PENNZOIL CO /DE/, DEFC14A, 1998-03-31

PENNZOIL CO /DE/
DEFC14A, 1998-03-31
PETROLEUM REFINING

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<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:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12

PENNZOIL COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
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.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]

------------------------

ANNUAL MEETING OF SHAREHOLDERS
MAY 7, 1998

------------------------

DEAR SHAREHOLDER: March 30, 1998

You are cordially invited to attend the annual meeting of shareholders to be
held at the Wortham Theater Center, 500 Texas Avenue, Houston, Texas on May 7,
1998 at 10:00 a.m. For those of you who cannot be present at our 109th annual
meeting, we urge that you participate by indicating your choices on the enclosed
WHITE proxy card and completing and returning it at your earliest convenience.

This booklet includes the notice of the meeting and the proxy statement,
which contains information about the Board and its committees and personal
information about each of the nominees for the Board. Other matters on which
action is expected to be taken during the meeting are also described.

Guy P. Wyser-Pratte, a self-styled event risk arbitrageur, has given notice
that he intends to nominate himself for election as a director of the Company
and to present eight proposals at the annual meeting. In the unanimous view of
your Board of Directors, neither Mr. Wyser-Pratte's election to the Board nor
adoption of any of his eight proposals would be in the best interests of the
Company and its shareholders. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" THE COMPANY'S NOMINEES TO THE BOARD AND "AGAINST" MR. WYSER-PRATTE'S
PROPOSALS.

It is important that your shares are represented at the meeting, whether or
not you are able to attend personally. Accordingly, you are requested to sign,
date and mail promptly the enclosed WHITE proxy card in the envelope provided.

On behalf of the Board of Directors, thank you for your continued support.

/s/ James L. Pate

James L. Pate
Chairman of the Board
and Chief Executive Officer

IMPORTANT
Your vote is important. Please take a moment to sign, date and promptly
mail your WHITE proxy card in the postage prepaid envelope provided. REMEMBER,
DO NOT RETURN ANY PROXY CARD SENT TO YOU BY MR. WYSER-PRATTE, NOT EVEN AS A
VOTE OF PROTEST.
If your shares are registered in the name of a broker, only your broker
can execute a proxy and vote your shares and only after receiving your
specific instructions. Please contact the person responsible for your account
and direct him or her to execute a proxy on your behalf today. If you have any
questions or need further assistance in voting, please contact the firm
assisting us in the solicitation of proxies:
MORROW & CO., INC.
Call toll free at (800) 566-9061
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S> <C>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS.................................................................... 1

PROXY STATEMENT............................................................................................. 2

I. Election of Directors................................................................................. 3

Nominees............................................................................................... 4

Directors with Terms Expiring in 1999 and 2000......................................................... 5

Board Organization and Meetings........................................................................ 6

Director Remuneration.................................................................................. 7

Certain Transactions................................................................................... 7

Security Ownership of Directors and Officers........................................................... 7

Compliance with Section 16(a) of the Exchange Act...................................................... 8

II. Approval of Appointment of Independent Public Accountants............................................ 8

III. Shareholder Proposals................................................................................ 8

IV. Other Business........................................................................................ 21

Executive Compensation.................................................................................... 22

Summary Compensation Table............................................................................. 22

Option/SAR Grants...................................................................................... 23

Option Exercises and 1997 Year-End Option/SAR Holdings................................................. 24

Long-Term Incentive Awards............................................................................. 24

Retirement Plan and Supplemental Agreements............................................................ 24

Termination of Employment and Change-in-Control Arrangements and
Other Agreements..................................................................................... 25

Other Matters.......................................................................................... 26

Compensation Committee Interlocks and Insider Participation............................................... 26

Report of Compensation Committee on Executive Compensation................................................ 27

Performance Graph......................................................................................... 30

Solicitation of Proxies................................................................................... 30

Additional Information.................................................................................... 31

Security Ownership of Certain Shareholders............................................................. 31

Shareholder Proposals for 1999 Meeting................................................................. 31

Advance Notice Required for Shareholder Nominations and Proposals...................................... 31

Schedule I................................................................................................ I-1

Schedule II............................................................................................... II-1
</TABLE>
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 7, 1998

TO THE SHAREHOLDERS OF

PENNZOIL COMPANY:

The annual meeting of shareholders of Pennzoil Company will be held at the
Wortham Theater Center, 500 Texas Avenue, Houston, Texas, on Thursday, May 7,
1998 at 10:00 a.m., Houston time, for the following purposes:

1. To elect two directors.

2. To approve the appointment of Arthur Andersen LLP as independent public
accountants for 1998.

3. To consider and vote upon possible proposals by Mr. Guy P. Wyser-Pratte
to (i) amend the Company's By-laws to require the Company's Board of
Directors to redeem the rights issued under the Company's shareholder
rights plan (or take other action to render the rights inapplicable) at
a specified time following certain types of tender and exchange offers,
unless the Board's decision not to do so is approved by a vote of
shareholders; (ii) amend the Company's By-laws to require a unanimous
vote of all directors of the Company for certain corporate action; (iii)
amend the Company's By-laws to allow calling of special meetings of
shareholders by shareholders entitled to cast 10% of the votes; (iv)
amend the Company's By-laws to change the advance notice procedures for
director nominations and shareholder proposals; (v) amend the Company's
By-laws to deny the Board the power to alter, amend or repeal the new
By-laws being proposed by Mr. Wyser-Pratte, if they are adopted by the
shareholders, as well as certain existing sections of the By-laws that
would be affected by Mr. Wyser-Pratte's other proposals, regardless of
whether those other proposals are approved; (vi) amend the Company's
By-laws to elect not to be governed by Section 203 of the Delaware
General Corporation Law; (vii) repeal any By-laws adopted by the
Company's Board of Directors since November 1, 1997; and (viii) adopt a
resolution recommending that the Company pay Mr. Wyser-Pratte's proxy
solicitation and litigation expenses.

4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.

The Board of Directors has fixed the close of business on March 23, 1998 as
the record date for determining shareholders entitled to notice of and to vote
at the meeting.

You are cordially invited to attend the meeting in person. Even if you plan
to attend the meeting, however, you are requested to mark, sign, date and return
the accompanying WHITE proxy card as soon as possible.

By Order of the Board of Directors

Linda F. Condit
Vice President and
Corporate Secretary

March 30, 1998
Pennzoil Place, P. O. Box 2967
Houston, Texas 77252-2967

1
<PAGE>
[LOGO]

PROXY STATEMENT

This Proxy Statement and the accompanying WHITE proxy card are being mailed
to shareholders beginning on or about March 31, 1998. They are furnished in
connection with the solicitation by the Board of Directors of Pennzoil Company
(the "Company") of proxies from the holders of the Company's common stock
("Common Stock") for use at the annual meeting of shareholders to be held at the
time and place set forth in the accompanying notice and at any adjournment or
postponement thereof (the "Annual Meeting").

All duly executed WHITE proxies received prior to the meeting will be voted
in accordance with the choices specified thereon. As to any matter for which no
choice has been specified in a duly executed WHITE proxy, the shares represented
thereby will be voted FOR the election as directors of the nominees listed
herein, FOR approval of the appointment of Arthur Andersen LLP as the Company's
independent public accountants, AGAINST the Wyser-Pratte Proposals (as defined
below) and in the discretion of the persons named in the proxy in connection
with any other business that may properly come before the Annual Meeting or any
adjournment or postponement thereof. A shareholder giving a proxy may revoke it
at any time before it is voted at the Annual Meeting by filing with the
Corporate Secretary an instrument revoking it, by delivering a duly executed
proxy bearing a later date or by appearing at the Annual Meeting and voting in
person.

At the Annual Meeting, shareholders may also be asked to consider and vote
upon eight proposals that may be advanced by Mr. Guy P. Wyser-Pratte. Mr.
Wyser-Pratte has given notice that he intends to nominate himself as a director
and to present eight proposals at the Annual Meeting as described below under
"Shareholder Proposals." Mr. Wyser-Pratte's proposals are collectively referred
to herein as the "Wyser-Pratte Proposals."

YOUR BOARD OF DIRECTORS UNANIMOUSLY OPPOSES MR. WYSER-PRATTE'S SOLICITATION
OF PROXIES AND URGES YOU NOT TO SIGN OR RETURN ANY GOLD PROXY CARD SENT TO YOU
BY MR. WYSER-PRATTE. THE BOARD RECOMMENDS THAT YOU VOTE FOR THE BOARD'S
NOMINEES, FOR RATIFICATION OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT
PUBLIC ACCOUNTANTS AND AGAINST THE WYSER-
PRATTE PROPOSALS.

Whether or not you have previously signed a proxy card sent by Mr.
Wyser-Pratte, your Board of Directors urges you to support the Board by signing,
dating and promptly mailing the enclosed WHITE proxy card. By signing and dating
the WHITE proxy card, you will revoke any earlier dated proxy card solicited by
Mr. Wyser-Pratte which you may have signed. Do not return any GOLD proxy card
sent to you by Mr. Wyser-Pratte. The only way to support your Board's nominees
and recommendations is to sign, date and return the Company's WHITE proxy card.

As of March 23, 1998, the record date for determining shareholders entitled
to vote at the Annual Meeting, the Company had outstanding and entitled to vote
47,643,118 shares of Common Stock. Each share entitles the holder to one vote on
each matter submitted to a vote of shareholders and to cumulative voting in the
election of directors. The requirement for a quorum at the Annual Meeting is the
presence in person or by proxy of holders of a majority of the outstanding
shares of Common Stock. In cumulative voting for directors, each shareholder is
entitled to a number of votes equal to the number of shares held

2
<PAGE>
multiplied by the number of directors to be elected; the shareholder may cast
all such votes for a single director or may cast them for any or all of the
nominees in any manner the shareholder chooses. Information regarding the vote
required for approval of other particular matters is set forth in the discussion
of those matters appearing elsewhere in this Proxy Statement.

