees, including
officers. The following table shows the estimated annual pension benefits
payable to a covered participant at normal retirement age under the Company's
qualified defined benefit plan, as well as the nonqualified benefits restoration
plan that provides benefits that would otherwise be denied participants by
reason of certain Code limitations on qualified plan benefits, based on
remuneration that is covered under the plans and years of service with the
Company and its subsidiaries:
RETIREMENT PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE ANNUAL 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
COMPENSATION SERVICE SERVICE SERVICE SERVICE SERVICE
- - -------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 400,000 .................. $93,665 $124,887 $156,109 $187,331 $218,553
600,000 .................. 141,665 188,887 236,109 283,331 330,553
800,000 .................. 189,665 252,887 316,109 379,331 442,553
1,000,000 .................. 237,665 316,887 396,109 475,331 554,553
1,200,000 .................. 285,665 380,887 476,109 571,331 666,553
</TABLE>
Covered compensation under the retirement plans consists of salary and bonus
as reflected in the Summary Compensation Table plus pretax Section 125 and
401(k) benefit contributions as reflected under All Other Compensation in the
Summary Compensation Table, based on the highest 36 consecutive months over the
previous 120 months prior to retirement. Amounts shown have been computed on a
straight life annuity basis. As of December 31, 1997, Mr. Corbett had 12 years
of credited service; Mr. McDaniel, 13; Mr. Linehan, 12; Mr. Horner, 28; and Mr.
Crouch, 23. Mr. McPherson had 34 years of credited service at his retirement.
Pursuant to the Company's Supplemental Executive Retirement Plan ("SERP"),
adopted effective January 1, 1991, and revised May 3, 1994, certain key senior
executives are eligible to receive supplemental retirement benefits. The SERP is
a defined benefit plan and is administered by the Committee. Management
recommends to the Committee employees for participation in the SERP and the
Committee then selects the participants. Eligible employees may receive benefits
under the SERP upon retirement on or after age 62, upon retirement prior to age
62 if the employee is disabled or dies, upon a change of control of the Company,
or if termination of service from the Company occurs under certain
circumstances. Benefits under the SERP equal a specified percentage of an
eligible employee's final average monthly compensation at retirement in the form
of a monthly income for life payable as an actuarially equivalent tax-equalized
lump sum. Generally, the SERP benefit at retirement is calculated by determining
(i) the eligible employee's final average monthly compensation multiplied by a
percentage based on years of Company service minus (ii) the sum of the
anticipated monthly amounts payable to the eligible employee as a primary social
security benefit and monthly amounts payable under the Company's qualified and
nonqualified defined benefit plans. The SERP provisions establish a minimum
benefit for employees who were participants before May 3, 1994, regardless of
the years of Company service.
The percentage of final average monthly compensation used to determine the
SERP benefit ranges from 40% to 70%, depending on when the executive became a
participant in the SERP, the age at which the employee retires and the reason
for the retirement. As of December 31, 1997, the estimated lump sum SERP benefit
payable upon retirement to the executive officers named in the Summary
Compensation Table -- assuming (i) retirement at age 62 and (ii) salaries are
maintained at their current level, is: Mr. Corbett, $1,538,455; Mr. McDaniel,
$1,737,872; Mr. Linehan, $1,310,951, Mr. Horner, $604,871 and Mr. Crouch,
$523,778. After 34 years of service, Mr. McPherson received a lump sum SERP
benefit payment of $1,627,885 upon his retirement on February 1, 1997.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company does not have Employment Agreements in force with any of the
executive officers.
Mr. McPherson retired as Chairman of the Board and Chief Executive Officer
of the Company on February 1, 1997. Mr. McPherson has agreed to serve as a
consultant to the Company for a period of two years following his retirement,
which period may be extended by the Company for one additional year. Mr.
McPherson will be reimbursed for his consulting services at the rate of $300,000
per year and will receive life insurance coverage at least equal to the coverage
provided under the Company's group life insurance plan that was in effect at the
time of his retirement. Mr. McPherson has agreed not to engage in certain
activities which compete in any material respect with any business of the
Company. Upon a change in control of the Company, amounts remaining unpaid under
the agreement will be immediately paid to Mr. McPherson and the agreement will
remain in effect in accordance with its terms.
CHANGE OF CONTROL ARRANGEMENTS
With respect to Messrs. Corbett, McDaniel, Linehan, Horner and Crouch, as
well as certain other executive officers, the Company has agreed to provide
certain benefits in the event of a "change of control" of the Company. A Change
of Control means (a) a change in any two year period in a majority of the
members of the Board of Directors of the Company as defined in the agreement,
(b) any person becomes the beneficial owner, directly or indirectly, of 25% or
more of the Company's outstanding Common Stock, (c) the approval by the
Company's stockholders of (i) the merger or consolidation of the Company with
any other corporation, (ii) the sale of all or substantially all, of the assets
of the Company or (d) a majority of the members of the Board of Directors in
office immediately prior to a proposed transaction determined by written
resolution that such proposed transaction, if taken, will be deemed a Change of
Control and such proposed transaction is affected.
If a change of control of the Company occurs, the executive whose employment
is subsequently terminated for any reason other than death, disability or
"cause" (as defined), or who subsequently terminates employment for "good
reason" (as defined), will be entitled to receive a maximum lump sum cash
payment equal to three times the executive's annual base salary. In addition,
upon such termination, the executive will be entitled to receive amounts that he
or she would otherwise have been entitled to receive under the SERP with the
specified percentage multiplier being 70% or the amount as determined when the
SERP is calculated using the eligible employee's service, as described under
"Retirement Plans" above. The Company also has made provision under its Benefits
Restoration Plan for the crediting of additional years of age and service to
certain executive officers, including those named in the Summary Compensation
Table, whose employment is terminated under the circumstances described above
following a change of control of the Company.
REPORT ON EXECUTIVE COMPENSATION
The Executive Compensation Committee (the " Committee") is comprised of
three independent nonemployee directors and is responsible for administering
compensation programs that make it possible for the Company to attract and
retain employees with the skills and attitudes necessary to provide the Company
with a fully competitive and capable management.
The Committee reviews the salaries and incentive pay awards as recommended
by the Chief Executive Officer ("CEO") for the officers of the Company. It
recommends to the full Board such changes as it may deem appropriate. The
Committee recommends but does not fix the compensation of the CEO, which is
determined by all of the independent nonemployee directors. Set forth below is
the report on the Company's executive compensation policies for 1997 and how
they affected the Company's CEO and the Company's other officers (including the
four other highest paid officers).
The Company seeks to provide fully competitive levels of total compensation
for its key executives through a mix of base salaries, annual incentive pay,
long-term incentives and other benefits. The Committee believes that incentive
or "at risk" compensation is a key ingredient in motivating executive
performance to maximize stockholder value and align executive performance with
company objectives. Total compensation is targeted to be competitive at the
median level of a peer group of comparable energy and chemical companies, which
includes companies constituting the S&P Domestic Integrated Oil Index referred
to in the Performance Graph on page19, as well as other comparable energy and
chemical companies selected with the assistance of an independent consulting
firm to be representative of the Company's size and business activities (the "
Comparison Group"). Since the Company has a substantial amount of its business
outside the United States, its compensation policies must also be
internationally competitive and flexible. This both attracts and retains high
quality management, as well as facilitating global management.
