<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
McFarland Energy, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
McFarland Energy, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
MCFARLAND ENERGY, INC.
10425 SO. PAINTER AVENUE
SANTA FE SPRINGS, CA 90670
____________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 30, 1996
____________________
TO THE SHAREHOLDERS OF MCFARLAND ENERGY, INC.
The annual shareholders' meeting will be held at the Whittier Hilton, 7320
Greenleaf Avenue, Whittier, California, on May 30, 1996 at 10:00 a.m., for the
following purposes:
1. The election to the Board of one class of directors consisting of two
Directors;
2. To act upon a proposal to approve and adopt the 1996 Incentive Stock
Plan; and
3. The transaction of such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 28, 1996 as
the record date for the shareholders entitled to the notice of, and to vote at,
such meeting.
You are cordially invited to attend the meeting in person. IF YOU CANNOT
DO SO, IT IS IMPORTANT THAT YOU FILL IN, SIGN AND RETURN THE ENCLOSED PROXY CARD
PROMPTLY.
By order of the Board of Directors
SILVIA D. NELSON
Secretary
March 28, 1996
<PAGE>
PROXY STATEMENT
____________________
ANNUAL MEETING OF SHAREHOLDERS
MAY 30, 1996
____________________
SOLICITATION AND REVOCATION OF PROXY
The following information is furnished in connection with the solicitation
of the enclosed proxy by and on behalf of the Board of Directors of McFarland
Energy, Inc. ("Company") for use at the Annual Meeting of Shareholders of the
Company to be held on May 30, 1996 and at any adjournment or adjournments
thereof ("Meeting").
Any shareholder who has given a proxy may revoke it any time prior to its
exercise at the Meeting (1) by mailing or by delivering, at or prior to its
exercise at the Meeting, to the corporate secretary of the Company, (a) an
executed instrument revoking such proxy, or (b) an executed proxy bearing a
later date, or (2) by appearing at the Meeting, revoking his or her proxy, and
voting in person. Any written notice revoking a proxy should be sent to the
principal office of the Company to the attention of the corporate secretary.
The mere presence at the Meeting of a person who has given a proxy will not
revoke such proxy.
VOTING AT THE MEETING
The Common Shares represented at the Meeting by properly executed proxies
will, unless such proxies have previously been revoked, be voted in accordance
with the instructions indicated in such proxies. If no instructions are
indicated, the shares will be voted by the Company in favor of the election of
the directors named herein.
Abstentions may be specified on all proposals submitted to a shareholder
vote other than the election of directors. Abstentions will be counted as
present for purposes of determining the existence of a quorum regarding the
proposal on which the abstention is noted. The election of each nominee for
director requires a plurality of the votes cast.
The Company will bear the costs of solicitation of proxies. In addition to
soliciting proxies by mail, directors, officers and employees of the Company,
without receiving additional compensation therefor, may solicit proxies in
person, by telephone, telegram or other means and such person shall be
reimbursed by the Company for reasonable out-of-pocket expenses incurred in
connection with such solicitation. Arrangements will also be made with
brokerage firms and other custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred by them in connection therewith. The Proxy
Statement and the accompanying proxy card are first being mailed to shareholders
on or about April 12, 1996.
1
<PAGE>
VOTING SECURITIES
The Company is authorized to issue 10,000,000 $1.00 par value Common
Shares. The Company on March 28, 1996 had 5,643,734 outstanding shares of
Common Stock, all of which will be entitled to vote at the Meeting and any
adjournments thereof. The holders of the Company's Common Shares are entitled
to one vote for each share of such stock held of record by them.
The following table sets forth, as of March 28, 1996, the information with
respect to ownership of the Company's Common Shares by each person known by the
Company to own beneficially, or have options exercisable on March 28, 1996 and
options which will become exercisable within sixty days thereafter to purchase,
shares which represent more than 5% of the Company's Common Shares, and of all
directors and officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP OF CLASS
------------------- ----------------- --------
<S> <C> <C>
WHITE RIVER................................................. 685,200 (A)(C) 12.1%
777 Westchester Avenue, Suite 201
White Plains, NY 10604
McFARLAND FAMILY TRUST...................................... 563,696 (B) 9.9%
10425 So. Painter Avenue
Santa Fe Springs, CA 90670
DAVID L. BABSON & CO. ...................................... 537,300 (C) 9.5%
One Memorial Drive
Cambridge, MA 02142-1300
FUND AMERICAN ENTERPRISES HOLDINGS, INC. ................... 400,000 (C)(D) 7.1%
The 1820 House, Main Street
Norwich, VT 05055-0850
CROFT-LEOMINSTER, INC. ..................................... 294,600 5.2%
207 E. Redwood Street
Baltimore, MA 21202
All Directors and Officers as a Group (10 persons).......... 495,504 8.8%
</TABLE>
(A) Prior to December 22, 1993, White River Corporation ("WRC") was a wholly-
owned subsidiary of Fund American Enterprises Holdings, Inc. ("FAEH"),
formerly Fireman's Fund Corporation. WRC purchased the shares of the
Company from FAEH on September 24, 1993 as part of the initial
capitalization of WRC. In October 1993, FAEH provided the Company with a
letter which stated that WRC had agreed to be bound by all the obligations
of FAEH as set forth in that certain Letter Agreement dated September 1,
1989, between FAEH and the Company (the "Letter Agreement"). The Letter
Agreement provides that for a period of no less than five years FAEH (a)
will not buy Company's shares without its consent if the purchases would
increase FAEH's holding above 15%; (b) if by Company's actions the
percentage ownership would be increased to more than 15% of the common
stock, and if Company asks FAEH, FAEH will sell back to Company, at a price
both parties consider reasonable, enough stock to hold the shares owned by
FAEH to 15%; (c) FAEH will continue
2
<PAGE>
to support Company's current senior management and Board of Directors at
shareholder meetings and will vote as Company asks; and (d) FAEH will not
sell its shares as a block without first discussing with Company and in a
manner amenable to Company. On January 4, 1993 the principal terms of the
Letter Agreement were extended to January 4, 1998 in conjunction with the
Company's refinancing of its $2.6 million convertible note through FAEH.
The newly issued convertible note had a conversion rate of one share of
Common Stock for each $6.50 principal amount and was convertible by FAEH
after January 4, 1994. Provisions (a) and (b) of the Letter Agreement were
amended to exclude any shares issued upon conversion of the convertible
note.