The Board of Directors has adopted a resolution establishing the order in
which matters coming before the Annual Meeting will be considered. This
resolution provides that matters brought before the meeting will be considered
and voted upon in the order in which they are presented in this proxy statement
and the accompanying notice, which in the case of the Wyser-Pratte Proposals is
the same order in which Mr. Wyser-Pratte listed them in his advance notice to
the Company pursuant to Article I, Section 10 of the Company's By-laws.

I. ELECTION OF DIRECTORS

Two directors are to be elected for a three-year term expiring on the date
of the annual meeting in 2001 (or until their respective successors are duly
elected and qualified). The names of Messrs. W. L. Lyons Brown, Jr. and Ernest
H. Cockrell will be placed in nomination, and the persons named in the WHITE
proxies solicited by your Board of Directors will vote in favor of these two
nominees except to the extent authority to so vote is withheld. Messrs. Brown
and Cockrell are directors of the Company whose current terms expire at the
Annual Meeting. After more than 25 years of dedicated service to the Company,
Mr. W. J. Bovaird, a director whose term expires in 1998, will not be standing
for re-election to the Board of Directors and will retire from the Board
immediately prior to the Annual Meeting.

The Board of Directors decided on March 12, 1998 not to nominate a new
director to succeed Mr. Bovaird and, accordingly, adopted an amendment to the
By-laws reducing the size of the Board to ten effective upon Mr. Bovaird's
retirement immediately prior to the Annual Meeting. The Company's Restated
Certificate of Incorporation provides that the size of the Board of Directors is
to be fixed from time to time in the By-laws at not less than three nor more
than thirteen. The Board of Directors has taken action under this provision from
time to time to vary the size of the Board and in recent years has acted to
reduce the Board's size (for example, the size of the Board was reduced from
fifteen to ten in 1994).

In deciding not to nominate a new director to succeed Mr. Bovaird and to
reduce the size of the Board to ten in connection with the Annual Meeting, the
Board of Directors took into account the difficulty of attracting qualified
director candidates willing to participate in a high-profile proxy contest and
related controversy, including Stephen D. Chesebro', the Company's President and
Chief Operating Officer, who chose for this reason not to join the Board in
early 1998 as had been previously announced. The Board also took into account
that the reduction in Board size would have the effect of increasing the minimum
number of votes needed to elect Mr. Wyser-Pratte as a director under cumulative
voting from 25% of the shares voting, plus one vote (applicable to three
positions to be filled), to 33 1/3% of the shares voting, plus one vote (when
two positions are being filled). The reasons the Board opposes the election of
Mr. Wyser-Pratte are discussed in greater detail below.

The persons named in the WHITE proxy card may act with discretionary
authority in the event of cumulative voting or if any nominee should become
unavailable for election, although management is not currently aware of any
circumstances likely to result in the exercise of discretionary authority with
respect to cumulative voting. There are no conditions precedent to the exercise
of cumulative voting. In accordance with the Company's By-laws, the two
directors will be elected by a plurality of the votes cast.

3
<PAGE>
NOMINEES -- The following summaries set forth information concerning the two
nominees for election as directors at the meeting, including each nominee's age,
position with the Company, if any, and business experience during the past five
years.

<TABLE>
<CAPTION>
NAME, AGE AND BUSINESS EXPERIENCE
--------------------------------------------------------------
<S> <C>
W. L. LYONS BROWN, JR. served as Chairman of the Board of
[PHOTO] Brown-Forman Corporation, a major diversified producer and
marketer of fine quality consumer products, until his
retirement in 1995. He was also Chief Executive Officer of
Brown-Forman Corporation from 1975 until 1993. He has served
as a director of the Company since 1991 and is a member of the
Audit Committee of the Board. Mr. Brown is also a director of
Essex International Inc. and Westvaco Corporation and an
advisory director of Bessemer Holdings, L.P. He is 61 years of
age and lives in Prospect, Kentucky. Mr. Brown and affiliates
beneficially own an aggregate of 9,821 shares of Common Stock
of the Company. See page 7.

ERNEST H. COCKRELL has been engaged for more than the past
[PHOTO] five years in oil and gas exploration and production. He has
served as a director of the Company since 1978 and is Chairman
of the Compensation Committee and a member of the Audit and
Executive Committees of the Board. Mr. Cockrell is also a
director of Denali Incorporated, Southwest Bancorporation of
Texas, Inc. and Southwest Bank of Texas. He is 52 years of age
and lives in Houston. Mr. Cockrell, family partnerships and
affiliates beneficially own an aggregate of 419,066 shares of
Common Stock of the Company. See page 7.
</TABLE>

Your Board of Directors believes Messrs. Brown and Cockrell have strong
qualifications based on their business experience, their knowledge of the
Company and its businesses and their contributions to the Company over years of
prior service on the Board of Directors.

Your Board believes that Mr. Wyser-Pratte, a takeover stock speculator and
arbitrageur, has interests and objectives that differ from those of the
Company's stockholders generally. According to Mr. Wyser-Pratte's preliminary
proxy statement dated March 20, 1998, he became a stockholder of the Company
only AFTER Union Pacific Resources Group Inc. ("UPR") commenced its unsolicited
tender offer for the Company's Common Stock, and over 90% of the shares he
reports as beneficially owned by him were purchased AFTER the Board determined
that UPR's offer was inadequate and that the interests of the Company and its
stockholders would best be served by the Company remaining independent. Your
Board of Directors believes that Mr. Wyser-Pratte's objective is to capitalize
on short-term arbitrage opportunities, with little or no consideration given to
investing in a company for long-term value creation. Since such a strategy is
inconsistent with the longer-term strategy your Board believes will best serve
the interests of the Company and its stockholders, the Board believes that the
election of Mr. Wyser-Pratte would only create a discordant voice on the Board
and would not serve any useful objective. The Board believes that the election
of Mr. Wyser-Pratte would create the potential for significant distraction and
disruption, particularly in light of Mr. Wyser-Pratte's pattern of using press
releases and other publicity to advance his own agenda.

YOUR BOARD OF DIRECTORS UNANIMOUSLY OPPOSES THE ELECTION OF MR. WYSER-PRATTE
TO THE BOARD AND URGES YOU TO VOTE 'FOR' THE BOARD'S NOMINEES, MESSRS. BROWN AND
COCKRELL.

4
<PAGE>
DIRECTORS WITH TERMS EXPIRING IN 1999 AND 2000 -- The following summaries
set forth information concerning the eight directors of the Company whose
present terms of office will continue until 1999 or 2000, including each
director's age, position with the Company, if any, and business experience
during the past five years.

<TABLE>
<CAPTION>
NAME, AGE AND BUSINESS EXPERIENCE
--------------------------------------------------------------
<S> <C>
HOWARD H. BAKER, JR. has been a partner with the law firm of
[PHOTO] Baker, Donelson, Bearman & Caldwell since 1988. From 1987 to
1988, he was Chief of Staff to the President of the United
States. Mr. Baker also served three terms as a member of the
United States Senate and was Senate Majority Leader from 1981
to 1985 and Minority Leader from 1977 to 1981. He has served
as a director of the Company since 1991 and is a member of the
Finance Committee of the Board. Mr. Baker is a director of
United Technologies Corporation and a regent of the
Smithsonian Institution. He is 72 years of age and lives in
Huntsville, Tennessee. Mr. Baker's current term as a director
of the Company expires in 2000.

HARRY H. CULLEN has been engaged for more than the past five
[PHOTO] years in oil and gas exploration and production. He has served
as a director of the Company since 1992 and is a member of the
Compensation and Executive Committees of the Board. Mr. Cullen
is also a director of Cullen/Frost Bankers, Inc. He is 62
years of age and lives in Houston. Mr. Cullen's current term
as a director of the Company expires in 2000.

ALFONSO FANJUL has been Chairman of the Board and Chief
[PHOTO] Executive Officer of Florida Crystals Corporation (sugar) for
more than the past five years. He is also Chairman of the
Board, President and Chief Executive Officer of Central Romana
Corporation, Ltd. (sugar, cattle, real estate and resorts).
Mr. Fanjul has served as a director of the Company since 1984
and is a member of the Compensation Committee of the Board. He
is 60 years of age and lives in Palm Beach, Florida and La
Romana, Dominican Republic. Mr. Fanjul's current term as a
director of the Company expires in 1999.

BERDON LAWRENCE has been President of Hollywood Marine, Inc.,
[PHOTO] a Gulf Coast operator of tank barges and tow boats handling
petrochemical and petroleum products, for more than the past
five years. Mr. Lawrence has served as a director of the
Company since 1990 and is a member of the Executive Committee
of the Board. He is 55 years of age and lives in Houston. Mr.
Lawrence's current term as a director of the Company expires
in 1999.
</TABLE>

5
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND BUSINESS EXPERIENCE
--------------------------------------------------------------

JAMES L. PATE was named Chairman of the Board of the Company
[PHOTO] in 1994 and Chief Executive Officer in 1990. He served as
President of the Company from 1990 until December 1997. Mr.
Pate has served as a director of the Company since 1989, is
Chairman of the Executive Committee of the Board and is
Chairman of the Finance Committee of the Board. Mr. Pate is
also a director of Bowater Incorporated. He is 62 years of age
and lives in Houston. Mr. Pate's current term as a director of
the Company expires in 2000.
<S> <C>

BRENT SCOWCROFT is a consultant on national and international
[PHOTO] security affairs. From 1989 to 1993, he was Assistant to the
President of the United States for National Security Affairs.
He has served as a director of the Company since 1993 and is a
member of the Finance Committee of the Board. Mr. Scowcroft is
also a director of Qualcomm Incorporated. He is 73 years of
age and lives in Bethesda, Maryland. Mr. Scowcroft's current
term as a director of the Company expires in 1999.

GERALD B. SMITH has been Chairman and Chief Executive Officer
[PHOTO] of Smith, Graham & Co. Asset Managers L.P., a fixed income
investment management firm, for more than the past five years.
He is a member of the management board of Rorento N.V., a
director of Sisters of Charity of the Incarnate Word
Healthcare System and a member of the audit committee of
Northern Borders Partners, L.P. He is 47 years of age and
lives in Houston. Mr. Smith's current term as a director of
the Company expires in 2000.