BASE SALARIES
In determining base salaries for executive officers, the Committee annually
reviews current competitive market compensation data of the Comparison Group
prepared by an independent consulting firm. Base salaries are typically targeted
at the median of the salary level Comparison Group. The Committee's policy is to
set executive officers' base salaries at or near the median of base salaries of
the Comparison Group to enable the Company to be competitive and to attract and
retain key executives. When salary increases are made, the Committee also takes
into consideration the individual's performance based on the CEO's evaluation of
the executive officer's performance, the Board's evaluation of the CEO's
performance and all executive officers' current and prior job related experience
and tenure. No specific weight is assigned to any individual factor in
determining salary increases.
ANNUAL INCENTIVE COMPENSATION
The Company's Annual Incentive Compensation Plan (the "AICP") provides an
opportunity for officers to earn supplemental incentive compensation each year
if the Company's financial targets are met or exceeded. The Committee believes
that setting threshold and competitive target returns is the appropriate
approach to annual incentive pay.
Before AICP awards are made, the Company must earn a minimum return on
average capital employed ("ROACE") established by the Committee at the beginning
of the year. The amount of each executive officer's award is directly related to
the amount by which the threshold ROACE is exceeded and to the position and
performance of the individual executive officer.
In 1997, the ROACE threshold was exceeded, triggering incentive compensation
awards. Awards for Mr. Corbett and the four other highest paid officers are set
forth in the Summary Compensation Table. Mr. McPherson, who retired February 1,
1997, was not granted an AICP award. The total awards granted corporate officers
in any given year may not exceed 1.7% of pretax income from continuing
operations, before extraordinary and special items.
LONG TERM INCENTIVES
The Company's stockholders have approved the use of Company stock in the
form of stock options and restricted stock awards to provide long-term
incentives for the Company's key executives. No restricted stock awards were
granted in 1997. The Committee believes that the use of stock options provides a
direct relationship between the executives' compensation and the stockholders'
interests and is an important key employee retention tool that rewards long-term
management performance measured by corporate results. The aggregate value of
stock options granted to each executive officer, including the CEO, is based on
a percentage of the individual's salary. The percentage is set annually by the
Committee after considering surveys and reports by an independent consulting
firm as to competitive awards made within the Comparison Group, as well as the
individual's level of responsibility and a subjective performance evaluation.
The amount and terms of prior awards were also considered by the Committee when
making 1997 awards. The number of stock options granted in 1997 to Mr. Corbett
and the four other highest paid officers is set forth in the Option Grants
Table. No options were granted to Mr. McPherson in 1997.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Chief Executive Officer's compensation is determined in accordance with
the policies described above. In establishing Mr. Corbett's compensation, the
Committee considers competitive compensation of CEOs compiled by an independent
consulting firm, within a peer group of comparable energy and chemical
companies. Mr. Corbett's annual base salary was increased in February 1997 to
$600,000.
Mr. Corbett became the Company's Chief Executive Officer February 1, 1997.
In determining Mr. Corbett's incentive compensation, the Committee considered
several substantial accomplishments in 1997 - no specific weight was assigned to
any individual accomplishment. The Company increased its coal production
capacity at the Jacobs Ranch Mine in Wyoming by 50% and pigment production
capacity at the Hamilton, Mississippi plant by 25%, four new oil and gas fields
began development, oil and gas prospect inventory was increased and the merger
of its North American Onshore Region into Devon Energy was completed. During
1997, the Company's $300 million Stock Repurchase Program, which began in the
fourth quarter of 1995, was completed and net debt was again lowered - net debt
has been reduced by about $500 million during the past three years. Mr.
Corbett's 1997 incentive award under the Company's Annual Incentive Compensation
Plan is shown in the Summary Compensation Table.
The Committee believes that executive compensation for 1997 appropriately
reflects its policy to align such compensation with overall business strategy,
values and management initiatives and to ensure that the Company's goals and
performance are consistent with the interests of its stockholders.
FEDERAL INCOME TAX DEDUCTIBILITY
Code Section 162(m) generally limits the corporate deduction on compensation
paid to the Chief Executive Officer and the next four highest paid officers to
$1 million during any fiscal year unless such compensation meets certain
performance based requirements. The Company has adopted a Deferred Compensation
Plan that allows executive officers to defer a portion of salary or incentive
pay. At the current time it is not mandatory that an executive officer defer any
compensation in any taxable year.
Upon receiving stockholder approval as requested in this year's proxy
statement of the Annual Incentive Compensation Plan (AICP) and the 1998
Long-Term Incentive Plan (LTIP), the Committee believes that the Company's
executive incentive compensation will comply with the rules of Section 162(m)
and will allow the Company to deduct any compensation in excess of $1 million
paid to the Chief Executive Officer and the next four highest paid officers.
Submitted by:
EXECUTIVE COMPENSATION COMMITTEE
John J. Murphy, Chairman
Martin C. Jischke
Richard M. Rompala
OTHER INDEPENDENT NONEMPLOYEE DIRECTORS
Paul M. Anderson
William C. Morris
Leroy C. Richie
Farah M. Walters
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total return to stockholders on the Company's Common Stock
against the cumulative total return of the S&P 500 Index and the S&P Domestic
Integrated Oil Index for the five year period 1993 through 1997.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
KERR-MCGEE CORPORATION
S&P 500 INDEX AND S&P DOMESTIC INTEGRATED OIL INDEX
[GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Assumes $100 invested on
December 31, 1992.
KMG 100 106 111 153 179 162
S&P Domestic Integrated
Oil Index 100 104 110 126 157 187
S&P 500 100 110 111 154 187 249
</TABLE>
Year-end Index
Total return includes the reinvestment of dividends
Year-end data supplied by Bloomberg
STOCKHOLDER PROPOSALS
Stockholder proposals for the 1999 Annual Meeting must be received at the
principal executive offices of the Company no later than November 19, 1998.
EXPENSE OF SOLICITATION
The cost of this proxy solicitation will be borne by the Company. To assist
in the proxy solicitation, the Company has engaged Georgeson & Co. for a fee of
$13,500 plus out-of-pocket expenses. The Company will reimburse brokers, banks
or other persons for reasonable expenses in sending proxy material to beneficial
owners. Proxies may be solicited through the mail, telephonic or telegraphic
communications or meetings with stockholders or their representatives by
directors, officers and other employees of the Company who will receive no
additional compensation.