(B) As part of the transaction whereby the Company acquired Carl Oil & Gas Co.,
L.C. McFarland and William E. Carl entered into a Shareholder Agreement
dated July 15, 1988, as amended, which provides that Mr. Carl will not sell
a substantial number of his shares except in a registered or open market
transaction or to a related party without first offering his shares to the
Company. In the event Mr. L. C. McFarland's estate sells a substantial
number of its shares in a transaction that would constitute a change of
control of the Company, Mr. Carl has the right to sell his shares on the
same terms. The Shareholder Agreement is in effect until either Mr. Carl or
Mr. McFarland's estate cease to be the beneficial owner of three percent
(3%) or more of the outstanding common shares of the Company and is binding
upon their assigns, successors in interest, personal representatives,
estates, heirs, and legatees.
(C) Based upon Schedules 13D or 13G as filed with the Securities and Exchange
Commission.
(D) On January 29, 1996, the Company converted the $2.6 Million convertible
note held by FAEH into 400,000 shares of Company Common Stock. These
unregistered shares are subject to all of the provisions of the Letter
Agreement identified in Note (A) above, as amended.
PROPOSAL 1: ELECTION OF DIRECTORS
The Board of Directors consists of seven members divided into three
classes. Two directors, as set forth hereafter, are to be elected at the
Meeting. Mr. Barclay Simpson, who has served on the Board of Directors since
1972, will be retiring from the Board as of the meeting date. The remaining five
directors presently serving will continue to serve as set forth hereafter. The
proxy holders will vote the proxies received by them for the following two
nominees for a term of three years and until their successors are duly elected
and qualified unless authorization to vote for election of directors has been
withheld.
<TABLE>
<CAPTION>
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR THREE-YEAR TERM EXPIRING IN 1999
-----------------------------------------------
SHARES OF
COMMON STOCK
PRINCIPAL DIRECTOR BENEFICIALLY OUTSTANDING
NAME OCCUPATION AGE SINCE OWNED(1) PERCENT
- ---- ---------- --- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
John C. Capshaw Retired Business 63 1994 5,000(13) *
(3)(4) Executive
John B. Pollara President and Chief 48 --- -0- *
(5) Executive Officer of
Zieman Manufacturing
Company
</TABLE>
3
<PAGE>
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
PRINCIPAL DIRECTOR BENEFICIALLY OUTSTANDING
NAME OCCUPATION AGE SINCE OWNED(1)(2) PERCENT
---- --------------------- --- -------- ------------------ ------------
TERM EXPIRING IN 1997
<S> <C> <C> <C> <C> <C>
William E. Carl Vice Chairman and 70 1988 184,362(11)(13) 3.2%
(3)(9)(10) former President of
Company's subsidiary,
Carl Oil & Gas Co.
J. C. McFarland Chairman of the Board 49 1982 175,795(12) 3.1%
(10) and Chief Executive
Officer
Daniel J. Redden Business Executive 54 1986 6,100(13) *
(6)(10)
TERM EXPIRING IN 1998
Herbert M. Rome Retired Business 69 1992 18,542(13) *
(3)(6)(7) Executive
Daniel E. Pasquini Business Executive 53 1994 3,000(13) *
(6)(8)
</TABLE>
_________________
*Less than one percent
(1) Does not include the shares in the Employee Retirement Savings and Stock
Ownership Plan.
(2) Includes shares owned by spouses.
(3) Member of Audit Committee of the Board of Directors.
(4) In 1993, Mr. Capshaw retired from Hadson Energy Resources Corporation where
he had held the positions of Chairman, Chief Executive Officer and
President. Prior to Hadson Energy Resources Corporation, Mr. Capshaw served
as Chief Executive Officer and President of UMC Petroleum Corporation from
1988 to 1989.
(5) Mr. Pollara currently serves as the President and Chief Executive Officer
and is part owner of Zieman Manufacturing Company. Zieman Manufacturing is
a leading manufacturer of recreational and equipment hauling trailers.
(6) Member of the Compensation Committee of the Board of Directors.
(7) From 1978 until he retired in 1991, Mr. Rome held the position of Executive
Vice President of Eldon Industries, Inc. He also served on Eldon
Industries, Inc.'s Board of Directors from 1979 through 1990.
(8) Mr. Pasquini was elected to serve on the Board of Directors on October 20,
1994. From 1987 through 1994, Mr. Pasquini held the position of President
and Chief Executive Officer of Fortune Petroleum Corporation. Fortune
Petroleum is an independent energy company primarily engaged in the
acquisition, operation, production and development of domestic oil and gas
properties with its principal operations located in Texas and Louisiana.
(9) Elected to the Board of Directors in September, 1988 pursuant to the terms
of the Shareholder Agreement discussed in Note (B) to "Voting Securities".
Since July 1988, Mr. Carl had been President of Carl Oil & Gas Co., a
wholly-owned subsidiary of the Company. Carl Oil & Gas Co. was merged into
the Company on December 19, 1995. For more than five years prior to that
time,
4
<PAGE>
Mr. Carl was President of Carl Oil & Gas Co., a privately owned company
engaged in oil and gas exploration and production.
(10) Member of the Nominating Committee of the Board of Directors.
(11) See Note (B) to "Voting Securities".
(12) Includes 100,500 shares which are purchasable upon exercise of outstanding
stock options.
(13) Includes 3,000 shares which are purchasable upon exercise of outstanding
stock options.
Unless otherwise noted, each of the directors has had the same principal
occupation during the past five years.
Directors' Compensation
The Company does not pay any salaried employee of the Company additional
compensation for service on the Board of Directors or any Board committee. For
directors who are not salaried employees of the Company, the presently
established fee is $1,000 for attending meetings of the Board. The fee for
attending meetings of the Audit, Compensation and Nominating Committees is $500
if a meeting occurs on the same day as a regularly scheduled Board meeting,
however, if a meeting occurs on a day separate from a Board meeting, the fee is
$1,000. In addition, except for any salaried employee or retained consultant,
directors receive an annual retainer of $5,000. The Company entered into a two-
year Consulting Agreement with William E. Carl, which is described in further
detail hereafter under the heading "Transactions with Management and Others".
Pursuant to the Non-Employee Director Stock Option Plan, each non-employee
director receives an initial option to purchase 2,000 shares of Company Common
Stock. Annually, thereafter, options to purchase 1,000 shares of common stock
are granted to each non-employee director. The option exercise price is equal to
the fair market value of the Company's common stock on the date of grant. The
options are exercisable immediately after grant date.
Meetings of the Board of Directors
During the calendar year 1995, the Board of Directors held seven meetings.
In 1995 the Compensation Committee held three meetings, the Audit Committee held
two meetings and the Nominating Committee met once.
Committees of the Board of Directors
The Board of Directors maintains standing Audit, Compensation and
Nominating Committees. The purpose and objective of the Audit Committee is to
provide assistance and advice to the directors in connection with corporate
accounting, auditing and reporting practices and to facilitate communication
between the Board and the independent auditors of the Company. It meets
periodically with management and external auditors and reviews the Company's
accounting policies and internal controls. The committee recommends the firm of
independent accountants to be retained by the Company, and approves all material
non-audit services provided by them.
