FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 1-3939
KERR-McGEE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
A Delaware Corporation 73-0311467
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Kerr-McGee Center, Oklahoma City, Oklahoma 73125
(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code (405) 270-1313
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Number of shares of common stock, $1.00 par value, outstanding as of April 30,
1998: 47,730,505
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
(Millions of dollars, except per-share amounts) 1998 1997
--------------------
<S> <C> <C>
Sales $369.0 $468.0
------ ------
Costs and Expenses
Costs and operating expenses 205.3 254.3
Selling, general and administrative expenses 30.6 35.7
Depreciation and depletion 68.2 68.9
Exploration, including dry holes and
amortization of undeveloped leases 18.9 11.0
Taxes, other than income taxes 13.0 15.4
Interest and debt expense 12.6 11.7
------ -----
Total Costs and Expenses 348.6 397.0
------ -----
20.4 71.0
Other Income 13.9 29.3
------ -----
Income before Income Taxes 34.3 100.3
Provision for Income Taxes 10.4 30.1
------ -----
Net Income $ 23.9 $70.2
====== =====
Net Income per Common Share -
Basic $ .50 $1.46
Diluted $ .50 $1.45
Average Number of Shares Outstanding (thousands) -
Basic 47,703 48,064
Diluted 47,947 48,312
Cash Dividends Declared per Common Share $ .45 $ .45
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
March 31, December 31,
(Millions of dollars) 1998 1997
-------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 213.9 $ 182.6
Notes and accounts receivable 275.7 274.3
Inventories 229.2 172.2
Deposits and prepaid expenses 57.5 57.9
------- --------
Total Current Assets 776.3 687.0
------- --------
Property, Plant and Equipment 4,671.2 4,602.1
Less reserves for depreciation,
depletion and amortization 2,588.5 2,603.7
------- --------
2,082.7 1,998.4
Investments and Other Assets 415.1 410.7
------- --------
$3,274.1 $3,096.1
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 25.0 $ 25.0
Accounts payable 203.6 247.1
Other current liabilities 282.2 250.9
------- --------
Total Current Liabilities 510.8 523.0
------- --------
Long-Term Debt 688.2 552.0
------- --------
Deferred Credits and Reserves 629.5 581.1
------- --------
Stockholders' Equity
Common stock, par value $1 - 150,000,000
shares authorized, 54,163,586 shares issued at
3-31-98 and 54,120,747 shares issued at 12-31-97 54.2 54.1
Capital in excess of par value 347.9 345.8
Preferred stock purchase rights .5 .5
Retained earnings 1,458.1 1,455.7
Accumulated other comprehensive income (loss) (.6) .1
Common shares in treasury, at cost - 6,433,415
shares at 3-31-98 and 6,434,465 at 12-31-97 (362.3) (362.4)
Deferred compensation (52.2) (53.8)
------- --------
Total Stockholders' Equity 1,445.6 1,440.0
------- --------
$3,274.1 $3,096.1
The "successful efforts" method of accounting for oil and gas exploration and
production activities has been followed in preparing this balance sheet.
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
(Millions of dollars) 1998 1997
--------------------
<S> <C> <C>
Operating Activities
Net income $ 23.9 $ 70.2
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation, depletion and amortization 70.5 69.9
Deferred income taxes 4.2 13.6
Gain on sale and retirement of assets (2.2) (7.7)
Realized gain on available-for-sale securities - (4.1)
Noncash items affecting net income (2.0) 4.8
Other net cash used in operating activities (38.4) (9.2)
------ ------
Net Cash Provided by Operating Activities 56.0 137.5
------ ------
Investing Activities
Capital expenditures (88.8) (67.2)
Acquisitions (97.0) -
Proceeds from sale of assets 39.7 7.1
Other investing activities 2.8 16.6
------ ------
Net Cash Used in Investing Activities (143.3) (43.5)
------ ------
Financing Activities
Issuance of long-term debt 158.0 -
Repayment of long-term debt (20.0) -
Decrease in short-term borrowings - (14.5)
Purchase of treasury stock - (33.2)
Dividends paid (21.5) (19.9)
Other financing activities 2.1 7.7
------ ------
Net Cash Used in Financing Activities 118.6 (59.9)
------ -------
Net Increase in Cash and Cash Equivalents 31.3 34.1
Cash and Cash Equivalents at Beginning of Period 182.6 120.9
------ ------
Cash and Cash Equivalents at End of Period $213.9 $155.0
====== ======
The accompanying notes are an integral part of this statement.