OWNERSHIP OF STOCK OF THE COMPANY
To the best of the Company's knowledge, no person beneficially owned more
than 5% of any class of the Company's outstanding voting securities at the close
of business on March 16, 1998, except as set forth below:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
TITLE NAME AND ADDRESS OF BENEFICIAL
OF CLASS BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
-------- ------------------- ---------- ----------------
<S> <C> <C> <C>
Common Stock ............ The Capital Group Companies, Inc. 6,120,900 (1) 12.8%
333 South Hope Street
Los Angeles, California 90071
Common Stock ............ State Street Bank and Trust Company 3,167,046 (2) 6.60%
225 Franklin Street
Boston, Massachusetts 02110
</TABLE>
- - ------------------
(1) Based on a Schedule 13G for the year ended December 31, 1997, The Capital
Group Companies, Inc. has sole voting power over 637,800 shares and sole
power to dispose over 6,120,900 shares. The Capital Group Companies, Inc.,
reports that it holds no shares over which it has shared voting or shared
disposition power.
(2) Based on a Schedule 13G for the year ended December 31, 1997, State Street
Bank and Trust Company has sole voting power of 672,265 shares, sole power
to dispose over 714,402 shares, shared voting power over 2,447,581 shares
and shared power to dispose over 2,452,644 shares. Included in these totals
are shares the reporting person holds as Trustee of the Company's Employee
Stock Ownership Plan for the benefit of the ESOP participants. The decisions
with respect to the voting and disposition are made by the ESOP
participants.
SECTION 16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than 10% of a
registered class of the Company's equity securities to file with the Securities
and Exchange Commission (the "SEC") and the New York Stock Exchange initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Officers, directors and stockholders
owning more than 10% are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on the information furnished to the
Company and written representations that no other reports were required during
the fiscal year ended December 31, 1997, all applicable Section 16(a) filing
requirements were complied with except that James F. Guion made a late filing of
a Form 4 to report one transaction.
OTHER MATTERS
The Company does not know of any matters to be presented at the meeting
other than those set out in the notice preceding this Proxy Statement. If any
other matters should properly come before the meeting, it is intended that the
persons named on the enclosed proxy will vote said proxy therein at their
discretion.
RUSSELL G. HORNER, JR.
Secretary
<PAGE>
EXHIBIT A
KERR-MCGEE CORPORATION 1998 LONG TERM INCENTIVE PLAN
ARTICLE I
PURPOSE
The purpose of the 1998 Kerr-McGee Corporation Long Term Incentive Plan (the
"Plan") is to provide incentive opportunities for key employees and to align
their personal financial interest with the Company's stockholders. The Plan
includes provisions for stock options, stock and performance related awards.
ARTICLE II
DEFINITIONS
(a) "AWARD" shall mean the award which a Performance Plan Participant is
entitled to receive under the Performance Plan.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(d) "COMPANY" shall mean Kerr-McGee Corporation and any successor
corporation by merger or otherwise.
(e) "COMMITTEE" shall mean a committee of two (2) or more members of the
Board appointed by the Board of Directors to administer the Plan pursuant to
Article III herein.
(f) "EMPLOYEE" shall mean any person employed by the Company, a Subsidiary
or Limited Liability Company on a full-time salaried basis, including officers
and employee directors thereof.
(g) "FAIR MARKET VALUE" of Stock shall mean the average of the highest price
and the lowest price at which Stock shall have been sold on the applicable date
as reported in the Wall Street Journal as New York Stock Exchange Composite
Transactions for that date. In the event that the applicable date is a date on
which there were no such sales of Stock, the Fair Market Value of Stock on such
date shall be the mean of the highest price and the lowest price at which Stock
shall have been sold on the last trading day preceding such date.
(h) "INCENTIVE STOCK OPTION" or "ISO" shall mean an Option grant which meets
or complies with the terms and conditions set forth in Section 422 of the Code
and applicable regulations.
(i) "INDICATORS OF PERFORMANCE" shall mean the criteria used by the
Committee to evaluate the Company's performance with respect to each Performance
Period as described in Article X, Section (b) of this Plan.
(j) "LIMITED LIABILITY COMPANY" or "LLC" shall mean any Limited Liability
Company in which the Company or a Subsidiary owns fifty percent (50%) or more of
the Limited Liability Company.
(k) "OPTION" or "STOCK OPTION" shall mean a right granted under the Plan to
an Optionee to purchase a stated number of shares of Stock at a stated exercise
price.
(l) "OPTIONEE" shall mean an Employee who has received a Stock Option
granted under the Plan.
(m) "PERFORMANCE PERIOD" shall mean a period established by the Committee of
not less than one year, at the conclusion of which settlement will be made with
a Performance Plan Participant with respect to the Award.
(n) "PERFORMANCE PLAN PARTICIPANT" shall mean any eligible Employee so
designated by the Committee.
(o) "RESTRICTED STOCK" shall mean Stock which is issued pursuant to Article
IX of the Plan.
(p) "RESTRICTION PERIOD" shall mean that period of time as determined by the
Committee during which Restricted Stock is subject to such terms, conditions and
restrictions as shall be assigned by the Committee.
(q) "RETIREMENT" shall mean retirement as defined in a policy approved by
the Company.
(r) "STOCK" shall mean the common stock of the Company.
(s) "STOCK APPRECIATION RIGHT" or "SAR" shall mean a right granted in
connection with an Option in accordance with Article VIII of the Plan.
(t) "SUBSIDIARY" shall mean 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.
(u) "TOTAL DISABILITY" and "TOTALLY DISABLED" 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.
ARTICLE III
ADMINISTRATION
Subject to such approvals and other authority as the Board may reserve to
itself from time to time, the Committee shall, consistent with the provisions of
the Plan, from time to time establish such rules and regulations and appoint
such agents as it deems appropriate for the proper administration of the Plan,
and make such determinations under, and such interpretations of, and take such
steps in connection with the Plan or the Options or Stock Appreciation Rights or
the Restricted Stock Plan or the Performance Plan as it deems necessary or
advisable.
Each determination, interpretation, or other action made or taken pursuant
to the Plan by the Committee and/or the Board shall be final and shall be
binding and conclusive for all purposes and upon all persons.
ARTICLE IV
ELIGIBILITY
Those Employees who, in the judgment of the Committee, may contribute to the
profitability and growth of the Company, shall be eligible to receive Options,
SARs, grants of Restricted Stock and Awards under the Plan.
ARTICLE V
MAXIMUM SHARES AVAILABLE
The Stock to be distributed under the Plan may be either authorized and
unissued shares or issued shares of the Company, but grants of Restricted Stock
shall be made in treasury shares. The maximum amount of Stock which may be
issued under the Plan in satisfaction of exercised Options or SARs, issued as
Restricted Stock or issued under the Long Term Performance Plan shall not
exceed, in the aggregate, two million three hundred thousand (2,300,000) shares
of which no more than 450,000 shares may be granted as Restricted Stock. Stock
subject to an Option which for any reason is cancelled or terminated without
having been exercised, or Stock awarded as Restricted Stock which is forfeited,
shall again be available for grants and Awards under the Plan. Stock not issued
because the holder of any Option exercises the accompanying SAR shall not again
be subject to award by the Committee.
ARTICLE VI
STOCK OPTIONS
(a) GRANT OF OPTIONS.