CYRIL WAGNER, JR. has been a partner in Wagner & Brown, a firm
[PHOTO] involved in oil and gas exploration and production, for more
than the past five years. He has served as a director of the
Company since 1992 and is Chairman of the Audit Committee of
the Board. Mr. Wagner is also a director of Chase Bank of
Texas, N.A. He is 64 years of age and lives in Midland, Texas.
Mr. Wagner's current term as a director of the Company expires
in 1999.
</TABLE>

BOARD ORGANIZATION AND MEETINGS -- The members of the Audit Committee and
the Compensation Committee of the Board of Directors indicated in the above
summaries are not employees of the Company. The Audit Committee of the Board
recommends the appointment of independent public accountants to conduct audits
of the Company's financial statements, reviews with the independent accountants
the plan and results of the auditing engagement, approves other professional
services provided by the independent accountants and evaluates the independence
of the accountants. The Audit Committee also reviews the scope and results of
procedures for internal auditing of the Company and the adequacy of the
Company's system of internal accounting controls. The Compensation Committee
approves, or in some cases recommends to the Board, remuneration arrangements
and compensation plans involving the

6
<PAGE>
Company's directors, executive officers and certain other employees whose
compensation exceeds specified levels. The Compensation Committee also acts on
the granting of stock options and conditional stock units under the Company's
stock option plans and conditional stock award programs. The Board does not have
a standing nominating committee or other committee performing a similar
function.

During 1997, the Board of Directors held nine meetings. During 1997, the
Audit Committee met two times, and the Compensation Committee met six times.
During 1997, all members of the Board of Directors attended at least 75% of the
total of all Board meetings and applicable committee meetings.

DIRECTOR REMUNERATION -- Each director, other than a regularly employed
officer of the Company, receives a director's fee of $30,000 per annum for
service on the Board of Directors and a committee fee of $2,000 per committee
per annum for service on the Audit, Executive, Finance and Compensation
Committees. Each such director also receives an additional fee of $1,000 for
each Board, Executive Committee or other committee meeting attended. All
directors are reimbursed for their travel and other expenses involved in
attendance at Board and committee meetings. In addition, Mr. Scowcroft received
$100,000 in 1997 in remuneration for services as a director consulting on
special international projects.

CERTAIN TRANSACTIONS -- Mr. Baker is a partner in the law firm of Baker,
Donelson, Bearman & Caldwell, which provides legal services to the Company from
time to time in connection with certain matters.

SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS -- The following tabulation
sets forth the shares of Common Stock of the Company beneficially owned directly
or indirectly as of March 5, 1998 (i) by the Board's nominees for director,
other directors, the chief executive officer and the four other most highly
compensated executive officers and (ii) by all the foregoing and other current
executive officers of the Company as a group.

<TABLE>
<CAPTION>
SHARES OF COMMON STOCK PERCENTAGE
NAME BENEFICIALLY OWNED (1) OF CLASS
- ----------------------------------------------------------------------- ----------------------- -----------
<S> <C> <C>
David P. Alderson, II.................................................. 72,554 *
Howard H. Baker, Jr.................................................... 5,000 *
W. J. Bovaird.......................................................... 6,535 *
W. L. Lyons Brown, Jr. (2)............................................. 9,821 *
Stephen D. Chesebro'................................................... 19,166 *
Ernest H. Cockrell (2)................................................. 419,066 *
Harry H. Cullen........................................................ 16,115 *
Alfonso Fanjul (2)..................................................... 30,700 *
Donald A. Frederick.................................................... 6,666 *
Berdon Lawrence........................................................ 15,000 *
James L. Pate.......................................................... 338,374 *
Brent Scowcroft........................................................ 3,500 *
James W. Shaddix....................................................... 80,523 *
Gerald B. Smith........................................................ 2,000 *
Cyril Wagner, Jr....................................................... 19,900 *
All the above and all other current executive
officers as a group (21 persons)...................................... 1,236,480 2.6%
</TABLE>

- ------------

(1) Pursuant to regulations of the Securities and Exchange Commission (the
"SEC"), securities must be listed as beneficially owned by a person who
directly or indirectly holds or shares the power to vote or dispose of the
securities, whether or not the person has any economic interest in the
securities. In addition, a person is deemed a beneficial owner if he has the
right to acquire beneficial ownership within 60 days, including upon
exercise of a stock option or conversion of a convertible security.
Securities owned by certain family members are included in the foregoing
table even in certain instances where the possession or sharing of voting or
dispositive power is not acknowledged. The tabulation also includes shares
subject to stock options exercisable within 60 days (65,966 for Mr.
Alderson, 16,666 for Mr. Chesebro', 6,666 for Mr. Frederick, 309,866 for Mr.
Pate, 67,556 for Mr. Shaddix and 643,194 for all the above and all other
current executive officers as a group).

(2) Certain persons have shared voting and dispositive power with respect to
certain shares of Common Stock in the above tabulation as follows: Mr.
Brown, 3,321 shares, which are held by charitable foundations of which Mr.
Brown is a member of the governing body; Mr. Cockrell, 419,066 shares,
409,066 of which are held by family partnerships and 10,000 of which are
held by a charitable foundation of which Mr. Cockrell is an officer; and Mr.
Fanjul, 30,500 shares, which are held by corporations in which Mr. Fanjul is
controlling shareholder.

* Less than 1%.

7
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT -- Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the
Company's directors and executive officers to file with the SEC and the New York
Stock Exchange initial reports of ownership and reports of changes in ownership
of Common Stock. Based solely on a review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, the Company believes that all its directors and executive officers
during 1997 complied on a timely basis with all applicable filing requirements
under Section 16(a) of the Exchange Act, except that Mr. Fanjul, a director of
the Company, did not timely file a report indicating ownership of 200 shares of
Common Stock by a corporation of which he is controlling shareholder; Mr. Fanjul
has subsequently made the filing.

II. APPROVAL OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors, upon recommendation of its Audit Committee, has
approved and recommends the appointment of Arthur Andersen LLP as independent
public accountants to conduct an audit of the Company's financial statements for
the year 1998. This firm has acted as independent public accountants for the
Company for many years.

Members of Arthur Andersen LLP will attend the Annual Meeting and will be
available to respond to questions which may be asked by shareholders. Such
members will also have an opportunity to make a statement at the meeting if they
desire to do so.

The Board of Directors recommends that shareholders approve the appointment
of Arthur Andersen LLP as the Company's independent public accountants. In
accordance with the Company's By-laws, approval of the appointment of
independent public accountants will require the affirmative vote of a majority
of the shares of Common Stock voted at the meeting. Accordingly, abstentions and
broker non-votes applicable to shares present at the meeting will not be
included in the tabulation of votes cast on this matter.

III. SHAREHOLDER PROPOSALS

Mr. Guy P. Wyser-Pratte has given notice of his intention to nominate
himself as a director and to present the following eight Wyser-Pratte Proposals
(listed below) at the Annual Meeting. The Board of Directors is unanimously
opposed to all of the Wyser-Pratte Proposals for the reasons indicated.

(1) THE RIGHTS WITHDRAWAL PROPOSAL

The first proposal by Mr. Wyser-Pratte is to adopt a by-law that would
require the Board of Directors, at a specified time after the commencement of an
offer to purchase all outstanding shares of Common Stock meeting certain pricing
and financing requirements, to redeem the rights issued under the Company's
shareholder rights plan (or otherwise take action so that the existence of the
rights does not interfere with the consummation of the offer), unless the
Board's decision not to do so is approved by a vote of shareholders. The text of
this proposal (referred to herein as the "Rights Withdrawal Proposal") is as
follows:

"RESOLVED, that the Shareholders hereby amend the Company's By-laws by
adding a new Article IX, which shall read as follows:

'If an Offer is made to purchase all of the Common Stock, the Board
of Directors shall at the request of any shareholder Withdraw the Poison
Pill at the end of the ninetieth day after such Offer is first published
or sent to security holders unless the decision of the Board of Directors
not to Withdraw the Poison Pill at such time is approved by a vote of a
majority of the votes which all shareholders are entitled to cast (i.e.,
by the vote of a majority of the outstanding shares entitled to vote) at
a meeting of shareholders which is held on or before such ninetieth day,
which meeting has a Conforming Record Date (as defined below); provided,
however, that the Board of Directors shall not be required to Withdraw
the Poison Pill at the end of such ninetieth day unless at such time such
Offer has an expiration date which is at least ten business days
thereafter.

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"Withdraw the Poison Pill" shall mean redeem the outstanding Rights under
the Rights Agreement between the Company and Chemical Bank, as Rights
Agent or take other action so that the existence of such Rights does not
interfere with the consummation of such Offer. A "Conforming Record Date"
shall mean a record date that is at least five business days after the
date on which the Company files its statement of position with respect to
such offer in accordance with Rule 14e-2 of the Securities Exchange Act
of 1934, as amended. An "Offer" shall mean either (a) a Fully Financed
offer to purchase all the Company's outstanding shares of Common Stock
for cash by means of a tender offer at a price that is least [sic] 25%
greater than the average closing price of such shares on the New York
Stock Exchange during the twenty trading days prior to the date on which
such offer is first publicly disclosed ("Prior Market Price") or (b) any
offer to acquire all the Company's outstanding shares of Common Stock by
means of a tender offer or exchange offer if the average closing price of
such shares on the New York Stock Exchange during the five trading days
following the date on which such offer is first publicly disclosed is at
least 25% greater than the Prior Market Price. If there is another Offer
outstanding at the time such offer is first publicly disclosed then the
references to 25% in the preceding sentence shall be changed to 10%[.] An
offer is "Fully Financed" if the offer is not subject to a financing
contingency and the offeror has a reasonable basis for believing that it
has sufficient financing available to consummate the offer. This Bylaw
shall apply to Offers that are outstanding when this Bylaw is adopted,
but the ninety-day period provided for in this Bylaw shall not begin to
run until this Bylaw is adopted."'