The Compensation Committee's functions are to review the Company's policies
and programs for the development of management personnel; to make
recommendations to the Board with respect to any proposals for compensation or
compensation adjustments for other elected officers of the Company; from time to
time to delegate to the chief executive officer authority to act on compensation
or compensation adjustment of other
5
<PAGE>
executives of the Company; to administer the Company's stock option plans; and
to make recommendations to the Board with respect to directors' compensation.
The Nominating Committee considers and makes recommendations to the Board
as to the number of directors to constitute the whole Board, the names of
persons whom it concludes should be considered for Board membership, and
recommends matters relating to the selection, tenure and retirement of
directors.
Reports under Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder require the Company's officers and directors, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission and the NASDAQ National Market System and to furnish the
Company with copies.
Based on its review of the copies of such forms received by it, or written
representations from certain reporting persons, the Company believes that all
filing requirements applicable to its officers, directors, and greater than ten-
percent beneficial owners were complied with except that one report, covering
one transaction, was filed late by Mr. J. C. McFarland.
EXECUTIVE COMPENSATION
Cash Compensation
The following tables set forth, for the fiscal year ended December 31,
1995, certain information concerning compensation paid to or accrued for all
executive officers who were serving as executive officers during 1995 and whose
annual salary and bonus exceeded $100,000 in the current fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Long Term
Annual Compensation Compensation
------------------------- ------------------
No. of Shares
Underlying Options All Other
Salary Bonus Granted Compensation(1)
Name and Principal Position Year ($) ($) (#) ($)
- --------------------------- ---- -------- ------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
J. C. McFarland 1995 $182,896 $82,300 15,000 $10,500
Chairman of the Board 1994 $166,322 $77,700 13,500 $ 7,582
and Chief Executive Officer 1993 $166,259 $ -- -- $11,352
Ronald T Yoshihara 1995 $101,276 $42,100 7,000 $ 8,861
Vice President and 1994 $ 92,122 $36,050 5,000 $ 6,753
Treasurer 1993 $ 92,091 $ -- -- $ 6,446
Robert E. Ransom 1995 $ 93,625 $30,200 6,000 $ 8,493
Vice President -- 1994 $ 87,115 $31,800 5,000 $ 6,385
Corporate Development 1993 $ 87,085 $ -- -- $ 6,656
</TABLE>
(1) Amounts represent the matching contributions made by the Company under its
Employees Savings and Stock Ownership Plan.
6
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN 1995
---------------------
Potential Realizable Value at
Assumed Annual Rates of Stock Price
Individual Grants Appreciation for Option Term(3)
---------------------------------------------------- -----------------------------------
% of Total
Options
Options Granted Exercise
Granted to Employees Price Expiration
Name (#)(1) in 1995 ($/Sh)(2) Date 5% 10%
- ------------------ ------- ------------ --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
J. C. McFarland 15,000 20% $6.25 1/11/05 $59,062 $149,063
Ronald T Yoshihara 7,000 9% $6.25 1/11/05 $27,563 $ 69,563
Robert E. Ransom 6,000 8% $6.25 1/11/05 $23,625 $ 59,625
</TABLE>
(1) Option holders vest in the granted options at the rate of 25% per year,
commencing on the first anniversary of the grant date.
(2) All options were granted at the Company's Common Stock fair market value on
date of grant.
(3) These columns present hypothetical future values of the stock obtainable
upon exercise of the options net of the option's exercise price, assuming
that the market price of the Company's common stock appreciates at a five
and ten percent compound annual rate over the ten year term of the options.
The five and ten percent rates of stock price appreciation are presented as
examples pursuant to the Securities and Exchange Commission Rules and do
not necessarily reflect management's assessment of the Company's future
stock price performance. The potential realizable values presented are NOT
intended to indicate the value of the options.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1995
-----------------------------------
AND YEAR ENDED DECEMBER 31, 1995 VALUES
---------------------------------------
Dollar Value of
Number of Shares Underlying Unexercised
Unexercised Option In-The-Money Options
Number of Dollar Held at Year End At Year End(1)
Shares Acquired Value ---------------------------- -----------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------ --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. C. McFarland -0- $ -0- 71,000 29,500 $216,688 $71,750
Ronald T Yoshihara -0- $ -0- 30,500 12,500 $ 90,914 $31,586
Robert E. Ransom 1,500 $4,688 27,625 10,875 $ 83,188 $25,688
</TABLE>
(1) The amounts represent the difference between the fair market value of the
Common Stock on December 31, 1995 of $7.625 and the option exercise price.
7
<PAGE>
<TABLE>
<CAPTION>
TEN-YEAR OPTION REPRICING
-------------------------
Length of
Market Price Original Option
Number of Stock at Exercise Price New Term Remaining
of Options Time of at Time Exercise at Date of
Name Date Amended Amendment of Amendment Price Amendment
- ------------------ ------- ---------- ------------ -------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
J. C. McFarland 6/12/92 46,000 $4.13 $8.00-$10.00 $4.13 4-9 Years
Ronald T Yoshihara 6/12/92 19,000 $4.13 $8.00-$10.00 $4.13 4-9 Years
Robert E. Ransom 6/12/92 20,500 $4.13 $8.00-$10.00 $4.13 4-9 Years
</TABLE>
At the May 29, 1992 Annual Meeting of Shareholders, the shareholders
approved an amendment to the 1986 and 1989 Stock Option Plans to permit the
Company to exchange options previously granted to officers and employees under
the Plans on such terms and conditions as the Board of Directors or its
Compensation Committee may determine within the confines of the Plans. The
purpose of the authority to authorize an exchange of outstanding options was to
restore the incentive value of the options previously granted to officers and
employees in light of the dramatic market correction that occurred for the
Company as well as other oil and gas companies in 1991. The Company had
experienced a weak oil and gas market, which had contributed to a decline in the
market price of the Company's common stock. As a result of these conditions,
salaries of all management personnel were "frozen" in 1991. The amendment to the
Plans was intended to provide further incentives to participating officers and
employees to improve the profit position of the Company. In addition, the
Company believes that providing an opportunity to officers and key employees to
develop a proprietary interest in the Company will aid the Company in obtaining
and retaining the services of individuals of outstanding ability.
The Board of Directors, through its Compensation Committee engaged
Strategic Compensation Associates ("SCA") to advise it on the appropriate method
and formula to apply to an exchange. Utilizing the "Black-Scholes" options
valuation model, and considering the above stated purpose of the Board, SCA
concluded that a two for one exchange ratio would properly provide for
shareholder interests. On June 12, 1992, the Board of Directors approved an
exchange ratio of two outstanding options for the issuance of one new option
with an exercise price of $4.13, the Company's Common Stock fair market value on
date of grant. Option holders vest in the new options at the rate of 25% per
year, commencing one year after the date of grant.