(i) The Committee may, at any time and from time to time prior to
December 31, 2007, grant Options under the Plan to eligible Employees, for
such numbers of shares and having such terms as the Committee shall
designate, subject however, to the provisions of the Plan. The Committee
will also determine the type of Option granted (e.g. ISO, nonstatutory,
other statutory Options as from time to time may be permitted by the Code)
or a combination of various types of Options. Options designated as ISOs
shall comply with all the provisions of Section 422 of the Code and
applicable regulations. The aggregate Fair Market Value (determined at the
time the Option is granted) of Stock with respect to which ISOs are
exercisable for the first time by an individual during a calendar year under
all plans of the Company, any Subsidiary and any LLC shall not exceed
$100,000. The date on which an Option shall be granted shall be the date of
the Committee's authorization of such grant. Any individual at any one time
and from time to time may hold more than one Option granted under the Plan
or under any other Stock plan of the Company.
(ii) Each Option shall be evidenced by a Stock Option Agreement in
such form and containing such provisions consistent with the provisions of
the Plan as the Committee from time to time shall approve.
(b) EXERCISE PRICE. The price at which shares of Stock may be purchased
under an Option shall not be less than 100% of the Fair Market Value of the
Stock on the date the Option is granted.
(c) OPTION PERIOD. The period during which an Option may be exercised shall
be determined by the Committee; provided, that such period will not be longer
than ten years from the date on which the Option is granted in the case of ISOs,
and ten years and one day in the case of other Options. The date or dates on
which installment portion(s) of an Option may be exercised during the term of an
Option shall be determined by the Committee and may vary from Option to Option.
The Committee may also determine to accelerate the time at which installment
portion(s) of an outstanding Option may be exercised.
(d) TERMINATION OF EMPLOYMENT. An Option shall terminate and may no longer
be exercised three months after the Optionee ceases to be an Employee for any
reason other than Total Disability, death or Retirement. If an Optionee's
employment is terminated by reason of Total Disability or Retirement to the
extent that the Option was exercisable at the time of the Optionee's Retirement
or Total Disability, such Option may be exercised within the period, not to
exceed four years following such termination, specified by the Committee in the
instrument evidencing the Option. If the Optionee dies while in the employ of
the Company, a Subsidiary or LLC, or within three months after the termination
of such employment, to the extent that the Option was exercisable at the time of
the Optionee's death, such Option may, within the lesser of one year after the
Optionee's death or the term of the option, be exercised by the executor or
administrator of the Optionee's estate, or if it has been distributed as part of
the estate, by the person or persons to whom the Optionee's rights under the
Option shall pass by will or by the applicable laws of descent and distribution.
In no event may an Option be exercised to any extent by anyone after the
expiration or termination of the Option.
(e) PAYMENT FOR SHARES.
(i) The exercise price of an Option shall be paid to the Company in
full at the time of exercise at the election of the Optionee (1) in cash,
(2) in shares of Stock having a Fair Market Value equal to the aggregate
exercise price of the Option and satisfying such other requirements as may
be imposed by the Committee, (3) in shares of Restricted Stock having a Fair
Market Value equal to the aggregate exercise price of the Option and
satisfying such other requirements as may be imposed by the Committee, (4)
partly in cash and partly in such shares of Stock or Restricted Stock, (5)
to the extent permitted by the Committee, through the withholding of shares
of Stock (which would otherwise be delivered to the Optionee) with an
aggregate Fair Market Value on the exercise date equal to the aggregate
exercise price of the Option or (6) through the delivery of irrevocable
instructions to a broker to deliver promptly to the Company an amount equal
to the aggregate exercise price of the Option. The Committee may limit the
extent to which shares of Stock or shares of Restricted Stock may be used in
exercising Options. No Optionee shall have any rights to dividends or other
rights of a stockholder with respect to shares of Stock subject to an Option
until the Optionee has given written notice of exercise of the Option, paid
in full for such shares of Stock and, if applicable, has satisfied any other
conditions imposed by the Committee pursuant to the Plan.
(ii) If shares of Restricted Stock are used to pay the exercise price
of an Option, an equal number of shares of Stock delivered to the Optionee
upon exercise of an Option, shall be subject to the same restrictions for
the remainder of the Restriction Period.
(f) ANNUAL MAXIMUM PERFORMANCE. Options granted to any one Optionee may not
exceed one hundred fifty thousand (150,000) shares of stock per calendar year.
(g) DEFERRAL OF GAIN. Optionees may elect to defer the gain from the
exercise of a Stock Option under the terms and conditions of the Kerr-McGee
Corporation Executive Deferred Compensation Plan.
ARTICLE VII
STOCK APPRECIATION RIGHTS
(a) GRANT. The Committee may affix SARs to an Option, either at the time of
its initial granting to the Optionee or at a later date. The addition of such
SARs must be accomplished prior to the completion of the period during which the
Option may be exercised and such exercise period may not be extended beyond that
which was initially established. The Committee may establish SAR terms and
conditions at the time such SAR is established.
(b) EXERCISE.
(i) A SAR shall be exercisable at such time as may be determined by
the Committee and a SAR shall be exercisable only to the extent that the
related Option could be exercised. Upon the exercise of a SAR, that portion
of the Option underlying the SAR will be considered as having been
surrendered. A SAR shall be automatically exercised at the end of the last
business day prior to the stated expiration date of the unexercised portion
of the related Option if on such date the Fair Market Value of Stock exceeds
the Option exercise price per share.
(ii) The Committee may impose any other conditions upon the exercise
of a SAR, consistent with the Plan, which it deems appropriate. Such rules
and regulations may govern the right to exercise SARs granted prior to the
adoption or amendment of such rules and regulations as well as SARs granted
thereafter.
(iii) Upon the exercise of a SAR, the Company shall give to an
Optionee an amount (less any applicable withholding taxes) equivalent to the
excess of the Fair Market Value of the shares of Stock for which the right
is exercised on the date of such exercise over the exercise price of such
shares under the related Option. Such amount shall be paid to the Optionee
either in cash or in shares of Stock or both as the Committee shall
determine. Such determination may be made at the time of the granting of the
SAR and may be changed at any time thereafter. No fractional shares of Stock
shall be issued and the Committee shall determine whether cash shall be
given in lieu of such fractional share or whether such fractional share
shall be eliminated.
(c) EXPIRATION OR TERMINATION.
(i) Subject to (c)(ii), each SAR and all rights and obligations
thereunder shall expire on a date to be determined by the Committee.
(ii) A SAR shall terminate and may no longer be exercised upon the
exercise, termination or expiration of the related Option.
ARTICLE VIII
RESTRICTED STOCK PLAN
(a) At the time of making a grant of Restricted Stock or making payment of
an Award in Restricted Stock to an Employee, the Committee shall establish a
Restriction Period and assign such terms, conditions and other restrictions to
the Restricted Stock as it shall determine applicable to the Restricted Stock to
be issued in settlement of such grant or Award.