YOUR BOARD OF DIRECTORS UNANIMOUSLY URGES YOU TO VOTE AGAINST THIS PROPOSAL
FOR THE FOLLOWING REASONS.

Although the issue has not been decided by a Delaware court, the Company has
received an opinion of its special Delaware counsel, Richards, Layton & Finger,
to the effect that the by-law set forth in the Rights Withdrawal Proposal would
not be valid under Delaware law. The opinion states that, although no Delaware
case directly addresses a by-law such as that embodied in the Rights Withdrawal
Proposal, Delaware case law under Section 141(a) of the Delaware General
Corporation Law (the "General Corporation Law") has recognized that among the
powers conferred upon a board of directors under Section 141(a) is the power to
adopt and maintain defensive measures (REVLON V. MACANDREWS & FORBES HOLDINGS,
INC., 506 A. 2d 173, 181 (Del. 1986)), specifically including a shareholder
rights plan (MORAN V. HOUSEHOLD INT'L, INC., 500 A. 2d 1346 (Del. 1985)), prior
to or in response to a takeover proposal.

The opinion received by the Company is based on Section 141(a), which
provides that "[t]he business and affairs of every corporation organized under
this chapter shall be managed by or under the direction of a board of directors,
except as may be otherwise provided in this chapter or in its certificate of
incorporation," and on Section 157 of the General Corporation Law, which confers
on a corporation's board of directors the authority to issue rights and to
establish the terms of such rights. The opinion of the Company's special
Delaware counsel notes that both of the foregoing sections provide that the
authority of a corporation's board of directors may be limited by the
corporation's certificate of incorporation, but that neither section provides
that such authority may be limited by a by-law. According to the opinion of the
Company's special Delaware counsel, based on the authority vested in the board
of directors by both Section 141(a) and Section 157, the Delaware courts have
repeatedly deferred to the discretion of boards of directors in the context of
the adoption, maintenance and redemption of rights plans, subject only to a
fact-specific inquiry as to whether the board has satisfied its fiduciary
duties, including the requirement that the use of the rights plan be reasonable
in relation to the threat posed. Such counsel believes that the extensive body
of Delaware case law regarding rights plans (MORAN V. HOUSEHOLD INT'L, INC.,
SUPRA; PARAMOUNT COMMUNICATIONS INC. V. TIME INC., 571 A. 2d 1140 (Del. 1989);
REVLON, SUPRA) is inconsistent with the concept of stockholder-dictated action
controlling the use of a rights plan.

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The opinion of the Company's special Delaware counsel notes Mr.
Wyser-Pratte's asserted belief that his by-law proposal is authorized by Section
109 of the General Corporation Law, which gives stockholders the power to
"adopt, amend or repeal bylaws," and which states that "[t]he bylaws may contain
any provision, not inconsistent with law or with the certificate of
incorporation, relating to the business of

the corporation, the conduct of its affairs, and its rights or powers or the
rights or powers of its stockholders, directors, officers or employees." In the
opinion of Pennzoil's special Delaware counsel, Mr. Wyser-Pratte's asserted
belief cannot be reconciled with established principles of Delaware law and is
incorrect. The opinion of Pennzoil's special Delaware counsel notes that,
although no Delaware case has directly addressed the interplay of Sections
141(a) and 109(b) of the General Corporation Law, such counsel are of the view
that Mr. Wyser-Pratte has misconstrued Section 109(b) and the language "except
as may be otherwise provided in this chapter" contained in Section 141(a)
qualifying the board's authority. According to the opinion received by the
Company, commentators on the General Corporation Law generally agree that the
"except as may be otherwise provided in this chapter" language of Section 141(a)
refers only to specific provisions of the General Corporation Law which
expressly authorize a departure from the general rule of management by
directors, and not to open-ended provisions such as Section 109(b). Moreover,
even if Mr. Wyser-Pratte's interpretation of Section 141(a) were correct,
Section 157 dealing with the authority of a board of directors to issue rights
does not contain any such exception. Finally, such counsel are of the opinion
that a by-law provision such as that embodied in the Rights Withdrawal Proposal
that requires a board of directors to take action, even in disregard of what it
considers its fiduciary duties to require, would be invalid.

In the latter connection, the Board of Directors opposes the Rights
Withdrawal Proposal because, as acknowledged by Mr. Wyser-Pratte, it could
actually require the Board to act contrary to its best judgment and in a manner
opposed to what the Board believed its fiduciary duties required. The Board
believes, as repeatedly stated by the Delaware courts, that a board of directors
has the affirmative legal duty to respond to and resist takeover attempts that
it determines in good faith to be contrary to the best interests of the
corporation and its shareholders. As a general matter, the Board believes that a
corporation's board of directors is the proper body to decide whether the
corporation is "for sale" and to evaluate the merits of takeover proposals. In
this connection, Delaware courts have held that a board of directors, while
always required to act in an informed manner, is not under any PER SE duty to
maximize shareholder value in the short term, or to follow the wishes of
stockholders with short-term goals, even in the context of a takeover. In
addition, the Board of Directors believes, as the Delaware courts have
recognized, that the stockholders may not have all the information possessed by
a corporation's board of directors regarding the corporation's business and
future prospects. If a board determines that a sale is in the best interests of
the corporation and its stockholders, the Board believes that it is the board
that is in the best position to negotiate and conclude a transaction in a timely
manner.

The Rights Withdrawal Proposal contains a number of specific terms that the
Board believes are not in the best interest of the Company and its stockholders.
For example, whether an offer is "Fully Financed" is determined in part by
whether the OFFEROR "has a reasonable basis for believing it has sufficient
financing available to consummate the offer." The Company might well have
difficulty applying this subjective test which is dependent on whether a third
party has a reasonable basis for its belief, thus possibly leading to
uncertainty regarding the Board's powers in a situation critical to the Company
and its shareholders. Moreover, highly conditional offers that might not be bona
fide acquisition proposals could constitute "Offers" within the meaning of Mr.
Wyser-Pratte's proposal.

Mr. Wyser-Pratte's proposed by-law, had it been in effect, would not, by its
terms, have applied to the offers made last year by UPR for the Common Stock.
UPR's original tender offer/stock merger proposal made on June 23, 1997 would
not have constituted an "Offer" under the by-law because it was not a tender or
exchange offer to acquire all the Company's outstanding Common Stock. The
revised offer made by UPR on October 7, 1997 would not have constituted an
"Offer," because it would not have met the requirement for a 25% premium over
the average closing price of the Common Stock during the 20 trading days prior
to October 7, 1997, or even a 10% premium (if that provision were, contrary to
the manner in which the by-law is drafted, deemed applicable).

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(2) BY-LAW PROPOSAL IMPOSING BOARD UNANIMITY REQUIREMENT FOR DEFENSIVE
ACTION

Mr. Wyser-Pratte has given notice that he will propose the adoption of a
by-law that would require a UNANIMOUS vote of all directors then in office in
order to take certain "Defensive Actions" unless such actions are approved by
the Company's stockholders. According to Mr. Wyser-Pratte's proxy statement,
"[i]f this bylaw is adopted and Wyser-Pratte is elected to the board,
Wyser-Pratte's vote would be required to approve any Defensive Action by the
board."

According to the notice submitted to the Company, Mr. Wyser-Pratte's
proposal in this regard (referred to herein as the "Board Unanimity Proposal")
is as follows:

"RESOLVED, that the Shareholders hereby amend the Company's Bylaws by
adding a new Article X, which shall read as follows:

'Notwithstanding any provision to the contrary contained in these
Bylaws, the unanimous vote of all the directors then in office shall be
required to approve any Defensive Action by the board of directors,
provided, however, that any such Defensive Action may be authorized by
the vote of a majority of the directors present at a meeting at which a
quorum is present if such authorization is ratified by a vote of a
majority of the votes which all shareholders are entitled to cast (i.e.,
by the vote of a majority of the outstanding shares entitled to vote).
'Defensive Action' shall mean any action by the board with the purpose or
effect, in whole or in part, of impeding a change in control of the
Company or increasing the board's power to impede such a change in
control in the future, including without limitation (1) the extension of
the expiration date of the Company's Shareholder Rights Plan past October
28, 1999 or the addition of a "Dead Hand" provision to such Plan, or (2)
the expenditure of any corporate funds on a proxy contest against a
shareholder of the Company (including litigation in connection with such
proxy contest), unless the Company agrees to reimburse all such costs
incurred by such shareholder if 10% of the Company's shares are voted in
favor of any of such shareholder's proposals; provided, however, that (a)
subject to clauses (1) and (2) of this sentence, if an offer is made to
acquire the Company or all of the Company's shares, and the Board
determines (by a vote of a majority of the directors present at a meeting
at which a majority of the directors are present) that such offer will
maximize the company's value at a sale for the stockholders' benefit, no
action taken by the Board to facilitate such offer shall be a Defensive
Action within the meaning of this Article X and (b)the term "Defensive
Action" shall not include a decision by the board not to redeem the
outstanding Rights under the Rights Agreement between the Company and
Chemical Bank, as Rights Agent or to take other action so that the
existence of such Rights does not interfere with the acquisition of the
Company's shares or an offer to acquire such shares. A "Dead Hand"
provision shall mean any provision of the Rights agreement between the
Company and Chemical Bank, as Rights Agent, or any related document (the
"Poison Pill") that limits in any way the voting power of directors
elected after a certain date or event on matters relating to the Poison
Pill, compared to either the voting power of directors elected prior to
such date or event or the voting power of directors elected on the
recommendation of directors elected prior to a specified date or event."'

YOUR BOARD OF DIRECTORS UNANIMOUSLY URGES YOU TO VOTE AGAINST THIS PROPOSAL
FOR THE FOLLOWING REASONS.