</TABLE>
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
A. The condensed financial statements included herein have been prepared by
the company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and, in the opinion of management,
include all adjustments, consisting only of normal recurring accruals,
necessary to present fairly the resulting operations for the indicated
periods. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. Although the company believes that the disclosures are
adequate to make the information presented not misleading, it is suggested
that these condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in the company's latest
annual report on Form 10-K.
B. Net income for purposes of computing both basic earnings per share and
diluted earnings per share was $23.9 million and $70.2 million for the three
months ended March 31, 1998 and 1997, respectively. A reconciliation of the
average shares outstanding used to compute basic earnings per share to the
shares used to compute diluted earnings per share for both periods is
presented below:
Three Months Ended
March 31,
1998 1997
----------------------
Averages shares outstanding - basic 47,702,975 48,064,112
Dilutive effect of stock options 244,440 247,434
---------- ----------
Average shares outstanding assuming dilution 47,947,415 48,311,546
========== ==========
C. Net cash provided by operating activities reflects cash payments for income
taxes and interest as follows:
Three Months Ended
March 31,
(Millions of dollars) 1998 1997
------------------
Income taxes $3.7 $19.2
Interest 7.9 11.6
D. Effective January 1, 1998, the company adopted Statement of Financial
Accounting Standards (FAS) No. 130, "Reporting Comprehensive Income," which
established new rules for reporting and display of comprehensive income and
its components. FAS No. 130 requires companies to report, in addition to
net income, other components of comprehensive income including unrealized
gains or losses on available-for-sale securities and foreign currency
translation adjustments. During the first quarter of 1998 and 1997,
comprehensive income was $23.9 million and $68.2 million, respectively.
Adoption of this standard had no effect on the company's results of
operations or financial position as reported elsewhere in the consolidated
financial statements.
The company held U.S. government obligations considered to be available for
sale at March 31, 1998, and December 31, 1997. These financial instruments
are carried in the Consolidated Balance Sheet at fair value, which is based
on quoted market prices. Both the fair value and cost of these financial
instruments was $26.7 million at March 31, 1998. At December 31, 1997, the
fair value of the financial instruments totaled $27.5 million, which
approximated cost. The company held no securities classified as held to
maturity or trading during the respective periods.
During the first quarter of 1997, the company sold equity securities
considered to be available for sale. Proceeds from the sale totaled $4.7
million, resulting in a realized gain of $4.1 million before income taxes.
The average cost of the securities was used in computing the realized gain.
U.S. government obligations are carried as Current Assets or Investments
and Other Assets, depending upon their maturity. Equity securities are
carried in the Consolidated Balance Sheet as Investments and Other Assets.
The change in the equity component for the first quarter of 1997 was as
follows:
Three Months Ended
(Millions of dollars) March 31, 1997
Balance, January 1 $11.6
Net realized gains (2.5)
Net unrealized holding gains .5
-----
Balance, March 31 $ 9.6
=====
The change in the equity component during the first quarter of 1998 was
immaterial.
E. Investments in equity affiliates totaled $278.1 million at March 31, 1998,
and $272.9 million at December 31, 1997. Equity income related to the
investments is included in Other Income in the Consolidated Statement of
Income and totaled $6.5 million and $9.5 million for the three months ended
March 31, 1998 and 1997, respectively.
F. CONTINGENCIES
WEST CHICAGO -
In 1973, a wholly owned subsidiary, Kerr-McGee Chemical Corporation, closed
the facility located in West Chicago, Illinois, that processed thorium ores.
Kerr-McGee Chemical Corporation now operates as Kerr-McGee Chemical LLC
(Chemical). Operations resulted in some low-level radioactive contamination
at the site, and in 1979, Chemical filed a plan with the Nuclear Regulatory
Commission (NRC) to decommission the facility. The NRC transferred
jurisdiction of this site to the State of Illinois (the State) in 1990. The
following discusses the current status of various matters associated with
the West Chicago site.