(b) Restricted Stock will be represented by a Stock certificate registered
in the name of the Restricted Stock recipient. Such certificate, accompanied by
a separate duly endorsed stock power, shall be deposited with the Company. The
recipient shall be entitled to receive dividends during the Restriction Period
and shall have the right to vote such Restricted Stock and all other
shareholder's rights, with the exception that (i) the recipient will not be
entitled to delivery of the Stock certificate during the Restriction Period,
(ii) the Company will retain custody of the Restricted Stock during the
Restriction Period and (iii) a breach of the terms and conditions established by
the Committee pursuant to the Award will cause a forfeiture of the Restricted
Stock. Subject to Article VI, Section (e), Restricted Stock may be used to
exercise Options. The committee may, in addition, prescribe additional
restrictions, terms and conditions upon or to the Restricted Stock.
(i) TERMINATION OF EMPLOYMENT. The Committee may establish such rules
concerning the termination of employment of a recipient of Restricted Stock
prior to the expiration of the applicable Restriction Period as it may deem
appropriate from time to time.
(ii) RESTRICTED STOCK AGREEMENT. Each grant of, or payment of an Award
in, Restricted Stock shall be evidenced by a Restricted Stock Agreement in
such form and containing such terms and conditions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve.
(c) The Committee shall not grant Restricted Stock in excess of four hundred
fifty thousand (450,000) shares of Stock during the term of this Agreement.
ARTICLE IX
PERFORMANCE PLAN
(a) ADMINISTRATIVE PROCEDURE. The Committee shall designate Employees as
Performance Participants to become eligible to receive Awards under the plan and
shall establish Performance Periods under the Performance Plan.
(b) INDICATORS OF PERFORMANCE. The Committee shall establish Indicators of
Performance applicable to the Performance Period. Indicators of Performance are
utilized to determine amount and timing of Awards, and may vary between
Performance Periods. Indicators of Performance may include, but shall not be
limited to, various financial and operating measures, and may be based on the
Company's performance compared to one or more selected companies during the same
Performance Period or may be related solely to the Company's performance during
the Performance Period, or a combination of such indicators. The Committee may
take into consideration, and make appropriate adjustments for, events occurring
during the Performance Period which the Committee concludes have affected the
performance of the Company or any selected company with respect to any of the
Indicators of Performance.
(c) AWARD ADJUSTMENT. Subject to the terms of the Plan, the Committee may
make adjustments in Awards to Performance Plan Participants.
(d) PERFORMANCE AWARDS. Awards may be in the form of performance shares,
which are units valued by reference to shares of stock or performance units,
which are units valued by reference to financial measures or property other than
stock and shall be subject to such terms and conditions and other restrictions
as the Committee shall assign. At the time of making grants of Awards, the
Committee shall establish such terms and conditions as it shall determine
applicable to such Awards. Awards may be paid out in cash, Stock, Restricted
Stock, other property or combination thereof. Recipients of Awards are not
required to provide consideration other than the rendering of service.
(e) PARTIAL PERFORMANCE PERIOD PARTICIPATION. The Committee shall determine
the extent to which an Employee shall participate in a partial Performance
Period because of becoming eligible to be a Performance Plan Participant after
the beginning of such Performance Period.
ARTICLE X
ADJUSTMENT UPON CHANGES IN STOCK
The number of shares of Stock which may be issued pursuant to this Plan, the
number of shares covered by each outstanding Option, the Option exercise price
per share, the number of shares granted as Restricted Stock, and the number of
shares representing a Performance Plan Participant's Award under the Performance
Plan, shall be adjusted proportionately, and any other appropriate adjustments
shall be made, for any increase or decrease in the total number of issued and
outstanding Stock (or change in kind) resulting from any change in the Stock or
Options through a merger, consolidation, reorganization, recapitalization,
subdivision or consolidation of shares or other capital adjustment or the
payment of a Stock Dividend or other increase or decrease (or change in kind) in
such shares. In the event of any such adjustment, fractional shares shall be
eliminated. Appropriate adjustment shall also be made by the Committee in the
terms of SARs to reflect the foregoing changes.
ARTICLE XI
CHANGE IN CONTROL
Notwithstanding anything to the contrary in the Plan, in the event of a
Change in Control:
(i) If during a Restriction Period(s) applicable to Restricted Stock
issued under the Plan, all restrictions imposed hereunder on such Restricted
Stock shall lapse effective the date of the Change in Control;
(ii) If during a Performance Period(s) applicable to an Award granted
under the Plan, a Participant shall earn no less than the number of
performance shares or performance units which the participant would have
earned if the Performance Period(s) had terminated as of the date of the
Change in Control; or
(iii) Any outstanding options that are not exercisable shall become
exercisable effective as of the date of a Change in Control. If an
Optionee's employment is terminated within 24 months of the effective date
of a Change in Control, to the extent that any Option was exercisable at the
time of the Optionee's termination of employment, such Option may be
exercised within four years following the date of termination of employment.
For purposes of the Plan, a "Change in Control" shall be deemed to have
occurred if :
(a) Any "Person", as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the
Company, any trustee or other fiduciary holding securities under an employee
benefit plan of the Company, or any corporation owned, directly or indirectly,
by the stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company), is or becomes the "Beneficial Owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting power
of the Company's then outstanding securities;
(b) During any period of 24 months (not including any period prior to the
execution of this Agreement), individuals who at the beginning of such period
constitute the Board, and any new director (other than (1) a director designated
by a person who has entered into an agreement with the Company to effect a
transaction described in clause (a), (c) or (d) of this Article, (2) a director
designated by any Person (including the Company) who publicly announces an
intention to take or to consider taking actions (including, but not limited to,
an actual or threatened proxy contest) which if consummated would constitute a
Change in Control or (3) a director designated by any Person who is the
Beneficial Owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's
securities whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least twothirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved
cease for any reason to constitute at least a majority thereof;
(c) The stockholders of the Company approve a merger or consolidation of the
Company with any other corporation other than (1) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 50% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation and (2) after which no Person holds 25% or more of the combined
voting power of the then outstanding securities of the Company or such surviving
entity or
(d) The stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
ARTICLE XII
MISCELLANEOUS
(a) Except as otherwise required by law, no action taken under the Plan
shall be taken into account in determining any benefits under any pension,
retirement, thrift, profit sharing, group insurance or other benefit plan
maintained by the Company or any Subsidiaries, unless such other plan
specifically provides for such inclusion.
(b) Except as provided in Section (c) of this Article XIII, no Option or
SAR, grant of Restricted Stock or Award under this Plan shall be transferable
other than by will or the laws of descent and distribution. Any Option or SAR
shall be exercisable (i) during the lifetime of an Optionee, only by the
Optionee or, to the extent permitted by the Code, by an appointed guardian or
legal representative of the Optionee, and (ii) after death of the Optionee, only
by the Optionee's legal representative or by the person who acquired the right
to exercise such Option or SAR by bequest or inheritance or by reason of the
death of the Optionee.