The Board of Directors believes that this proposal is ill-advised because it
could result in situations in which the Board would be prevented from taking
action even though a clear majority on the Board believed the action being
considered was in the best interests of the Company and its stockholders. As Mr.
Wyser-Pratte acknowledges in his preliminary proxy statement dated March 20,
1998, "[if] this bylaw is adopted and Wyser-Pratte is elected to the board,
Wyser-Pratte's vote would be required to approve any Defensive Action by the
board." The Board of Directors believes that, in all events, it is inappropriate
and inadvisable to give any single board member a veto power over the Board's
decisions. More specifically, the Board of Directors believes it is simply
irresponsible to vest in a single director (especially one who is a takeover
stock speculator and arbitrageur) the power unilaterally to paralyze the Board
from taking defensive action in the context of an unsolicited takeover proposal.

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Mr. Wyser-Pratte acknowledges that there are no Delaware cases considering
the proposed by-law. He asserts, however, that "[a] unanimous vote requirement
for action by the board is authorized by Section 141(b) of the Delaware General
Corporation Law which states in relevant part: 'The vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board of directors unless the certificate of incorporation or the bylaws
shall require a vote of a greater number.' " In support of the proposed by-law,
Mr. Wyser-Pratte cites FRANTZ MFG. CO. V. EAC INDUS., 501 A. 2d 401, 407 (Del.
1985), in which, according to Mr. Wyser-Pratte, "the Delaware Supreme Court
ruled that a majority shareholder may adopt a bylaw requiring a unanimous vote
for action by the board in order 'to limit the Frantz board's anti-takeover
maneuvering after EAC had gained control of the corporation.' " However, the
Board believes that the FRANTZ decision is not applicable here because the
Delaware Supreme Court's conclusion was tied to the specific facts before it,
i.e., a majority stockholder's efforts to avoid being disenfranchised. Here,
rather than protecting a majority stockholder from disenfranchisement, Mr.
Wyser-Pratte's proposed by-law in fact would achieve the opposite result -- it
would enable shareholders having only a small minority of the shares to seize
negative control of the Company in takeover matters, through the simple
expedient of electing (by cumulative voting) only a single director at a meeting
of stockholders, which director could then block actions of the Board of
Directors necessary to protect the Company and the substantial majority of its
shareholders.

The Board also believes that the unanimity requirement is inadvisable
because the scope of the matters subject to its requirements is unclear and
could create undesirable uncertainty as to whether the unanimity requirement
applied to a particular action. The by-law defines "Defensive Action" to
include, with certain exceptions, "any action with the purpose or effect, in
whole or in part, of impeding a change in control of the Company or increasing
the board's power to impede such a change in control in the future." The Board
believes that almost any significant corporate action could be said to have some
effect on the possibility of a change of control, and therefore virtually any
business matter with which Wyser-Pratte (if elected) or any other single
director disagreed could be subject to challenge as not having met the
requirement of the by-law.

In addition, the Board believes that Mr. Wyser-Pratte's proposed unanimity
requirement, as drafted, procedurally could prevent the Board from taking action
even when there is no disagreement among the directors regarding the "Defensive
Action" in question. For example, because the unanimity requirement is expressed
in terms of all members of the Board "then in office," the Board would be
paralyzed if one or more directors were unable to participate in the Board
meeting. Similarly, the unanimity requirement could prevent action from being
taken when one or more directors felt it necessary to abstain from voting on a
particular matter, for example because of a personal interest in the matter. The
Board believes it is highly imprudent to put in place such a procedural
requirement that could disable the Board from acting merely because of the
unavoidable absence, or the appropriate abstention, of a single director.

The Board of Directors further believes the Board Unanimity Proposal is
inadvisable because it includes within the scope of "Defensive Actions" subject
to the unanimity requirement "any expenditure of any corporate funds on a proxy
contest against a shareholder of the Company (including litigation in connection
with such proxy contest), unless the Company agrees to reimburse all such costs
incurred by such shareholder if 10% of the Company's shares are voted in favor
of any of such shareholder's proposals." The Board believes such a requirement
would impermissibly interfere with its responsibility to exercise its business
judgment concerning the propriety of expenditures by the Company. The Board also
believes that it is not appropriate to give a proponent an automatic claim to
the Company's assets to fund litigation against the Company and other activities
in connection with a proxy contest based on a mere 10% vote in favor of a
proposal opposed by the Board.

The Board of Directors does not believe that the Board Unanimity Proposal is
rendered acceptable merely because it permits action to be taken by a less than
unanimous Board vote if the action is ratified by the Company's shareholders.
First, such a requirement to obtain shareholder approval could improperly
interpose a decision by shareholders in a matter properly the responsibility of
the Board of Directors. Second, the extensive time necessary to obtain
shareholder approval, including preparation of proxy material, review by the
Securities and Exchange Commission, printing, mailing and allowing an adequate
time for solicitation, could in many circumstances mean that action could not be
taken in time for it to be

12
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effective. This is especially the case with respect to action on matters that
might be viewed as "defensive," because there could well be circumstances beyond
the control of the Company that require very prompt action by the Board.
Moreover, the circumstances could change in the course of attempting to obtain
shareholder approval, possibly necessitating preparation of supplemental proxy
material and postponement or delays in the date on which a meeting of
shareholders could be held.

On March 12, 1998 the Board of Directors adopted an amendment to the By-laws
which provides that in order for any By-law to be adopted or amended so as to
impose a greater percentage vote for Board or shareholder action than is
otherwise provided in the By-laws (as in effect prior to March 12, 1998) or by
applicable law, there shall be required for such adoption or amendment the vote
of (a) the same greater percentage vote of the outstanding shares entitled to
vote thereon (if the adoption or amendment is to be by the shareholders) or (b)
the same greater percentage vote of the directors then in office (if the
adoption or amendment is to be by the Board of Directors), subject in each case
to a maximum percentage vote of 66 2/3%. Under this new By-law provision, the
vote required for adoption of the Board Unanimity Proposal will be 66 2/3% of
the outstanding shares of Common Stock. The By-law amendment adopted on March
12, 1998 also provides that in order for the supermajority requirement imposed
thereby to be altered, amended or repealed, a vote of at least 66 2/3% of the
outstanding shares entitled to vote, or 66 2/3% of the directors then in office,
is required. The Board of Directors believes that this By-law amendment is
appropriate so as to protect against the imposition, through a by-law such as
that embodied in the Board Unanimity Proposal, of a veto power in favor of a
minority unless a corresponding supermajority of the shareholders or Board of
Directors (whichever body seeks to impose the requirement) approves. However,
the March 12, 1998 By-law amendment would not impose a supermajority requirement
greater than 66 2/3%. This By-law amendment does not affect the vote required
for adoption of the Wyser-Pratte Proposals, other than the Board Unanimity
Proposal and the Repeal Proposal (as applied to this By-law amendment). See "--
Required Vote on Shareholder Proposals."

(3) BY-LAW PROPOSAL TO ALLOW HOLDERS OF 10% OF SHARES TO CALL SPECIAL
MEETINGS

Mr. Wyser-Pratte has given notice that he intends to present the following
proposal regarding the calling of special meetings of shareholders:

"RESOLVED, that in accordance with Article VIII of the Bylaws of the
Company, the Shareholders of the Company hereby amend Article I, Section 2
of the Bylaws so that it reads in its entirety as follows:

'Special meetings of the shareholders may be called at any time by the
Board of Directors, the Chairman of the Board, the Executive Committee, the
Chairman of the Executive Committee or the President. Upon written request
of any person or persons who have duly called a special meeting, it shall be
the duty of the Secretary of the Corporation to fix the date of the meeting
to be held not less than ten nor more than sixty days after the receipt of
the request and to give due notice thereof. If the Secretary shall neglect
or refuse to fix the date of the meeting and give notice thereof, the person
or persons calling the meeting may do so.

Notwithstanding anything to the contrary contained in these By-laws, a
special meeting of the shareholders may also be called at any time by
shareholders entitled to cast 10% of the votes which all shareholders are
entitled to cast (i.e., by 10% of the shares entitled to vote). The
shareholders calling such a meeting may also fix the date, time and place of
the meeting, which may be held within or without the State of Delaware. If
such shareholders have fixed any such items, such shareholders shall have
all the power to change the date, time and/or place of such meeting or to
adjourn such meeting that the board of directors or any officer of the
Corporation would have in respect of a special meeting called by the board
of directors; and agent designations executed by shareholders in connection
with calling such meeting may delegate such power to the agents designated
to call such meeting. Such shareholders shall call such special meeting and,
if they have elected to do so, shall fix the date, time and/or place of the
meeting by means of a written notice to the Secretary of the Company."'

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YOUR BOARD OF DIRECTORS UNANIMOUSLY URGES YOU TO VOTE AGAINST THIS PROPOSAL
FOR THE FOLLOWING REASONS.

In response to Mr. Wyser-Pratte's By-law proposal regarding the calling of
special meetings of shareholders, on March 12, 1998, the Board adopted a new
By-law providing that shareholders entitled to cast 25% of the votes which all
shareholders are entitled to cast may call special meetings of shareholders. The
Board believes that this By-law achieves a proper balance between enabling
shareholders to call a special meeting and avoiding circumstances in which the
Company might have to incur the expense and distraction of holding a special
meeting proposed by only a small minority of holders. The Board does not believe
any change to allow a percentage of shareholders lower than 25% to call a
special meeting is appropriate or desirable.

The Board believes that the annual meeting of shareholders ordinarily
presents an adequate opportunity for a shareholder to present matters for
consideration by the shareholders as a whole. The Company's By-laws set forth
procedures and requirements so that shareholder proposals can be presented in an
orderly manner. In addition, rules of the Securities and Exchange Commission
allow shareholders to have their proposals, subject to certain exclusions,
included in the proxy soliciting material that is printed and distributed on
behalf of the Board of Directors, thereby sparing the shareholder proponent the
expense of conducting his or her own solicitation. Given the existing
opportunities for shareholder proposals and the time, expense and potential
distraction that a special meeting would involve, the Board does not believe it
advisable to add a procedure for allowing shareholders to call a special meeting
between annual meetings unless there is a significant level of support for such
a special meeting. The Board believes that 25% is an appropriate measure of the
level of support that would warrant the calling of such a meeting.