Closed Facility - In 1994, Chemical, the City of West Chicago (the City),
and the State reached agreement on Phase I of the decommissioning plan for
the closed West Chicago facility, and Chemical began shipping material from
the site to a licensed permanent disposal facility.
In February 1997, Chemical executed an agreement with the City as to the
terms and conditions for completing the final phase of decommissioning work,
the bulk of which is expected to be completed about four to six years after
receiving the necessary license amendment. The State has indicated approval
of this agreement, and Chemical expects the State to issue a license
amendment that will enable Chemical to complete the final phase of
decommissioning work.
In 1992, the State enacted legislation imposing an annual storage fee equal
to $2 per cubic foot of byproduct material located at the closed facility.
The storage fee cannot exceed $26 million per year, and any storage fee
payments must be reimbursed to Chemical as decommissioning costs are
incurred. Chemical has been fully reimbursed for all storage fees paid
pursuant to this legislation. In June 1997, the legislation was amended to
provide that future storage fee obligations are to be offset against
decommissioning costs incurred but not yet reimbursed.
Offsite Areas - The U.S. Environmental Protection Agency (EPA) has listed
four areas in the vicinity of the West Chicago facility on the National
Priority List that the EPA promulgates under authority of the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 and has
designated Chemical as a potentially responsible party in these four areas.
The EPA issued unilateral administrative orders for two of these areas
(referred to as the residential area and Reed-Keppler Park), which require
Chemical to conduct removal actions to excavate contaminated soils and ship
the soils elsewhere for disposal. Without waiving any of its rights or
defenses, Chemical has begun the cleanup of these two sites.
Judicial Proceedings - In December 1996, a lawsuit was filed against the
company and Chemical, in Illinois state court on behalf of a purported class
of present and former West Chicago residents. The lawsuit seeks damages for
alleged diminution in property values and the establishment of a medical
monitoring fund to benefit those allegedly exposed to thorium wastes
originating from the former facility. The case was removed to federal court
and is being vigorously defended.
Government Reimbursement - Pursuant to Title X of the Energy Policy Act of
1992 (Title X), the United States Department of Energy is obligated to
reimburse Chemical for certain decommissioning and cleanup costs in
recognition of the fact that much of the facility's production was dedicated
to United States government contracts. Title X was amended in 1996 to
increase the amount authorized to $65 million plus inflation adjustments.
Through April 30, 1998, Chemical has been reimbursed approximately $52
million under Title X.
OTHER MATTERS
The plants and facilities of the company and its subsidiaries are subject to
various environmental laws and regulations. The company or its subsidiaries
have been notified that they may be responsible in varying degrees for a
portion of the costs to clean up certain waste disposal sites and former
plant sites. As of March 31, 1998, the company's estimate for the cost to
investigate and/or remediate all presently identified sites of former or
current operations, based on currently known facts and circumstances,
totaled $258 million, which includes $159 million for the former West
Chicago facility and $12 million for the residential area and Reed-Keppler
Park. Reserves have been established based on this estimate. Actual costs
will be reduced by the amounts recoverable under Title X and other
government programs. Expenditures from inception through March 31, 1998,
totaled $446 million for currently known sites.
In addition to the environmental issues previously discussed, the company or
its subsidiaries are also a party to a number of other legal proceedings
pending in various courts or agencies in which the company or a subsidiary
appears as plaintiff or defendant. The ultimate costs to decommission
presently known sites are difficult to estimate because of the numerous
contingencies, including continually changing laws and regulations, the
nature of the company's businesses and pending legal proceedings. Actual
costs could differ from those currently estimated as information becomes
available for sites that are not now included in the reserve, if
contamination is not as expected, or field conditions or other variables
differ significantly from those that are now assumed. Therefore, it is not
possible to reliably estimate the amount or timing of all future
expenditures relating to environmental and other contingencies. The company
provides for costs related to contingencies when a loss is probable and the
amount is reasonably estimable. Although management believes, after
consultation with general counsel, that adequate reserves have been provided
for all known contingencies, the ultimate cost will depend on the resolution
of the above-noted uncertainties. Therefore, it is possible that additional
reserves could be required in the future.