(c) The Committee may, in its discretion, authorize all or a portion of the
Options to be granted to an Optionee to be on terms which permit transfer by
such Optionee to an immediate family member of the Optionee who acquires the
options from the Optionee through a gift or a domestic relations order. For
purposes of this Section (c), "family member" includes any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law,
including adoptive relationships, trusts for the exclusive benefit of these
persons and any other entity owned solely by these persons, provided that the
Stock Option Agreement pursuant to which such Options are granted must be
approved by the Committee and must expressly provide for transferability in a
manner consistent with this Section and provided further that subsequent
transfers of transferred options shall be prohibited except those in accordance
with Section (b) of this Article XIII. Following transfer, any such options
shall continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer. The events of termination of employment of
Section (d) of Article VI hereof shall continue to be applied with respect to
the original Optionee, following which the options shall be exercisable by the
Transferee only to the extent and for the periods specified in Section (d) of
Article VI.
(d) The Company shall have the right to withhold from any settlement
hereunder any federal, state, or local taxes required by law to be withheld, or
require payment in the amount of such withholding. If settlement hereunder is in
the form of Stock, such withholding may be satisfied by the withholding of
shares of Stock by the Company, unless the Optionee shall pay to the Corporation
an amount sufficient to cover the amount of taxes required to be withheld, and
such withholding of shares does not violate any applicable laws, rules or
regulations of federal, state or local authorities.
(e) Transfer of employment between the Company, a Subsidiary or Limited
Liability Company, or between Limited Liability Companies and Subsidiaries shall
not constitute termination of employment for the purpose of the Plan. Whether
any leave of absence shall constitute termination of employment for the purposes
of the Plan shall be determined in each case by the Committee.
(f) All administrative expenses associated with the administration of the
Plan shall be borne by the Company.
(g) The titles and headings of the articles in this Plan are for convenience
of reference only and in the event of any conflict, the text of the Plan, rather
than such titles or headings, shall control.
(h) No grant or Award to an employee under the Plan or any provisions
thereof shall constitute any agreement for or guarantee of continued employment
by the Company.
(i) 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.
ARTICLE XIII
AMENDMENT AND TERMINATION
The Board may at any time terminate or amend this Plan in such respect as it
shall deem advisable, provided, the Board may not, without further approval of
the stockholders of the Company, amend the Plan so as to (i) increase the number
of shares of Stock which may be issued under the plan, except as provided for in
Article XI, or change Plan provisions relating to establishment of the exercise
prices under Options granted, (ii) extend the duration of the Plan beyond the
date approved by the stockholders or (iii) increase the maximum dollar amount of
ISOs which an individual Optionee may exercise during any calendar year beyond
that permitted in the Code and applicable rules and regulations of the Treasury
Department. No amendment or termination of the Plan shall, without the consent
of the Optionee or Plan participant, alter or impair any of the rights or
obligations under any Options or other rights theretofore granted such person
under the Plan.
ARTICLE XIV
DURATION OF THE PLAN
This Plan became effective January 1, 1998. If not sooner terminated by the
Board, this Plan shall terminate on December 31, 2007, but Options and other
rights theretofore granted and any Restriction Period may extend beyond that
date and the terms of the Plan shall continue to apply.
<PAGE>
EXHIBIT B
KERR-MCGEE CORPORATION ANNUAL INCENTIVE COMPENSATION PLAN
ARTICLE I
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 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 shall become effective January 1, 1998 (the "Effective Date")
and shall remain in effect until terminated as provided in Article V, Section
5.12 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 success;
(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.
ARTICLE II
DEFINITIONS
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
capitalized:
(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
Company.
(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.
(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 officer of the Company at or above the level of Corporate
Vice President.
(l) "PLAN YEAR" means the Company's fiscal year.
(m) "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.
(n) "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; however, in no case can the
Target Incentive Award exceed 100% of an officer's base salary.
ARTICLE III
ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by a Committee which
initially shall be 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 Board.
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.
ARTICLE IV
ELIGIBILITY AND PARTICIPATION
4.1 ELIGIBILITY. All Officers as of the first day of each 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.
ARTICLE V
AWARD DETERMINATION
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 5.11 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 regular annual salary rate as of the last day of the
Plan Year. Regular 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 Long Term
Incentive Plan, or any other bonuses, incentive pay or special awards.
5.3 COMPUTATION OF FINAL AWARDS. Each Officer's Final Award shall be
based on:
(a) The Officer's Target Incentive Award;
(b) The potential Final Awards corresponding to various levels of
achievement of the pre-established performance goals, as established by the
Committee; and
(c) Company performance in relation to the pre-established performance
goals.
Except as provided in Article V, Section 5.7 herein, performance measures
which may serve as determinants of Officers' Award Opportunities shall be
limited to 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, Results of Customer Satisfaction Surveys and other
measures of Quality, Safety, Productivity 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. In
establishing a performance goal, the Committee may 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 the U. S. generally accepted accounting principles.
5.4 ADJUSTMENT OF PERFORMANCE GOALS AND AWARD OPPORTUNITIES. Once
established, performance goals normally shall not be changed during the Plan
Year. If the Committee determines in its sole discretion that external changes
or other unanticipated business conditions have materially affected the fairness
of the goals, then the Committee may approve appropriate adjustments to the
performance goals (either up or down) during the Plan Year as such goals apply
to the Award Opportunities of specified Officers.
Notwithstanding any other provision of this Plan, in the event of any change
in corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368), or any partial or complete liquidation of the Company, such adjustment
shall be made in the Award Opportunities and/or the performance measures or
performance goals related to then current Performance Periods, as may be
determined to be appropriate and equitable by the Committee, in its sole
discretion, to prevent dilution or enlargement of rights; provided, however,
that subject to Article V herein, any such adjustment shall not be made if it
would eliminate the ability of Award Opportunities held by Officers to qualify
for the "performance based compensation" exception under Code Section 162(m).
5.5 FINAL AWARD DETERMINATIONS. As soon as practicable after the end of each
Plan Year, Final Awards shall be computed for each Officer as determined by the
Committee. Subject to the terms of Article V herein, Final Award amounts may
vary above or below the Target Incentive Award, based on the level of
achievement of the pre-established corporate, division and/or individual
performance goals. Except as provided in Article V herein, the Committee shall
have discretion to reduce or eliminate any and all Final Awards that otherwise
would be paid; provided, however, the Committee may determine prior to the end
of the Plan Year that it will not exercise such discretion.
5.6 AWARD LIMIT. The Committee may establish guidelines governing the
maximum Final Awards that may be earned by Officers (either in the aggregate, by
Employee class or among individual Officers) in each Plan Year. The guidelines
may be expressed as a percentage of Company wide goals of financial measures, or
such other measures as the Committee shall from time to time determine;
provided, however, that the maximum payout with respect to a Final Award payable
to any one Officer in connection with performance in one Plan Year shall not
exceed two hundred percent (200%) of the Officer's Target Incentive Award.
5.7 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.
5.8 NO MID-YEAR CHANGE IN AWARD OPPORTUNITIES. Except as provided in Article
V, Section 5.11 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.