(4) AMENDMENTS TO ADVANCE NOTICE BY-LAW PROVISIONS

Mr. Wyser-Pratte has given notice of his intent to present at the Annual
Meeting the following proposal to amend the Company's By-law provisions
regarding advance notice of nominations for directors and of proposals of
business to be transacted at meetings:

"RESOLVED, that the Shareholders of the Company hereby amend Article I,
Sections 9 and 10 of the By-laws so that they read in their entirety as follows:

'SECTION 9. Subject to such rights of the holders of Preferred Stock or
Preference Common Stock or any series thereof as shall be prescribed in the
Certificate of Incorporation or in the resolutions of the Board of Directors
providing for the issuance of any such series, only persons who are
nominated in accordance with the procedures set forth in this Section 9
shall be eligible for election as, and to serve as, directors. Nominations
of persons for election to the Board of Directors may be made at a meeting
of shareholders at which directors are to be elected (a) by or at the
direction of the Board of Directors (or any duly authorized committee
thereof) or (b) by any shareholder of the Corporation (i) who is a
shareholder of record on the date of the giving of the notice provided for
in this Section 9 and on the record date for the determination of
shareholders entitled to vote at such annual meeting and (ii) who complies
with the requirements of this Section 9. In addition to any other applicable
requirements, nominations, other than those made by or at the direction of
the Board of Directors (or any duly authorized committee thereof) shall be
preceded by timely notice thereof in proper written form to the Secretary of
the Corporation.

To be timely, a shareholder's notice must be delivered to, or mailed and
received at, the principal executive offices of the Corporation not less
than 60 days nor more than 120 days prior to the anniversary date of the
immediately preceding annual meeting of shareholders; provided, however,
that in the event that the annual meeting is called for a date that is not
within 30 days before or after such anniversary date, notice by the
shareholder, in order to be timely, must be so received not later than the
close of business on the 30th day following the day on which such notice of
the date of the annual meeting was mailed or public disclosure of the date
of the annual meeting was made, whichever first occurs. In no event shall
the public disclosure of an adjournment of an annual meeting commence a new
time period for the giving of a shareholder's notice as described above.

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To be in proper written form, a shareholder's notice to the Secretary
must set forth (a) as to each person whom the shareholder proposes to
nominate for election as a director (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class or series and number of shares of
capital stock of the Corporation which are owned beneficially or of record
by such person and (iv) any other information relating to such person that
would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election
of directors pursuant to Section 14 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder; and (b) as to the shareholder giving the notice (i) the name and
record address of such shareholder, (ii) the class or series and number of
shares of capital stock of the Corporation which are owned beneficially or
of record by such shareholder, (iii) a description of all arrangements or
understandings between such shareholder and each proposed nominee and any
other person or persons (including their names) pursuant to which the
nomination(s) are to be made by such shareholder, (iv) a representation that
such shareholder intends to appear in person or by proxy at the meeting to
nominate the persons named in its notice and (v) any other information
relating to such shareholder that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of
the Exchange Act and the rules and regulations promulgated thereunder. Such
notice must be accompanied by a written consent of each proposed nominee to
be named as a nominee and to serve as a director if elected.

No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in
this Section 9. If the Chairman of the meeting determines that a nomination
was not made in accordance with the foregoing procedures, the Chairman shall
declare to the meeting that the nomination was defective and such defective
nomination shall be disregarded, subject to the power of a majority of the
shares present at such meeting in person or by proxy to overrule the
Chairman's ruling.

Notwithstanding anything in the second paragraph of this Section 9 to
the contrary, in the event that the number of directors to be elected to the
Board of Directors of the Corporation is increased and there is no public
disclosure by the Corporation naming all of the nominees for director or
specifying the size of the increased Board of Directors at least 90 days
prior to the first anniversary of the preceding year's annual meeting, a
shareholder's notice required by the by-law shall also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal offices
of the Corporation not later than the close of business on the 30th day
following the day on which such public disclosure is first made by the
Corporation.

For purposes of this Section 9 and Section 10 of these by-laws, "public
disclosure" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press, PR Newswire, Bloomberg or comparable
national news service or in a document publicly filed by the Corporation
with the Securities and Exchange Commission pursuant to Section 13, 14 or
15(d) of the Exchange Act.

Notwithstanding anything to the contrary contained in these By-laws, if
any shareholder has properly given notice, pursuant to this Section 9, of
his intention to nominate a director pursuant to this Article, such
shareholder may substitute another nominee at any time up to and including
the time of the meeting if the candidacy of the former nominee is withdrawn
for any reason.

SECTION 10. No business may be transacted at an annual meeting of
shareholders, other than business that is either (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the
Board of Directors (or any duly authorized committee thereof), (b) otherwise
properly brought before the annual meeting by or at the direction of the
Board of Directors (or any duly authorized committee thereof) or (c)
otherwise properly brought before the annual meeting by any shareholder of
the Corporation (i) who is a shareholder of record on the date of the giving
of the notice provided for in this Section 10 and on the record date for the
determination of shareholders

15
<PAGE>
entitled to vote at such annual meeting and (ii) who complies with the
notice procedures set forth in this Section 10. In addition to any other
applicable requirements, for business to be properly brought before an
annual meeting by a shareholder, such shareholder must have given timely
notice thereof in proper written form to the Secretary of the Corporation.

To be timely, a shareholder's notice must be delivered to or mailed and
received at the principal executive offices of the Corporation not less than
60 days nor more than 120 days prior to the anniversary date of the
immediately preceding annual meeting of shareholders; provided, however,
that in the event that the annual meeting is called for a date that is not
within 30 days before or after such anniversary date, notice by the
shareholder, in order to be timely, must be so received not later than the
close of business on the 30th day following the day on which such notice of
the date of the annual meeting was mailed or public disclosure (as defined
in Section 9) of the date of the annual meeting was made, whichever first
occurs. In no event shall the public disclosure of an adjournment of an
annual meeting commence a new time period for the giving of a shareholder's
notice as described above.

To be in proper written form, a shareholder's notice to the Secretary
must set forth as to each matter such shareholder proposed to bring before
the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and record address of such
shareholder, (iii) the class or series and number of shares of capital stock
of the Corporation which are owned beneficially or of record by such
shareholder, (iv) a description of all arrangements or understandings
between such shareholder and any other person or persons (including their
names) in connection with the proposal of such business by such shareholder
and any material interest of such shareholder in such business and (v) a
representation that such shareholder intends to appear in person or by proxy
at the annual meeting to bring such business before the meeting.

No business shall be conducted at the annual meeting of shareholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 10; provided, however, that, once
business has been properly brought before the annual meeting in accordance
with such procedures, nothing in this Section 10 shall be deemed to preclude
discussion by any shareholder of any such business. If the Chairman of an
annual meeting determines that business was not properly brought before the
annual meeting in accordance with the foregoing procedures, the Chairman
shall declare to the meeting that the business was not properly brought
before the meeting and such business shall not be transacted, subject to the
power of a majority of the shares present at such meeting in person or by
proxy to overrule the Chairman's ruling.

At a special meeting of shareholders, only such business shall be
conducted as shall have been set forth in the notice relating to the
meeting. At any meeting, matters incident to the conduct of this meeting may
be voted upon or otherwise disposed of as the presiding officer of the
meeting (or the holders of a majority of the shares present at such meeting
in person or by proxy) shall determine to be appropriate.

Notwithstanding anything to the contrary contained in these By-laws, if
a shareholder has properly given notice, pursuant to this Section 10, of
business to be brought before an annual shareholders meeting in accordance
with this Article, such shareholder may alter, amend, add to or revoke any
such notice or give notice of any additional business to be transacted at
such meeting at any time up to ten days prior to the date of such meeting."'

YOUR BOARD OF DIRECTORS UNANIMOUSLY URGES YOU TO VOTE AGAINST THIS PROPOSAL
FOR THE FOLLOWING REASONS.

The Board believes the existing provisions of the By-laws of the Company
regarding nomination procedures and advance notice of business to be brought
before the meeting are appropriate and fair. One change that would be made by
Mr. Wyser-Pratte's proposal would be to decrease the minimum advance notice
period from 90 to 60 days prior to the anniversary of the preceding annual
meeting. The Board does not believe that this reduced period is adequate
because, in virtually all instances in which the notice would be required, the
Company would be required to file proxy material in preliminary form with the
Securities

16
<PAGE>
and Exchange Commission. Notice given 60 days prior to the meeting date might
not allow adequate time for the Company to evaluate the proposals and include
them in the preliminary filing, the completion of any review by the Staff of the
Securities and Exchange Commission, the printing and distribution of proxy
soliciting material and an adequate solicitation period. As a result, notice of
a nomination or shareholder proposal at a later date such as would be permitted
under Mr. Wyser-Pratte's proposal could necessitate a postponement of the
meeting date.

The Board also believes the provisions of Mr. Wyser-Pratte's proposal that
would allow a shareholder to make changes in proposed business to be brought
before the meeting, including making new or revised proposals, as late as 10
days prior to the meeting date, are unworkable and would result in the expense
of mailing additional material to all stockholders and the possible necessity to
adjourn the meeting to a later date.

(5) PROPOSAL TO AMEND THE BY-LAWS TO PREVENT AMENDMENTS BY THE BOARD TO
CERTAIN SECTIONS OF THE BY-LAWS

Mr. Wyser-Pratte has given notice of his intention to present the following
proposal at the Annual Meeting:

"RESOLVED, that in accordance with Article VIII of the By-laws of the
Company, the shareholders of the Company hereby amend the By-laws by deleting
Article VIII of the By-laws in its entirety and replacing therewith the
following:

'These By-laws may be altered, amended, added to or repealed by the
shareholders at any annual or special meeting, by the vote of shareholders
entitled to cast at least a majority of the votes which all shareholders are
entitled to cast (i.e., by the vote of a majority of the outstanding shares
entitled to vote), and, except as may be otherwise required by law, the
power to alter, amend, add to or repeal these By-laws is also vested in the
Board of Directors (subject always to the power of the shareholders to
change such action); provided, however, that notice of the general nature of
any such action proposed to be taken at a Board of Directors meeting shall
be included in the notice of the meeting of the Board of Directors at which
such action is taken; and provided further that the Board of Directors shall
have no power to alter, amend, add to or repeal Section 2, 9 or 10 of
Article I, this Article VIII or Articles IX or X of these By-laws."'