Employment Agreements
The Company has entered into employment agreements with Messrs. McFarland,
Yoshihara and Ransom and certain other key employees. The initial term of each
employment agreement expires on December 31, 1999, or twenty-four months
following a "Change in Control" (as defined below). Mr. McFarland's agreement
provides that if he is terminated as a result of a Change in Control, he will
receive a lump sum amount equal to two times his base salary, including any
bonus, and is entitled to receive medical benefits for a two year period. In the
event Mr. McFarland is terminated without "Good Cause" (as defined below), the
agreement provides that he will be entitled to receive a lump sum amount equal
to two weeks salary for every year of service and medical benefits for the same
number of weeks as the number of weeks of salary he is entitled to receive. Mr.
Yoshihara's and Mr. Ransom's agreements provide for a lump sum payment in the
event of a Change in Control equal to one and one-half times their base salary,
including bonus; while the agreements for the key employees provide for lump sum
payments equal to one times base salary, including bonus. The agreements entered
into with Messrs. Yoshihara and Ransom and other key employees are identical to
Mr. McFarland's agreement with respect to the formula for the calculation of
lump sum payments received if terminated without Good Cause.
8
<PAGE>
Under the agreements, a "Change in Control" is defined as an occurrence of
an event whereby (i) the Board of Directors in office on the date of the
agreement cease to constitute a majority; (ii) any person or group becomes the
beneficial owner of 35% or more of the combined voting power of the Company's
outstanding securities; or (iii) the Company merges or combines into another
corporation. Under the agreements, termination with "Good Cause" shall mean that
any of the following conditions are met: (i) grounds exists to terminate the
employment of the individual pursuant to California Labor Code Section 2924;
(ii) the individual engages in serious or willful misconduct which is
detrimental to the interests of the employer or its stockholders; or (iii) the
individual willfully refuses to carry out the directions and responsibilities
assigned to him.
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the Company's
cumulative total shareholder return on its Common Stock to that of the NASDAQ
Non-Financial Stock Index and a group of ten peer companies engaged in oil and
gas exploration and production and with comparable market capitalizations. The
Company's peer group index includes Alexander Energy Corp., American Exploration
Co., Berry Petroleum Co., Coho Energy Inc., Equity Oil Co., Maynard Oil Co.,
Nahama & Weagant Energy Co., Patrick Petroleum Co., Plains Resources Inc., and
Wiser Oil Co. (Note: Nahama & Weagant Energy Co. was dropped from the peer group
index in 1995 as it filed for bankruptcy in 1994 and its assets were
subsequently liquidated.) The graph assumes the value of the investment in
McFarland Common Stock and each index as $100 on December 31, 1990 and that all
dividends were reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG McFARLAND ENERGY INC., PEER GROUP AND NASDAQ NON-FINANCIAL
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period MCFARLAND NASDAQ
(Fiscal Year Covered) ENERGY, INC. PEER GROUP NON-FINANCIAL
- ------------------- ------------ ---------- -------------
<S> <C> <C> <C>
Measurement Pt- 12/31/90 $100 $100 $100
FYE 12/31/91 $41.18 $84.75 $160.98
FYE 12/31/92 $51.47 $90.64 $176.09
FYE 12/31/93 $60.29 $84.55 $203.33
FYE 12/30/94 $75.00 $77.73 $194.86
FYE 12/29/95 $89.71 $87.70 $268.17
</TABLE>
The stock price performance depicted in the above graph is not necessarily
indicative of future price performance. The Performance Graph will not be deemed
to be incorporated by reference in any filing by the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that the Company specifically incorporates same by reference.
9
<PAGE>
Compensation Committee Report
The Compensation Committee of McFarland Energy, Inc. is responsible for
defining, implementing and monitoring the policies and programs which govern
executive compensation and recommends appropriate actions to the Board of
Directors. The policy of the Committee is to provide a compensation program that
will attract, motivate and retain executives of outstanding ability and will
foster dedication to the long-term interests of the Company. The Compensation
Committee utilizes oil and gas industry analyses of peer group compensation
programs, external consultant input and historic Company compensation data to
form its conclusions for compensation program actions.
Compensation for executives is comprised of three elements: base salary,
incentive compensation and stock options. The objective of the Compensation
Committee in creating this program is to maintain a competitive industry
posture, to reward performance as demonstrated by the attainment of business
objectives and to align the interests of executives with those of shareholders.
The base salaries of executives are reviewed annually and adjustments, if
any, are based primarily on individual and Company performance. Length of
service and cost of living are also considered. The general policy of the
Compensation Committee is to establish competitive base salaries that
approximate industry averages.
Effective January 1, 1993, the Board of Directors approved and implemented
a new Management Incentive Compensation Plan ("Incentive Plan"). The Incentive
Plan established annual companywide goals for oil and gas production quantities
and production cost levels, as well as individual performance goals for each
plan participant. The Incentive Plan limited total distributions to a maximum of
8% of Company net cash flow and provided that no incentive payments would be
made to executives unless the Company reported certain levels of pretax profit.
Effective January 1, 1994, the Compensation Committee modified the Incentive
Plan to include a component for the Company's exploration activities and to
reduce the maximum distribution limit to 6% of net cash flow, before exploration
activities. Goals are established by the Compensation Committee and are based
primarily on the annual budget plan. In order to achieve maximum payout, plan
goals must be substantially exceeded. Individual goals are established for each
participant, and executive officer goals include a factor based on Company stock
price performance.
1995 Compensation of Chief Executive Officer
- --------------------------------------------
In 1995, Mr. J.C. McFarland received a 10% increase in his base salary to
$176,000 recognizing the Company's excellent financial and operational
performance in 1994.
For 1996, Mr. McFarland received a 4% increase in his base salary to
$183,000 in recognition of his efforts in 1995 in leading the Company to another
year of outstanding financial and operational results and significant growth. In
1995, the Company recorded record crude oil and natural gas production and
achieved its lowest per unit lifting costs in the last sixteen years. In
addition, the Company settled its lawsuit with Chevron U.S.A. Inc., netting in
excess of $17 Million after fees and costs. At the end of 1995, the Company
reported record year-end reserves in terms of barrel equivalent volumes and the
highest net present value for its reserves in the last ten years. These
performance factors, along with the 20% increase in the Company's common stock
price at the end of 1995, were considered in the evaluation of Mr. McFarland's
base salary adjustment for 1996. The Compensation Committee believes that Mr.
McFarland's base salary is in line with his level of responsibility, as well as
salaries paid to chief executive officers of other oil and gas industry peer
companies.