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition.
Comparison of 1998 Results with 1997 Results
CONSOLIDATED OPERATIONS
First-quarter 1998 net income totaled $23.9 million, compared with $70.2 million
for the same 1997 period. Operating profit for the 1998 first quarter was $44.6
million, compared with $98.5 million in the same 1997 quarter. Higher chemical
operating profit, compared with last year's quarter, was more than offset by
lower operating profit from exploration and production and coal. The decline in
operating profit was due primarily to lower crude oil, natural gas and coal
sales prices, higher exploration expense and lower crude oil and natural gas
sales volumes, partially offset by higher pigment sales prices and lower
operating expense for the exploration and production unit.
Other expense for the first quarter 1998 was $10.3 million, compared with income
of $1.8 million for the 1997 quarter due primarily to foreign currency
transaction losses, compared with 1997 gains, lower equity income and 1997 gains
on sales of equity securities.
The provision for income taxes was $10.4 million, compared with $30.1 million
for the 1997 first quarter. The decrease was due to lower pretax income.
SEGMENT OPERATIONS
Following is a summary of sales and operating profit and a discussion of major
factors influencing the results of each of the company's business segments for
the first quarter of 1998, compared with the same period last year.
Three Months Ended
March 31,
(Millions of dollars) 1998 1997
--------------------
Sales
Exploration and production $112.6 $200.3
Chemicals 178.2 183.4
Coal 78.1 84.2
------ ------
368.9 467.9
All other .1 .1
------ ------
Total Sales $369.0 $468.0
====== ======
Operating Profit
Exploration and production $ 12.0 $ 68.0
Chemicals 21.9 15.2
Coal 10.7 15.3
------ ------
Total Operating Profit 44.6 98.5
All Other Income (Expense) (10.3) 1.8
------ ------
Income before Income Taxes 34.3 100.3
Provision for Income Taxes 10.4 30.1
------ ------
Net Income $ 23.9 $ 70.2
====== ======
Exploration and Production -
Operating profit for the first quarter of 1998 was $12 million, compared with
$68 million for the same 1997 period. First-quarter 1998 operating profit was
lower due primarily to lower crude oil and natural gas sales prices, higher
exploration expense and lower crude oil and natural gas sales volumes, partially
offset by lower operating expenses.
Revenues were $112.6 million and $200.3 million for the three months ended March
31, 1998 and 1997, respectively. The following table shows the company's average
crude oil and natural gas sales prices and volumes for the first quarter of 1998
and 1997.
<TABLE>
<CAPTION>
Three Months Ended Percent
March 31, Increase
1998 1997 (Decrease)
----------------------------------------
<S> <C> <C> <C>
Crude oil sales
(thousands of bbls/day)
United States 23.2 25.4 (9)
North Sea 20.8 26.0 (20)
China 8.9 6.6 35
Other 2.1 - NM
----- ------
Total proprietary sales 55.0 58.0 (5)
Proportionate interest in
equity affiliate's sales 7.3 7.3 -
----- ------
Total 62.3 65.3 (5)
===== ======
Average crude oil sales price
(per barrel)
United States $13.64 $20.90 (35)
North Sea 13.74 21.52 (36)
China 12.79 20.72 (38)
Other 13.52 - NM
Average $13.54 $21.14 (36)
Natural gas sold
(MMCF/day)
United States 154 183 (16)
North Sea 35 34 3
----- ------
Total proprietary sales 189 217 (13)
Proportionate interest in
equity affiliate's sales 62 59 5
----- ------
Total 251 276 (9)
===== ======
Average natural gas sales price
(per MCF)
United States $2.24 $2.79 (20)
North Sea 2.93 2.98 (2)
Average $2.36 $2.82 (16)
</TABLE>
Chemicals -
Chemicals' first-quarter 1998 operating profit was $21.9 million on revenues of
$178.2 million, compared with operating profit of $15.2 million on revenues of
$183.4 million for the same 1997 quarter. Revenues decreased primarily due to
lower sales volumes for pigment and manganese products and lower pigment
licensing revenue partially offset by higher pigment sales prices and higher
prices for forest products treatment services. Operating profit increased
primarily due to higher pigment sales prices.