YOUR BOARD OF DIRECTORS UNANIMOUSLY URGES YOU TO VOTE AGAINST THIS PROPOSAL
FOR THE FOLLOWING REASONS.

This proposal would add a provision to the By-laws denying the Board of
Directors the power to amend certain sections of the By-laws. Mr. Wyser-Pratte
has stated in his preliminary proxy statement dated March 20, 1998 that the
purpose of this proposal is to prevent the Board of Directors from repealing or
otherwise changing any by-laws adopted by the shareholders at the Annual
Meeting. However, this proposed by-law, as drafted, would not only prohibit the
Board from changing the by-laws that would be added by the Rights Withdrawal
Proposal and the Board Unanimity Proposal (if those proposals are adopted), but
would also prevent the Board from amending the sections of the By-laws dealing
with the calling of special meetings, advance notice of nominations and
stockholder proposals, and requirements for subsequent amendments of the
By-laws, REGARDLESS OF WHETHER THE WYSER-PRATTE PROPOSALS RELATING TO THOSE
SECTIONS ARE ADOPTED AND REGARDLESS OF WHETHER ANY SUCH SUBSEQUENT AMENDMENT BY
THE BOARD RELATES TO THE SUBJECT MATTER OF THE WYSER-PRATTE PROPOSALS.

17
<PAGE>
The General Corporation Law expressly permits a corporation, in its
certificate of incorporation, to confer the power to adopt, amend or repeal
by-laws upon the board of directors and provides further that the fact that such
power has been so conferred upon the board of directors does not divest the
stockholders of that power. Your Board of Directors believes that Mr.
Wyser-Pratte's proposed by-law limiting the Board's power to change by-laws in
the future is broader in scope than any legitimate purpose that could be served
by such a provision. The Board believes that such a by-law, if adopted, could
deprive the Board of the flexibility to make amendments that it considers
appropriate, even if Mr. Wyser-Pratte's other proposals are not adopted and even
if the subsequent amendments by the Board relate to matters other than the
subject matter of the Wyser-Pratte Proposals.

(6) PROPOSAL TO AMEND THE BY-LAWS TO ELECT NOT TO BE GOVERNED BY THE
BUSINESS COMBINATION STATUTE

Mr. Wyser-Pratte has given notice of his intention to present the following
proposal at the Annual Meeting:

"RESOLVED, that pursuant to Section 203(b)(3) of the Delaware General
Corporation Law, the Shareholders hereby amend the Company's By-laws by
adding a new Article XI which shall read as follows:

'The corporation shall not be governed by Section 203 of the Delaware
General Corporation Law."'

YOUR BOARD OF DIRECTORS UNANIMOUSLY URGES YOU TO VOTE AGAINST THIS PROPOSAL
FOR THE FOLLOWING REASONS.

The Board of Directors believes that passage of this resolution would not be
in the best interests of the Company and its stockholders. By virtue of being
incorporated in Delaware, the Company became subject to the provisions of
Section 203 of the General Corporation Law when that statute became effective on
February 2, 1988. Section 203 (the "Business Combination Statute") provides, in
effect, that if any person acquires beneficial ownership of 15% or more of the
Company's outstanding shares (thereby becoming an "Interested Shareholder"), the
Company may not engage in a business combination with the Interested Shareholder
for three years thereafter, subject to certain exceptions. Among the exceptions
are (a) the Board's prior approval of the business combination or the
transaction by which such person became an Interested Shareholder; (b) the
acquisition of at least 85% of the Company's shares (subject to certain
exclusions) in the transaction in which such person becomes an Interested
Shareholder; and (c) the approval of such business combination by the Board of
Directors and by the holders of 66 2/3% of the outstanding stock not owned by
the Interested Shareholder. Section 203 provides that the Company's shareholders
may, by a vote of a majority of the outstanding shares, adopt an amendment to
the By-laws or Certificate of Incorporation electing not to be governed by the
Business Combination Statute. Such amendment would become effective twelve
months after adoption and would not apply to a business combination with a
person who became an Interested Shareholder prior to the adoption of such
amendment. The Business Combination Statute further provides that such a by-law
amendment opting out of its coverage may not be further amended by a
corporation's board of directors.

In its legislative synopsis that accompanied the passage of the statute, the
Delaware General Assembly stated that "Section 203 is intended to strike a
balance between the benefits of an unfettered market for corporate shares and
the well documented and judicially recognized need to limit abusive takeover
tactics." The Board of Directors believes that Section 203 enhances the
likelihood that shareholders will receive a full and fair offer, if an offer is
to be made, because it better enables a board to negotiate to improve the terms
of any such offer on behalf of all shareholders. In addition, the 85% threshold
is intended to ensure that offerors make their best offer. The statute was the
result of extensive hearings

18
<PAGE>
participated in by a national audience. The Board believes that Section 203
protects stockholders against inadequate offers and abusive tactics employed by
large stockholders.

Accordingly, the Board believes that "opting out" of Section 203 could
expose shareholders to additional risks of coercive takeover tactics and would
not be in the best interests of the Company and its shareholders.

(7) PROPOSAL TO REPEAL ANY BY-LAWS ADOPTED BY THE BOARD OF DIRECTORS SINCE
NOVEMBER 1, 1997

Mr. Wyser-Pratte has given notice of his intention to present the following
proposal at the Annual Meeting (referred to herein as the "Repeal Proposal"):

"RESOLVED, that any By-laws adopted by the board of directors since
November 1, 1997 be, and they hereby are, repealed."

YOUR BOARD OF DIRECTORS UNANIMOUSLY URGES YOU TO VOTE AGAINST THIS PROPOSAL
FOR THE FOLLOWING REASONS.

The Board of Directors recommends a vote against this proposal. As of the
date of this proxy statement, no By-laws have been adopted by the Board of
Directors since November 1, 1997 other than (a) a By-law amendment establishing
the date for the Annual Meeting, (b) a By-law amendment setting

the size of the Board at ten effective immediately prior to the Annual Meeting;
(c) the By-law amendment allowing a special meeting of shareholders to be called
by holders of 25% of the Company's outstanding Common Stock and (d) the By-law
amendment referred to above under "-- (2) By-law Proposal Imposing Board
Unanimity Requirement for Defensive Action." The Board of Directors believes
that the latter By-law amendment, adopted on March 12, 1998, is appropriate so
as to guard against the imposition, through a by-law such as that embodied in
the Board Unanimity Proposal, of a veto power in favor of a minority unless a
corresponding super majority of the shareholders or Board of Directors
(whichever body is seeking to impose the requirement) approves.

The Board of Directors has adopted a resolution governing the order in which
matters are to be considered and voted upon at the Annual Meeting. In accordance
with the Board resolution, the election of directors will occur first, followed
by the approval of appointment of auditors, followed by consideration of the
Wyser-Pratte Proposals in the order presented in this Proxy Statement. The Board
resolution provides that the Wyser-Pratte proposals will be considered in the
same order as presented in Mr. Wyser-Pratte's notice given to the Company of his
intent to make the proposals at the Annual Meeting. As such, the election of
directors will occur, and the Board Unanimity Proposal (if presented for a vote
by Mr. Wyser-Pratte) will be voted on, before any vote is taken on the Repeal
Proposal.

If the Repeal Proposal were adopted, the By-laws would then provide that the
size of the Board would be eleven, resulting in one newly created directorship.
The Company's Restated Certificate of Incorporation provides that newly created
directorships (as well as any vacancies) shall be filled by the affirmative vote
of a majority of the remaining directors then in office, and that directors so
elected shall serve for the remainder of the full term of the class in which the
new directorship was created or the vacancy occurred. The Restated Certificate
of Incorporation also provides that if a newly created directorship may,
consistent with the provision that the three classes shall be as nearly equal in
number as possible, be allocated to one or more classes, the Board shall
allocate it to the available class whose term is due to expire at the earliest
date following such allocation. Accordingly, if the Repeal Proposal were adopted
at the Annual Meeting, the newly created directorship to be filled by the Board
would be allocated to the class whose term would expire at the annual meeting in
2001 (or when his successor is elected and qualified). The Board of Directors
has no current intention to adopt any other By-law amendments prior to the
Annual Meeting, but reserves the right to do so should it deem such action to be
in the best interests of the Company and its shareholders.

19
<PAGE>
(8) PROPOSAL TO ADOPT A RESOLUTION RECOMMENDING TO THE BOARD THAT THE
COMPANY REIMBURSE MR. WYSER-PRATTE'S EXPENSES IN CONNECTION WITH THIS
PROXY SOLICITATION.

Mr. Wyser-Pratte has given notice of his intention to present the following
proposal at the Annual Meeting:

"RESOLVED, that the shareholders recommend to the board that the Company
reimburse all of Guy Wyser-Pratte's expenses (including any litigation
expenses) in connection with the solicitation of proxies for this
shareholders meeting."

YOUR BOARD OF DIRECTORS UNANIMOUSLY URGES YOU TO VOTE AGAINST THIS PROPOSAL
FOR THE FOLLOWING REASONS.

The Board of Directors recommends a vote against Mr. Wyser-Pratte's proposal
that he be reimbursed for his expenses in connection with his solicitation of
proxies, including any litigation expenses. Mr. Wyser-Pratte has stated that if
the Board does not reimburse his expenses, he intends to seek a court order
requiring the Board to reimburse these expenses. Although Mr. Wyser-Pratte
states that the purpose of his proposals is to advance shareholder interests,
the Board believes that the interests of Mr. Wyser-Pratte as an arbitrageur and
takeover stock speculator are different from those of shareholders generally and
that there is no reason for Mr. Wyser-Pratte to receive special treatment by
having his expenses reimbursed.