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Incentive Compensation
- ----------------------
Under the Management Incentive Compensation Plan ( "Incentive Plan" ), Mr.
McFarland received a bonus of $82,300 for 1995. Under Mr. McFarland's
leadership, the Company met its 1995 production target and exceeded its targets
for operating cash flow and per unit lifting costs. Pursuant to the Incentive
Plan, these targets, along with an exploration factor, are established by
management and approved by the Board of Directors at the beginning of each year.
Based on Mr. McFarland's individual performance rating and the companywide
performance factors, his bonus for 1995 represented 58% of the maximum
achievable payout under the Incentive Plan calculation.
Stock Options
- -------------
Stock options are intended to provide long-term incentive for the
continuing growth, success and value of the Company and to directly link the
interests of the option holders with those of the shareholders. The Compensation
Committee is dedicated to creating programs that will address the continuing
success and value of the Company to its shareholders and its employees. The
Committee believes that attracting, motivating and retaining outstanding
executives is central to this dedication.
Mr. McFarland was granted 15,000 options in 1995.
Section 162(m) of the Internal Revenue Code, which became effective in
1994, generally disallows a tax deduction to public companies for compensation
over $1 million paid to the corporation's Chief Executive Officer or the four
other most highly compensated executive officers. Certain exceptions are
provided for non-discretionary, performance-related compensation. Based on their
understanding of Section 162(m) in the context of the compensation programs of
the Company, the Compensation Committee considers it unlikely that the
compensation level of any executive officer will exceed the deductibility limits
under Section 162(m).
The Compensation Committee will continue to monitor the compensation
programs of the Company in light of the potential impact of Section 162(m), to
the extent it is determinable. The Compensation Committee's general intent is to
design and administer the Company's compensation programs in a manner that will
preserve the deductibility of compensation payments to executive officers.
Compensation Committee
Daniel J. Redden, Chairman
Daniel E. Pasquini
Herbert Rome
Barclay Simpson
The above report of the Compensation Committee will not be deemed to be
incorporated by reference into any filing by the Company under the Securities
Act of 1933 or the Securities Exchange Act of 1934, except to the extent that
the Company specifically incorporates same by reference.
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PROPOSAL 2: ADOPTION OF THE 1996 INCENTIVE STOCK PLAN
There will be presented at the meeting a proposal to adopt the 1996
Incentive Stock Plan ("Plan"). The Plan replaces the 1986 Stock Option Plan,
which by its terms expired on March 5, 1996. The Company's experience with stock
options has convinced the Board of Directors of the important role of stock
options and other stock-based incentives in retaining the services of
outstanding personnel and in encouraging such employees to have a greater
financial investment in the Company.
The proposed Plan is set forth in Exhibit "A". Primary aspects of the
proposed Plan are as follows.
General Information
- -------------------
The Plan would authorize the Compensation Committee of the Board of
Directors ("Committee") to grant (i) incentive stock options under the Internal
Revenue Code of 1986, (ii) nonqualified stock options, (iii) stock appreciation
rights, (iv) performance share awards and (v) restricted stock grants to regular
employees of the Company, its subsidiaries, joint ventures or affiliates who are
designated by the Committee. There are approximately twenty employees eligible
to participate in the Plan.
The aggregate number of shares of the Company's Common Stock that may be
issued or transferred to grantees under the Plan shall not exceed 260,000 shares
plus shares authorized but unissued under the 1986 Stock Option Plan and the
1989 Stock Option Plan. Options may be granted under the 1989 Stock Option Plan
until it expires on March 22, 1999; any outstanding options or other benefits
under that plan may be exercised in accordance with the terms thereof. If there
is a stock split, stock dividend or other relevant change affecting the
Company's shares, appropriate adjustments will be made in the number of shares
that may be issued or transferred in the future and in the number of shares and
price in all outstanding grants made before such event. If shares under a grant
are not issued or transferred, those shares would again be available for
inclusion in future grants. Payment of cash in lieu of shares would be
considered an issuance or transfer of the shares. On March 28, 1996, the closing
price of the company's Common Stock on the NASDAQ National Market was $8.125.
Grants Under the Plan
- ---------------------
Stock Options. The committee may grant options qualifying as incentive
stock options under the Internal Revenue Code of 1986, other statutory stock
options and nonqualified stock options. The term of an option shall be fixed by
the Committee. The option price shall not be less than the fair market value of
the Company's Common Stock on the date of grant.
Stock Appreciation Rights. The Committee may grant stock appreciation
rights ("SARs") either singly or in combination with an underlying stock option
under the Plan. The term of a SAR may be fixed by the Committee. SARs entitle
the grantee to receipt of the same economic value that would have been derived
from exercise of an option. Payment may be made in cash, in shares or a
combination of both at the discretion of the Committee. If a SAR granted in
combination with an underlying stock option is exercised, the right under the
underlying option to purchase shares would terminate.
Performance Share Awards. The Committee may grant Performance Share Awards
under which payment may be made in shares of the Company's Common Stock, a
combination of shares and cash if the performance of the Company or any
subsidiary, division or affiliate of the Company selected by the Committee meets
certain goals established by the Committee during an award period. The Committee
would determine the goals, the length of an award period, the maximum payment
value of an award and the minimum performance required before a payment would be
made. The Committee may revise the goals and the computation of payment at any
time to account for unforeseen events which occur during an award period and
which have a substantial effect on the performance of the Company, subsidiary or
division.
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In order to receive payment, a grantee must remain in the employ of the
Company until the completion of the award period, except that the Committee may
provide complete or partial exceptions to that requirement as it deems
equitable.
Restricted Stock Grants. The Committee may also award shares under a
Restricted Stock Grant. The grant would set forth a restriction period during
which the grantee must remain in the employ of the Company in order to retain
the shares under grant. If the grantee's employment terminates during the
period, the grant would terminate and the grantee would be required to return
the shares to the Company. However, the Committee may provide complete or
partial exceptions to this requirement as it deems equitable. The grantee could
not dispose of the shares prior to the expiration of the restriction period.
During this period, the grantee would be entitled to vote the shares and, at the
discretion of the Committee, receive dividends. Each certificate would bear a
legend giving notice of the restrictions in the grant.
Federal Income Tax Consequences
- -------------------------------
Stock Options. The grant of an incentive stock option or a nonqualified
stock option would not result in income for the grantee or in a deduction for
the Company.
The exercise of a nonqualified stock option would result in ordinary income
for the grantee and a deduction for the Company measured by the difference
between the option price and the fair market value of the share received at the
time of exercise. Income tax withholding would be required.