5.9 NONADJUSTMENT OF PERFORMANCE GOALS. Except as provided in Article V,
Section 5.11 herein, performance goals shall not be changed following their
establishment and Officers shall not receive any payout when the minimum
performance goals are not met or exceeded.
5.10 AWARD ADJUSTMENTS. The Committee shall have the discretion to reduce or
eliminate the amount of the Final Award otherwise payable to an Officer.
5.11 POSSIBLE MODIFICATIONS. In the event that changes are made to Code
Section 162(m) or the Regulations thereunder 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 the restrictive provisions of the
AICP.
5.12 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; provided, however, that no such modification,
amendment, suspension, or termination may, without the consent of an Officer,
reduce the right of an Officer to a payment or distribution hereunder to which
the Officer is entitled.
ARTICLE VI
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 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.
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
Company.
ARTICLE VII
TERMINATION OF EMPLOYMENT
If before an Award is actually paid to an Officer with respect to a
Performance Period the Officer ceases to be regular, full time employee of the
Corporation, any of its Subsidiaries or any of its Limited Liability Companies,
the Officer's eligibility under the Plan shall terminate and no Award will be
paid.
ARTICLE VIII
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 Company.
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.
ARTICLE IX
CHANGE IN CONTROL
In the event of a Change in Control, each Participant shall, in the sole
discretion of the Committee, 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 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 if :
(a) Any "Person", as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the
Company, any trustee or other fiduciary holding securities under an employee
benefit plan of the Company, or any corporation owned, directly or indirectly,
by the stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company), is or becomes the "Beneficial Owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting power
of the Company's then outstanding securities;
(b) During any period of 24 months (not including any period prior to the
execution of this Agreement), individuals who at the beginning of such period
constitute the Board, and any new director (other than (1) a director designated
by a person who has entered into an agreement with the Company to effect a
transaction described in clause (a), (c) or (d) of this Article; (2) a director
designated by any Person (including the Company) who publicly announces an
intention to take or to consider taking actions (including, but not limited to,
an actual or threatened proxy contest) which if consummated would constitute a
Change in Control; or (3) a director designated by any Person who is the
Beneficial Owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's
securities whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two thirds (2/3) of
the directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved cease for any reason to constitute at least a majority thereof;
(c) The stockholders of the Company approve a merger or consolidation of the
Company with any other corporation other than (1) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 50% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation and (2) after which no Person holds 25% or more of the combined
voting power of the then outstanding securities of the Company or such surviving
entity; or
(d) The stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
ARTICLE X
MISCELLANEOUS
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
deferred.
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.
<PAGE>
THE ENCLOSED 1998 PROXY MATERIAL FOR KERR-MCGEE CORPORATION HAS BEEN MAILED TO
YOU BECAUSE YOU HELD STOCK THROUGH THE KERR-MCGEE CORPORATION SAVINGS INVESTMENT
PLAN AND/OR KERR-MCGEE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN ON MARCH 16,
1998,
THE RECORD DATE FOR THE 1998 ANNUAL MEETING.
IT IS IMPORTANT THAT YOU VOTE, SIGN AND RETURN THE VOTING INSTRUCTIONS AS SOON
AS POSSIBLE. BY SIGNING AND PROMPTLY RETURNING THE VOTING INSTRUCTIONS, YOU WILL
SAVE YOUR COMPANY ADDITIONAL MAILING AND SOLICITATION COSTS. PLEASE TURN TO THE
REVERSE SIDE, COMPLETE THE VOTING INSTRUCTIONS, EXECUTE AND MAIL TODAY IN THE
SELF-ADDRESSED, POSTAGE PAID ENVELOPE.
THANK YOU.
<PAGE>
VOTING INSTRUCTIONS TO THE TRUSTEES
FOR ANNUAL STOCKHOLDERS' MEETING OF
KERR-MCGEE CORPORATION
TO BE HELD ON MAY 12, 1998
Putnam Fiduciary Trust State Street Bank and Trust
Company, Trustee Company, Trustee
Kerr-McGee Corporation Kerr-McGee Corporation
Savings Investment Plan Employee Stock Ownership Plan
859 Willard Street P. O. Box 1994
Quincy, Massachusetts 02269-9110 Boston, Massachusetts 02101
I hereby direct that all my shares of Kerr-McGee Corporation Common Stock, the
voting of which I am entitled to direct pursuant to the Kerr-McGee Corporation
Savings Investment Plan ("SIP") and the Kerr-McGee Corporation Employee Stock
Ownership Plan ("ESOP"), be voted by Putnam Fiduciary Trust Company (as Trustee
of the SIP) and State Street Bank and Trust Company (as Trustee of the ESOP) at
the Annual Meeting Of Stockholders on May 12, 1998, as follows:
--------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" ITEMS 1, 2, 3 AND 4
--------------------------------------------------------------------
SIP ESOP
1. ELECTION OF DIRECTORS: _____ FOR _____ FOR
Paul M. Anderson, _____ WITHHOLD _____ WITHHOLD
Luke R. Corbett, _____ WITHHOLD for _____ WITHHOLD for the
Martin C. Jischke, the following the following
Tom J. McDaniel, only, write only, write
William C. Morris, name(s) names(s)
John J. Murphy, _____________________ ______________________
Leroy C. Richie, _____________________ ______________________
Richard M. Rompala,
Farah M. Walters
2. RATIFY THE APPOINTMENT OF ARTHUR _____ FOR _____ FOR
ANDERSEN LLP AS THE COMPANY'S _____ WITHHOLD _____ WITHHOLD
INDEPENDENT PUBLIC ACCOUNTANT. _____ ABSTAIN _____ ABSTAIN
3. APPROVE THE 1998 LONG TERM _____ FOR _____ FOR
INCENTIVE PLAN. _____ WITHHOLD _____ WITHHOLD
_____ ABSTAIN _____ ABSTAIN
4. APPROVE THE ANNUAL INCENTIVE _____ FOR _____ FOR
COMPENSATION PLAN. _____ WITHHOLD _____ WITHHOLD
_____ ABSTAIN _____ ABSTAIN
The Trustees are authorized to grant the Proxies authority to vote in their
discretion upon such other business as may properly come before the meeting.
Because the SIP and ESOP are separate plans, you are entitled to vote separately
the shares of Kerr-McGee Corporation Common Stock you hold in each Plan.
Please sign below. The Trustee will vote your shares as you direct. IF YOU SIGN
BELOW, BUT DO NOT GIVE ANY INSTRUCTIONS OR GIVE PARTIAL INSTRUCTIONS WITH
RESPECT TO EITHER THE SIP OR THE ESOP, THE TRUSTEE FOR THE PLAN WILL VOTE FOR
ITEMS 1, 2, 3 AND 4. Please sign exactly as your name appears in the address.
If you do not return voting instructions to the Trustees, the shares for which
no instructions are received will be voted in the same proportion by each
Trustee as the total shares for which instructions are received by such Trustee.