Coal -
First-quarter 1998 coal operating profit was $10.7 million on revenues of $78.1
million, compared with operating profit of $15.3 million on revenues of $84.2
million. Revenues declined primarily due to lower average sales prices.
Operating profit decreased primarily due to lower revenues partially offset by
lower unit production costs.
Financial Condition
At March 31, 1998, the company's net working capital position was $265.5
million, compared with $165.5 million at December 31, 1997. The current ratio
was 1.5 to 1 at March 31, 1998, compared with 1.3 to 1 at December 31, 1997, and
1.8 to 1 at March 31, 1997. The company's percentage of total debt to total
capitalization was 33% at March 31, 1998, compared with 29% at December 31,
1997, and 32% at March 31, 1997.
The company had unused lines of credit and revolving credit facilities of $741
million at March 31, 1998. Of this amount, $355 million and $265 million can be
used to support commercial paper borrowings of Kerr-McGee Credit Corporation and
Kerr-McGee Oil (U.K.) PLC, respectively.
On March 31, 1998, Kerr-McGee Chemical GmbH, a wholly owned limited liability
company in the Federal Republic of Germany, entered into a revolving credit
agreement with ABN Amro Bank, N.V., Frankfurt Branch, to provide borrowings up
to U.S. $150 million or its Deutsche Mark equivalent at varying rates through
November 30, 1998. The company is the guarantor of the agreement. A total of
U.S. $110 million was outstanding at March 31, 1998.
First-quarter 1998 cash capital expenditures, excluding acquisitions, totaled
$88.8 million, compared with $67.2 million for the same period last year.
Exploration and production expenditures, principally in the Gulf of Mexico,
North Sea and offshore China, were 79% of the 1998 total. Chemical expenditures
were 13% of the 1998 amount. Management anticipates that the cash requirements
for the next several years can be provided through internally generated funds
and selective short-term and/or long-term borrowings.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The 1998 annual meeting of stockholders was held on May 12, 1998.
(b) The following matters were voted upon at the annual meeting:
(1) Following are the directors elected at the 1998 annual meeting
and the tabulation of votes related to each nominee.
Votes
Affirmative Withheld
Paul M. Anderson 42,690,934 25,042
Luke R. Corbett 42,689,070 26,906
Martin C. Jischke 42,695,934 20,042
Tom J. McDaniel 42,711,620 4,356
William C. Morris 42,712,095 3,881
John J. Murphy 42,692,929 23,047
Leroy C. Richie 42,679,537 36,439
Richard M. Rompala 42,697,793 18,183
Farah M. Walters 42,683,753 32,223
(2) The stockholders ratified the appointment of Arthur Andersen LLP
as independent public accountant for 1998. Affirmative votes were
42,223,296; negative votes were 157,470 and abstentions were
648,932.
(3) The stockholders approved the 1998 Long Term Incentive Plan.
Affirmative votes were 37,152,357; negative votes were 5,558,656
and abstentions were 318,685.
(4) The stockholders approved the Annual Incentive Compensation Plan.
Affirmative votes were 39,380,701; negative votes were 3,242,296
and abstentions were 406,701.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
Exhibit No.
4.6 The company agrees to furnish to the Securities and Exchange
Commission, upon request, a copy of the U.S. $150 million or its
Deutsche Mark equivalent credit agreement dated March 31, 1998,
between Kerr-McGee Chemical GmbH and ABN Amro Bank, N.V.,
Frankfurt Branch, providing for revolving credit through November
30, 1998.
10.3 The Kerr-McGee Annual Incentive Compensation Plan.
10.4 The Kerr-McGee 1998 Long Term Incentive Plan.
27.0 Financial Data Schedule
(b) Reports on Form 8-K
On January 22, 1998, the company filed a report on Form 8-K in which it
reported: 1) Kerr-McGee Chemical LLC entered into an agreement to
initially acquire an 80% interest in Bayer AG's European titanium
dioxide pigment marketing, research and development, and manufacturing
activities in Uerdingen, Germany, and Antwerp, Belgium, and 2)
Kerr-McGee Chemical LLC signed a letter of intent with Finnish
Chemicals Oy to sell substantially all of its electrolytic and
specialty chemical businesses.