The exercise of an incentive stock option would not result in income for
the grantee if the grantee (i) does not dispose of the share within two years
after the date of grant or one year after the transfer of shares upon exercise
and (ii) is an employee of the company or a subsidiary of the Company from the
date of grant until three months before the exercise date. If these requirements
are met, the basis of the shares upon later disposition would be the option
price. Any gain will be taxed to the employee as long-term capital gain and the
Company would not be entitled to a deduction. The excess of the market value on
the exercise date over the option price is an item of tax preference,
potentially subject to the alternative minimum tax.
If the grantee disposes of the shares prior to the expiration of either of
the holding periods, the grantee would recognize ordinary income and the Company
would be entitled to a deduction equal to the lesser of the fair market value of
the shares on the exercise date minus the option price or the amount realized on
disposition minus the option price. Any gain in excess of the ordinary income
portion would be taxable as long-term or short-term capital gain.
SARs and Performance Share Awards. The grant of a SAR or a Performance
Share Award would not result in income for the grantee or in a deduction for the
Company. Upon the exercise of a SAR or the receipt of shares or cash under a
Performance Share Award, the grantee would recognize ordinary income and the
Company would be entitled to a deduction measured by the fair market value of
the shares plus any cash received. Income tax withholding would be required.
Restricted Stock Grants. The grant of restricted stock should not result
in income for the grantee or in a deduction for the Company for federal income
purposes, assuming the shares transferred are subject to restrictions resulting
in a "substantial risk of forfeiture" as intended by the Company. If there are
no such restrictions, the grantee would recognize ordinary income upon receipt
of the shares. Dividends paid to the grantee while the stock remained subject to
restriction would be treated as compensation for federal income tax purposes. At
the time the restrictions lapse, the grantee would receive ordinary income and
the Company would be entitled to a deduction measured by fair market value of
the shares at the time of lapse. Income tax withholding would be required.
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Other Information
- -----------------
Upon approval by the Company's shareholders, the Plan will be effective on
February 1, 1996 and will terminate on January 31, 2006 unless terminated
earlier by the Board of Directors or extended by the Board with the approval of
the shareholders. The Board may amend the Plan as it deems advisable but, if the
Securities Exchange Act of 1934 requires the Company to obtain shareholder
approval, then such approval will be sought. Employees who will participate in
the Plan in the future and the amounts of their allotments are to be determined
by the Committee subject to any restrictions outlined above. Since no such
determinations have yet been made, it is not possible to state the terms of any
individual options which may be issued under the Plan or the names or positions
of or respective amounts of the allotment to any individuals who may
participate.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Company entered into a two-year Consulting Agreement with William E.
Carl, a director, commencing on July 15, 1995, and terminating on July 14, 1997,
pursuant to which he would continue as a consultant to the Company. In
consideration of such consulting services, the Company will pay Mr. Carl the
amount of $60,000 per year. In addition, the Company provides Mr. Carl with
group dental and term life insurance and pays the cost of Medicare supplemental
coverage.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, Certified Public Accountants, who certified the
Company's financial statements for 1995, has advised the Company that it has no
direct or material financial interest in the Company. A representative of the
firm of Coopers & Lybrand will be present at the Meeting. He or she will be
provided the opportunity to make a statement if he or she desires to do so, and
will be available to respond to appropriate questions. The Board of Directors
has not yet selected accountants for the current calendar year.
OTHER MATTERS
Management knows of no other business to be presented at the Meeting. If
other matters do properly come before the Meeting, persons acting pursuant to
the proxy will vote on them in their discretion.
A copy of the Company's Annual Report, including financial statements for
calendar year 1995, are currently being mailed with this Proxy Statement.
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Proposals to be submitted for the Company's 1997 Annual Meeting of
Shareholders must be received by the Company no later than March 15, 1997.
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EXHIBIT "A"
MCFARLAND ENERGY, INC.
1996 INCENTIVE STOCK PLAN
The 1996 Incentive Stock Plan ("Plan"), effective February 1, 1996, is
established to encourage employees of McFarland Energy, Inc. ("Company"), its
subsidiaries, and its affiliates, to acquire Common Stock in the Company. It is
believed that the Plan will stimulate employees' efforts on the Company's
behalf, will tend to maintain and strengthen their desire to remain with the
Company, will be in the interest of the Company and its Shareholders, and will
encourage such employees to have a greater personal financial investment in the
Company through ownership of its Company Stock.
1. ADMINISTRATION
The Plan shall be administered by the Compensation Committee of the Board
of Directors of the Company ("Committee"). The Committee is authorized, subject
to the provisions of the Plan, to establish such rules and regulations as its
deems necessary for the proper administration of the Plan, and to make such
determinations and to take such action in connection therewith or in relation to
the Plan as it deems necessary or advisable, consistent with the Plan. The
Committee may delegate some or all of its power and authority hereunder to the
Chief Executive Officer or other senior members of management as the Committee
deems appropriate; provided, however, that the Committee may not delegate its
authority with regard to any matter or action affecting an officer subject to
Section 16 of the Securities Exchange Act of 1934.
2. ELIGIBILITY
Regular full-time and part-time employees of the Company, its subsidiaries,
and its affiliates, including officers, whether or not directors of the Company,
shall be eligible to participate in the Plan ("Eligible Employees") if
designated by the Committee or its delegate. Those directors who are not regular
employees are not eligible.
3. INCENTIVES
Incentives under the plan may be granted in any one or a combination of (a)
Incentive Stock Options (or other statutory stock option); (b) Nonqualified
Stock Options; (c) Stock Appreciation Rights; (d) Restricted Stock Grants and
(e) Performance Shares (together "Incentives"). All Incentives shall be subject
to the terms and conditions set forth herein and to such other terms and
conditions as may be established by the Committee. Determinations by the
Committee under the Plan including without limitation, determinations of the
Eligible Employees, the form, amount and timing of Incentives, the terms and
provisions of Incentives, and the agreements evidencing Incentives, need not be
uniform and may be made selectively among Eligible Employees who receive, or are
eligible to receive, Incentives hereunder, whether or not such Eligible
Employees are similarly situated.
4. SHARES AVAILABLE FOR INCENTIVES
(a) Shares Subject to Issuance or Transfer. Subject to adjustment as
provided in Section 4 (b) hereof, there is hereby reserved for issuance under
the Plan 260,000 shares of the Company's Common Stock ("Common Stock"). The
shares available for granting awards shall be increased by the number of shares
as to which options or other benefits granted under the Plan have lapsed,
expired, terminated or been cancelled. In addition, any shares reserved for
issuance under the Company's 1986 Stock Option Plan and 1989 Stock Option Plan
("Prior Plans") in excess of the number of shares as to which option or other
benefits have been awarded thereunder, plus any such shares as to which options
or other benefits granted under the Prior Plans may lapse, expire, terminate or
be cancelled, shall also be reserved and available for issuance or reissuance
under the Plan. Shares under this Plan
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may be delivered by the Company from its authorized but unissued shares of
Common Stock or from Common Stock held in the Treasury.