- - ------------------------------------
Signature of Participant
- - ------------------------------------
Social Security Number
- - ------------------------------------
Date
<PAGE>
THE ENCLOSED 1998 PROXY MATERIAL FOR KERR-MCGEE CORPORATION HAS BEEN MAILED TO
YOU BECAUSE YOU WERE A KERR-MCGEE CORPORATION STOCKHOLDER ON MARCH 16, 1998, THE
RECORD DATE FOR THE 1998 ANNUAL MEETING.
IT IS IMPORTANT THAT YOU VOTE, SIGN AND RETURN THIS PROXY AS SOON AS POSSIBLE.
BY SIGNING AND PROMPTLY RETURNING THE PROXY, YOU WILL SAVE YOUR COMPANY
ADDITIONAL MAILING AND SOLICITATION COSTS. PLEASE TURN TO THE REVERSE SIDE,
COMPLETE THE PROXY, EXECUTE AND MAIL TODAY IN THE SELF-ADDRESSED, POSTAGE PAID
ENVELOPE.
THANK YOU.
<PAGE>
<TABLE>
<S> <C> <C>
[KERR-MCGEE LOGO]
KERR-MCGEE CORPORATION
PROXY
KERR-MCGEE CENTER
P. O. BOX 25861
OKLAHOMA CITY, OKLAHOMA 73125
</TABLE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Luke R. Corbett, Tom J. McDaniel and Russell G.
Horner, Jr., and each of them, as Proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote, as designated
below, all the shares of Common Stock of Kerr-McGee Corporation held of record
by the undersigned on March 16, 1998 at the Annual Meeting of Stockholders to be
held on May 12, 1998 or any adjournment thereof (1) as hereinafter specified on
the matters as more particularly described in the Company's Proxy Statement and
(2) in their discretion on any such other business as may properly come before
the meeting.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" ITEMS 1, 2, 3 AND 4
1. ELECTION OF DIRECTORS
Paul M. Anderson, Luke R. Corbett, Martin C. Jischke, Tom J. McDaniel,
William C. Morris, John J. Murphy, Leroy C. Richie, Richard M. Rompala and
Farah M. Walters.
[ ] FOR [ ] WITHHOLD [ ] WITHHOLD for the following only, write name(s)
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2. Ratify the appointment of Arthur Andersen LLP as the Company's independent
public accountant.
[ ] FOR [ ] WITHHOLD [ ] ABSTAIN
3. Approve the 1998 Long Term Incentive Plan.
[ ] FOR [ ] WITHHOLD [ ] ABSTAIN
4. Approve the Annual Incentive Compensation Plan.
[ ] FOR [ ] WITHHOLD [ ] ABSTAIN
The Proxies are authorized to vote in their discretion upon such other business
as may properly come before the meeting. If no direction is given, this Proxy
will be voted FOR Items 1, 2, 3 and 4.
Dated _______________, 1998 Signature ______________________________________
Signature, if held jointly _____________________
Please sign exactly as the name appears in the address. When signing as
attorney, executor, administrator, trustee or guardian, please give full title.
If a corporation, please sign the full name of the corporation by the president
or other authorized officer. If a partnership, please sign the name of the
partnership by an authorized person.
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MARCH 20, 1998
TO: PARTICIPANTS IN THE KERR-MCGEE CORPORATION
SAVINGS INVESTMENT PLAN AND/OR THE
EMPLOYEE STOCK OWNERSHIP PLAN DATED SEPTEMBER 12, 1989:
AS A PARTICIPANT IN THE KERR-MCGEE CORPORATION SAVINGS INVESTMENT PLAN ("SIP")
AND/OR THE KERR-MCGEE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN DATED SEPTEMBER
12, 1989 ("ESOP"), YOU OWNED SHARES OF COMMON STOCK OF THE COMPANY ON MARCH 16,
1998, THE RECORD DATE FOR STOCKHOLDERS ENTITLED TO VOTE AT THE ANNUAL
STOCKHOLDERS' MEETING TO BE HELD ON MAY 12, 1998. THIS STOCK IS HELD IN TRUST BY
PUTNAM FIDUCIARY TRUST COMPANY AS TRUSTEE FOR THE SIP AND STATE STREET BANK AND
TRUST COMPANY, AS TRUSTEE FOR THE ESOP.
EACH PLAN PROVIDES THAT THE SHARES OF COMMON STOCK OF THE COMPANY WHICH HAVE
BEEN ALLOCATED TO YOUR ACCOUNT WILL BE VOTED BY THE TRUSTEES IN ACCORDANCE WITH
YOUR WRITTEN INSTRUCTIONS. BOTH THE SIP AND ESOP PROVIDE THAT SHARES ALLOCATED
TO PARTICIPANTS FOR WHICH NO VOTING INSTRUCTIONS ARE RECEIVED SHALL BE VOTED BY
THE TRUSTEES IN THE SAME PROPORTION AS THOSE ALLOCATED SHARES FOR WHICH
INSTRUCTIONS ARE RECEIVED. THE ESOP ALSO PROVIDES THAT SHARES WHICH HAVE NOT YET
BEEN ALLOCATED (APPROXIMATELY 1 MILLION SHARES) SHALL ALSO BE VOTED BY THE
TRUSTEES IN THE SAME PROPORTION AS THOSE ALLOCATED SHARES FOR WHICH INSTRUCTIONS
ARE RECEIVED.
YOUR VOTE IS IMPORTANT! YOU ARE URGED TO COMPLETE AND MAIL YOUR VOTING
INSTRUCTIONS PROMPTLY. IF THE TRUSTEES DO NOT RECEIVE VOTING INSTRUCTIONS FROM
YOU, THE SHARES IN BOTH PLANS FOR WHICH NO INSTRUCTIONS ARE RECEIVED AND THE
UNALLOCATED SHARES IN THE ESOP WILL BE VOTED IN THE SAME PROPORTION AS THE TOTAL
SHARES FOR WHICH INSTRUCTIONS ARE RECEIVED BY THE TRUSTEES.
ENCLOSED FOR YOUR INFORMATION AND USE ARE THE FOLLOWING:
1. NOTICE OF THE ANNUAL MEETING AND PROXY STATEMENT. (SINCE YOUR SHARES
WILL BE VOTED THROUGH THE TRUSTEES, THE ENCLOSED VOTING INSTRUCTIONS
REPLACE THE PROXY REFERRED TO IN THE PROXY STATEMENT.)
2. VOTING INSTRUCTIONS TO THE TRUSTEE FOR EACH PLAN FOR YOUR USE IN
DIRECTING THE TRUSTEES TO VOTE YOUR SHARES.
3. A POSTAGE-PAID, SELF-ADDRESSED ENVELOPE FOR YOUR USE IN RETURNING YOUR
VOTING INSTRUCTIONS TO BANK ONE TRUST COMPANY WHICH WILL TABULATE THE
VOTING INSTRUCTIONS FOR EACH TRUSTEE.
VERY TRULY YOURS,
KERR-MCGEE CORPORATION
BENEFITS COMMITTEE
BY:__________________________
JOHN C. LINEHAN, CHAIRMAN