On March 5, 1998, the company filed a report on Form 8-K announcing
Kerr-McGee Chemical LLC signed an agreement to sell its forest products
operations. The agreement in principle covers marketing and operations
at the company's six crosstie-treating plants.
On March 13, 1998, the company filed a report on Form 8-K in which it
reported: 1) Kerr-McGee Chemical LLC closed the sale of its ammonium
perchlorate business to AMPAC, Inc., a subsidiary of American Pacific
Corporation of Las Vegas, Nevada, and 2) the company and Gulf Canada
Resources Limited announced that the companies have signed a definitive
agreement under which Gulf Canada Resources Limited will sell its
United Kingdom North Sea operations to Kerr-McGee.
On March 31, 1998, the company filed a report on Form 8-K announcing
that Kerr-McGee Chemical LLC closed the purchase of the European
titanium dioxide pigment business from Bayer AG.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KERR-McGEE CORPORATION
Date May 14, 1998 By: (Deborah A. Kitchens)
------------ ---------------------
Deborah A. Kitchens
Vice President and Controller
and Chief Accounting Officer
KERR-McGEE CORPORATION ANNUAL INCENTIVE COMPENSATION PLAN
<PAGE>
KERR-McGEE CORPORATION ANNUAL INCENTIVE COMPENSATION PLAN
TABLE OF CONTENTS
Article Page
I Establishment And Purpose................................. 1
II Definitions............................................... 1
III Administration............................................ 3
IV Eligibility And Participation............................. 3
V Award Determination....................................... 3
VI Payment Of Final Awards................................... 7
VII Termination Of Employment................................. 7
VIII Rights Of Officers........................................ 7
IX Change In Control......................................... 8
X Miscellaneous............................................. 9
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 a 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.
KERR-McGEE CORPORATION
By:_____________________________
John J. Murphy
Director and Chair of the
Executive Compensation Committee
KERR-McGEE CORPORATION 1998 LONG TERM INCENTIVE PLAN
<PAGE>
KERR-McGEE CORPORATION 1998 LONG TERM INCENTIVE PLAN
TABLE OF CONTENTS
Article Page
I Purpose.................................................. 1
II Definitions.............................................. 1
III Administration........................................... 3
IV Eligibility.............................................. 3
V Maximum Shares Available................................. 3
VI Stock Options............................................ 4
VII Stock Appreciation Rights................................ 6
VIII Restricted Stock Plan.................................... 7
IX Performance Plan......................................... 8
X Adjustment Upon Changes In Stock......................... 8
XI Change In Control........................................ 9
XII Miscellaneous............................................ 10
XIII Amendment And Termination................................ 12
XIV Duration Of The Plan..................................... 12
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, SAR's, 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 650,000 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 stockholder'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 six
hundred fifty thousand (650,000) 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.
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 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 XII, 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 XII. 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.
KERR-McGEE CORPORATION
By:_____________________________
John J. Murphy
Director and Chair of the
Executive Compensation Committee
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at March 31, 1998, and the Consolidated Statement of
Income for the period ending March 31, 1998, and is qualified in its entirety by
reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 213900
<SECURITIES> 0
<RECEIVABLES> 275700
<ALLOWANCES> 0
<INVENTORY> 229200
<CURRENT-ASSETS> 776300
<PP&E> 4671200
<DEPRECIATION> 2588500
<TOTAL-ASSETS> 3274100
<CURRENT-LIABILITIES> 510800
<BONDS> 0
0
0
<COMMON> 54200
<OTHER-SE> 1391400
<TOTAL-LIABILITY-AND-EQUITY> 3274100
<SALES> 369000
<TOTAL-REVENUES> 369000
<CGS> 205300
<TOTAL-COSTS> 348600
<OTHER-EXPENSES> (13900)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12600
<INCOME-PRETAX> 34300
<INCOME-TAX> 10400
<INCOME-CONTINUING> 23900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23900
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