(b) Recapitalization Adjustment. In the event of a reorganization,
recapitalization, stock split, stock dividend, combination of shares, merger,
consolidation, rights offering, or any other change in the corporate structure
or shares of the Company, the Committee shall make such adjustment, if any, as
it may deem appropriate in the number and kind of shares authorized by the Plan,
in the number and kind of shares covered by Incentives granted, in the case of
Stock Option, in the option price, and in the case of Stock Appreciation Rights,
in the fair market value.
5. STOCK OPTIONS.
The Committee may grant options qualifying as Incentive Stock Options under
the Internal Revenue Code of 1986, as amended, or any successor code thereto
(the "Code"), other statutory options under the Code, and Nonqualified Options
(collectively "Stock Options"). Such Stock Options shall be subject to the
following terms and conditions and such other terms and conditions as the
Committee may prescribe:
(a) Option Price. The option price per share with respect to each Stock
Option shall be determined by the Committee, but shall not be less than 100% of
the fair market value of the Common Stock on the date the Stock Option is
granted, as determined by the Committee.
(b) Period of Option. The period of each Stock Option shall be fixed by
the Committee but shall not exceed ten (10) years.
(c) Payment. The option price shall be payable in cash, the Company's
Common Stock (valued at fair market value on the date of exercise), or a
combination thereof, as the Committee may determine from time to time at the
time the Stock Option is exercised. No shares shall be issued unless full
payment therefor has been made. A grantee of a Stock Option shall have none of
the rights of a shareholder until the shares are issued.
(d) Exercise of Option. The shares covered by a Stock Option may be
purchased in such installments and on such exercise dates as the Committee or
its delegate may determine. Any shares not purchased on the applicable exercise
date may be purchased thereafter at any time prior to the final expiration of
the Stock Option. In no event (including those specified in paragraphs (e), (f)
and (g) of this section) shall any Stock Option be exercisable after its
specified expiration period.
(e) Termination of Employment. Upon the termination of a Stock Option
grantee's employment (for any reason other than retirement, death or termination
for deliberate, willful or gross misconduct); Stock Option privileges shall be
limited to the shares which were immediately exercisable at the date of such
termination. The Committee, however, in its discretion, may provide that any
Stock Options outstanding but not yet exercisable upon the termination of a
Stock Option grantee's employment may become exercisable in accordance with a
schedule to be determined by the Committee. Such Stock Option privileges shall
expire unless exercised or surrender under a Stock Appreciation Right within
such period of time after the date of termination of employment as may be
established by the Committee, but in no event later than the expiration date of
the Stock Option. If a Stock Option grantee's employment is terminated for
deliberate, willful or gross misconduct, as determined by the Company, all
rights under the Stock Option shall expire upon receipt of the notice of such
termination.
(f) Retirement. Upon retirement of a Stock Option grantee, Stock Option
privileges shall apply to those shares immediately exercisable at the date of
retirement. The Committee, however, in its discretion, may provide that any
Stock Options outstanding but not yet exercisable upon the retirement of a Stock
Option grantee may become exercisable in accordance with a schedule to be
determined by the Committee. Stock Option privileges
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<PAGE>
shall expire unless exercised within such period of time as may be established
by the Committee, but in no event later than the expiration date of the Stock
Option.
(g) Death. Upon the death of a Stock Option grantee, Stock Option
privileges shall apply to those shares which were immediately exercisable at the
time of death. The Committee, however, in its discretion, may provide that any
Stock Options outstanding but not yet exercisable upon the death of a Stock
Option grantee may become exercisable in accordance with a schedule to be
determined by the Committee. Such privileges shall expire unless exercised by
legal representatives within a period of time as determined by the Committee but
in no event later than the expiration date of the Stock Option.
6. STOCK APPRECIATION RIGHTS
The Committee may, in its discretion, grant a right to receive the
appreciation in the fair market value of shares of Common Stock ("Stock
Appreciation Right") either singly or in combination with an underlying Stock
Option granted hereunder or under the Prior Plans. Such Stock Appreciation
Rights shall be subject to the following terms and conditions and such other
terms and conditions as the Committee may prescribe:
(a) Time and Period of Grant. If a Stock Appreciation Right is granted
with respect to an underlying Stock Option, it may be granted at the time of the
Stock Option Grant or at any time thereafter but prior to the expiration of the
Stock Option Grant. If a Stock Appreciation Right is granted with respect to any
underlying Stock Option, at the time the Stock Appreciation Right is granted the
Committee may limit the exercise period for such Stock Appreciation Right,
before and after which period no Stock Appreciation Right shall attach to the
underlying Stock Option. In no event shall the exercise period for a Stock
Appreciation Right granted with respect to an underlying Stock Option exceed the
exercise period for such Stock Option. If a Stock Appreciation Right is granted
without an underlying Stock Option, the period for exercise of the Stock
Appreciation Right shall be set by the Committee.
(b) Value of Stock Appreciation Right. If a Stock Appreciation Right is
granted with respect to an underlying Stock Option, the grantee will be entitled
to surrender the Stock Option which is then exercisable and receive in exchange
therefor an amount equal to the excess of the fair market value of the common
stock on the date the election to surrender is received by the Company over the
Stock Option price multiplied by the number of shares covered by the Stock
Option which are surrendered. If a Stock Appreciation Right is granted without
an underlying Stock Option, the grantee will receive upon exercise of the Stock
Appreciation Right an amount equal to the excess of the fair market value of the
Common Stock on the date the election to surrender such Stock Appreciation Right
is received by the Company over the fair market value of the Common Stock on the
date of grant multiplied by the number of shares covered by the grant of the
Stock Appreciation Right.
(c) Payment of Stock Appreciation Right. Payment of a Stock Appreciation
Right shall be in the form of shares of Common Stock, cash, or any combination
of shares and cash. The form of payment upon exercise of such a right shall be
determined by the Committee either at the time of grant of the Stock
Appreciation Right or at the time of exercise of the Stock Appreciation Right.
7. PERFORMANCE SHARE AWARDS
The Committee may grant awards under which payment may be made in shares of
Common Stock, cash or any combination of shares and cash if the performance of
the Company or any subsidiary, or affiliate of the Company selected by the
Committee during the Award Period meets certain goals established by the
Committee ("Performance Share Awards"). Such Performance Share Awards shall be
subject to the following terms and conditions and such other terms and
conditions as the Committee may prescribe:
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(a) Award Period and Performance Goals. The Committee shall determine and
include in a Performance Share Award grant the period of time for which a
Performance Share Award is made ("Award Period"). The Committee shall also
establish performance objectives ("Performance Goals") to be met by the Company,
subsidiary or division during the award period as a condition to payment of the
Performance Share Award. The Performance Goals may include earnings per share,
return on shareholders' equity, return on assets, net income, or any other
financial or other measurement established by the Committee. The Performance
Goals may include minimum and optimum objectives or a single set of objectives.
(b) Payment of Performance Share Awards. The Committee shall establish
the method of calculating the amount of payment to be made under a Performance
Share Award if the Performance Goals are met, including the fixing of a maximum
payment. The Performance Share Award shall be expressed in terms of shares of
Common Stock and referred to as "Performance Shares". After the completion of an
Award Period, the performance of the Company, subsidiary or division shall be
measured against the Performance Goals, and the Committee shall determine
whether all, none or any portion of a Performance Share Award shall be paid. The
Committee, in its discretion, may elect to make payment in shares of Common
Stock, cash or a combination of shares and cash. Any cash payment shall be based
on the fair market value of Performance Shares on, or as soon as practicable
prior to, the date of payment.
(c) Revision of Performance Goals. At any time prior to the end of an
Award Period, the Committee may revise the Performance goals and the computation
of payment if unforeseen events occur which have a substantial effect on the
performance of the Company, subsidiary or division and which in the judgment of
the Committee make the application of the Performance Goals unfair unless a
revision is made.
(d) Requirement of Employment. A grantee of a Performance Share Award
must remain in the employ of the Company until the completion of the Award
Period in order to be entitled to payment under the Performance Share Award;
provided that the Committee may, in its sole discretion, provide for partial
payment where such an exception is deemed equitable.
(e) Dividends. The Committee may, in its discretion, at the time of
granting of a Performance Share Award, provide that any dividends declared on
the Common Stock during the Award Period, and which would have been paid with
respect to Performance Shares had they been owned by a grantee, be (i) paid to
the grantee, or (ii) accumulated for the benefit of the grantee and used to
increase the number of Performance Shares of the grantee.
8. RESTRICTED STOCK GRANTS
The Committee may award shares of Common Stock to a grantee, which shares
shall be subject to the following terms and conditions and such other terms and
conditions as the Committee may prescribe ("Restricted Stock Grant").
(a) Requirement of Employment. A grantee of a Restricted Stock Grant must
remain in the employment of the Company during a period designated by the
Committee ("Restriction Period") in order to retain the shares under the
Restricted Stock Grant. If the grantee leaves the employment of the Company
prior to the end of the Restriction Period, the Restricted Stock Grant shall
terminate and the shares of Common Stock shall be returned immediately to the
Company; provided that the Committee may, at the time of the grant, provide for
the employment restriction to lapse with respect to a portion or portions of the
Restricted Stock Grant at different times during the Restriction Period. The
Committee may, in its discretion, also provide for such complete or partial
exceptions to the employment restriction as it deems equitable.
(b) Restrictions on Transfer and Legend on Stock Certificates. During the
Restriction Period, the grantee may not sell, assign, transfer, pledge, or
otherwise dispose of the shares of Common Stock except to a
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<PAGE>
successor under Section 10. hereof. Each certificate for shares of Common Stock
issued hereunder shall contain a legend giving appropriate notice of the
restrictions in the grant.
(d) Escrow Agreement. The Committee may require the grantee to enter into
an escrow agreement providing that the certificate representing the Restricted
Stock Grant will remain in the physical custody of an escrow holder until all
restrictions are removed or expire.
(d) Lapse of Restrictions. All restrictions imposed under the Restricted
Stock Grant shall lapse upon the expiration of the Restriction Period if the
conditions as to employment set forth above have been met. The grantee shall
then be entitled to have the legend removed from the certificates.
(e) Dividends. The Committee shall, in its discretion, at the time of the
Restricted Stock Grant, provide that any dividends declared on the Common Stock
during the Restriction Period shall either be (i) paid to the grantee, or (ii)
accumulated for the benefit of the grantee and paid to the grantee only after
the expiration of the Restriction Period.
9. DISCONTINUANCE OR AMENDMENT OF THE PLAN
The Board of Directors may discontinue the Plan at any time and may from
time to time amend or revise the terms of the Plan as permitted by applicable
statutes, except that it may not revoke or alter, in a manner unfavorable to the
grantees of any Incentives hereunder, any Incentives then outstanding, nor may
the Board amend the Plan without shareholder approval where the absence of such
approval would cause the Plan to fail to comply with Rule 16b-3 under the
Securities Exchange Act of 1934, or any other requirement of applicable law or
regulation. No Incentive shall be granted under the Plan after January 31, 2006,
but Incentives granted theretofore may extend beyond that date.
10. NONTRANSFERABILITY
Each Incentive Stock Option granted under the Plan shall not be
transferable other than by will or the laws of descent and distribution; each
other Incentive granted under the Plan may be transferable subject to the terms
and conditions as may be established by the committee in accordance with
regulations promulgated under the Securities Exchange Act of 1934, or any other
applicable law or regulation.
11. NO RIGHT OF EMPLOYMENT
The Plan and the Incentives granted hereunder shall not confer upon any
Eligible Employee the right to continued employment with the Company, its
subsidiaries, or its affiliates, or affect in any way the right of such entities
to terminate the employment of an Eligible Employee at any time and for any
reason.
12. TAXES
The Company shall be entitled to withhold the amount of any tax
attributable to any option granted, any amount payable or shares deliverable
under the Plan after giving the person entitled to receive such amount or shares
notice as far in advance as practicable.
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PROXY MCFARLAND ENERGY, INC. PROXY
10425 S. PAINTER AVENUE
SANTA FE SPRINGS, CA 90670
J. C. MCFARLAND and WILLIAM E. CARL, and each of them, with full power of
substitution, are hereby authorized to represent and to vote the stock of the
undersigned MCFARLAND ENERGY, INC. ("Company") at the Annual Meeting of
Shareholders to be held on May 30, 1996 and at any adjournment thereof.
Unless otherwise specified in the squares provided below, the undersigned's
vote is to be cast FOR Items 1 and 2.
1. ELECTION OF DIRECTORS
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY
(except as marked to the to vote for all
contrary below) nominees listed below
John C. Capshaw and John B. Pollara
INSTRUCTION: To withhold authority to vote for any individual nominee write
that nominee's name on the space provided below.
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2. TO ACT UPON A PROPOSAL TO APPROVE AND ADOPT THE 1996 INCENTIVE STOCK PLAN
[_] FOR [_] AGAINST [_] ABSTAIN
3. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR
ANY ADJOURNMENT THEREOF.
Date: ___________________________________
_________________________________________
_________________________________________
_________________________________________
Please sign as name(s) appears. If joint
account, EACH joint owner should sign.