REQUIRED VOTE ON SHAREHOLDER PROPOSALS

The vote required for adoption of the Wyser-Pratte Proposals that would
amend or repeal By-laws is, with the exceptions noted below, the affirmative
vote of a majority of the outstanding shares of Common Stock. The vote required
for adoption of the Board Unanimity Proposal is the affirmative vote of 66 2/3%
of the outstanding shares of Common Stock. To the extent adoption of the
Wyser-Pratte Proposal for repeal of By-laws adopted by the Board of Directors
since November 1, 1997 would repeal the By-law adopted by the Board of Directors
on March 12, 1998 providing for such 66 2/3% voting requirement, the vote
required for the adoption of such proposal for repeal would be the affirmative
vote of 66 2/3% of the outstanding shares of Common Stock. Abstentions and
broker non-votes will have the same effect as a vote against any of the
Wyser-Pratte Proposals to amend or repeal the By-laws.

The vote required for adoption of the proposal recommending reimbursement of
Mr. Wyser-Pratte's proxy solicitation and litigation expenses is the affirmative
vote of a majority of the shares of Common Stock present in person or
represented by proxy at the Annual Meeting. Abstentions and broker non-votes
will have the same effect as a vote against this proposal.

PENDING LITIGATION WITH MR. WYSER-PRATTE

On March 12, 1998, the Company filed a complaint in the United States
District Court for the District of Delaware, seeking preliminary and permanent
injunctive relief requiring Mr. Wyser-Pratte and Wyser-Pratte & Co., Inc. to
correct false and misleading statements made by Mr. Wyser-Pratte in his
preliminary proxy materials. In that action, the Company claims that Mr.
Wyser-Pratte's proxy materials (a) fail fully to disclose information regarding
Mr. Wyser-Pratte's ownership of Pennzoil stock and Mr. Wyser-Pratte's personal
economic interest in his proposals, (b) are misleading with respect to its
characterization of UPR's unsuccessful hostile bid for Pennzoil and the
justifications and support for Mr. Wyser-Pratte's proposals, (c) fail to
disclose certain conflicts of interest which may arise if Mr. Wyser-Pratte is
elected to the Pennzoil Board, and (d) fail adequately to explain how the
Company's cumulative voting structure works. The Company's complaint states that
corrective disclosures by Mr. Wyser-Pratte are necessary to cure the false and
misleading statements and omissions made in Mr. Wyser-Pratte's proxy materials
so that the Company's shareholders will have the benefit of full and accurate
disclosure concerning the proxy solicitation when they are deciding how to cast
their votes at the Annual Meeting.

20
<PAGE>
On March 23, 1998, Mr. Wyser-Pratte and Wyser-Pratte & Co., Inc. filed a
complaint in the United States District Court for the Northern District of
Texas, Fort Worth Division, seeking injunctive and declaratory relief and
damages against the Company. In that action, Mr. Wyser-Pratte and Wyser-Pratte &
Co., Inc. claim that the Board's reduction in the size of the Board from eleven
to ten directors violates the Company's Restated Certificate of Incorporation,
and make related allegations that the Company's preliminary proxy soliciting
materials are false and misleading in that they (a) fail to disclose the alleged
violation of the Company's Restated Certificate of Incorporation, (b) fail to
disclose that the reduction in the size of the Board (and thus the number of
directors to be elected at the Annual Meeting) has the effect of increasing the
percentage of votes necessary to elect a director and (c) fail to disclose that
the resolution adopted by the Board governing the order of business at the
Annual Meeting could, according to Mr. Wyser-Pratte, have the effect of
depriving shareholders of their cumulative voting rights. The plaintiffs also
allege that the Company's proxy soliciting materials are false and misleading
because they fail to disclose the Company's strategic plan. The Company believes
that the allegations of the complaint are without merit and intends to
vigorously contest them.

IV. OTHER BUSINESS

Management does not intend to bring any business before the meeting other
than the matters referred to in the accompanying notice. If, however, any other
matters properly come before the meeting, it is intended that the persons named
in the accompanying WHITE proxy card will vote pursuant to discretionary
authority granted in the proxy in accordance with their best judgment on such
matters. The discretionary authority includes matters that the Board of
Directors does not know are to be presented at the meeting by others.

21
<PAGE>
EXECUTIVE COMPENSATION -- Set forth below is information regarding the
compensation of the Company's Chief Executive Officer (the "CEO") and the other
four most highly compensated executive officers of the Company (together with
the CEO, the "named officers").

SUMMARY COMPENSATION TABLE. The summary compensation table set forth below
contains information regarding the compensation of each of the named officers
for services rendered in all capacities during 1995, 1996 and 1997.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
AWARDS
ANNUAL COMPENSATION -----------------------
---------------------------------- SECURITIES
OTHER UNDERLYING ALL
ANNUAL RESTRICTED OPTIONS/ PAYOUTS OTHER
COMPEN- STOCK SARS ---------- COMPEN-
NAME AND SATION AWARDS (SHARES) LTIP SATION
PRINCIPAL POSITION YEAR SALARY BONUS (1) (2) (3) PAYOUTS (4)
- --------------------------------- --------- ---------- ---------- ---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James L. Pate 1997 $ 761,200 $ 757,300 $ 183,000 $ 358,800 30,000 $ 368,100 $ 98,900
Chairman of the Board 1996 708,500 739,500 190,900 401,400 100,000 -- 52,900
and Chief Executive 1995 656,500 -- 218,200 264,800 85,000 -- 68,000
Officer

David P. Alderson, II 1997 $ 284,600 $ 315,600 $ 61,200 $ 62,200 5,200 $ 78,000 $ 31,000
Group Vice President-- 1996 265,000 200,000 61,600 80,300 18,500 -- 19,000
Finance and Accounting 1995 241,300 -- 61,100 53,000 16,500 -- 22,000

Stephen D. Chesebro' (5) 1997 $ 434,600 $ 424,200 $ 90,200 $ 565,000 68,250 -- $ 2,700
President and Chief 1996 -- -- -- -- -- -- --
Operating Officer 1995 -- -- -- -- -- -- --

Donald A. Frederick (5) 1997 $ 252,700 $ 245,400 $ 83,300 $ 113,000 28,300 -- $ 1,600
Group Vice President-- 1996 -- -- -- -- -- -- --
Oil and Gas 1995 -- -- -- -- -- -- --

James W. Shaddix 1997 $ 284,600 $ 315,600 $ 61,200 $ 62,200 5,200 $ 78,000 $ 31,100
General Counsel 1996 266,400 200,000 61,600 80,300 18,500 -- 19,100
1995 245,500 -- 59,300 53,000 17,000 -- 22,400
</TABLE>

- ------------

(1) Amounts shown for 1997 include aircraft usage costs of $98,900 for Mr. Pate;
a perquisite allowance of $59,400 for Mr. Pate, $42,400 for Messrs. Alderson
and Shaddix, $63,500 for Mr. Chesebro' and $66,100 for Mr. Frederick; and
excess medical coverage of $18,800 for Messrs. Pate, Alderson and Shaddix,
$18,600 for Mr. Chesebro' and $17,200 for Mr. Frederick. Amounts shown for
1996 include aircraft usage costs of $108,800 for Mr. Pate; a perquisite
allowance of $59,400 for Mr. Pate and $42,400 for Messrs. Alderson and
Shaddix; and excess medical coverage of $19,200 for Messrs. Pate, Alderson
and Shaddix. Amounts shown for 1995 include club membership fees and related
costs of $101,800 for Mr. Pate; a perquisite allowance of $59,400 for Mr.
Pate and $42,400 for Messrs. Alderson and Shaddix; and excess medical
coverage of $16,400 for Messrs. Pate, Alderson and Shaddix.

(2) Amounts shown under Restricted Stock Awards are the aggregate market value
on January 1 of the year indicated of shares of Common Stock underlying
common stock units awarded on such date under the Company's Conditional
Stock Award Programs. Each common stock unit awarded is to be distributed in
the form of a share of Common Stock at the end of a five-year period,
provided certain conditions as to continued employment are met. In the
interim, participants receive dividend equivalents on their common stock
units as though they were shares of Common Stock. The aggregate common stock
units held at the end of 1997 and their values were 24,350 units, $1,626,900
for Mr. Pate; 5,210 units, $348,100 for Mr. Alderson; 10,000 units, $668,100
for Mr. Chesebro'; 2,000 units, $133,600 for Mr. Frederick; and 5,230 units,
$349,400 for Mr. Shaddix. Such values are calculated by multiplying the
closing market price of the Common Stock on December 31, 1997 ($66.8125) by
the number of common stock units held at such date.

(FOOTNOTES CONTINUED ON FOLLOWING PAGE)

22
<PAGE>
(3) All options were granted in tandem with stock appreciation rights, but there
is currently in effect a moratorium on the exercise of any such stock
appreciation rights.

(4) Amounts shown under All Other Compensation include (i) amounts contributed
or accrued for 1997 under the Company's Savings and Investment Plan and
related supplemental agreements ($95,300 for Mr. Pate, $29,400 for Mr.
Alderson and $29,500 for Mr. Shaddix) and (ii) amounts paid by the Company
in 1997 for certain premiums on term life insurance ($3,600 for Mr. Pate,
$1,600 for Mr. Alderson, $2,700 for Mr. Chesebro', $1,600 for Mr. Frederick
and $1,600 for Mr. Shaddix).

(5) Mr. Chesebro' and Mr. Frederick joined the Company as executive officers
effective February 10, 1997 and February 20, 1997, respectively.

OPTION/SAR GRANTS. Shown below is further information on grants of stock
options during 1997 to the named officers reflected in the Summary Compensation
Table on page .

OPTION/SAR GRANTS IN 1997

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------
NUMBER OF
SECURITIES
UNDERLYING PERCENT OF TOTAL
OPTIONS/SARS OPTIONS/SARS EXERCISE
GRANTED IN 1997 GRANTED TO PRICE (PER EXPIRATION GRANT DATE
(SHARES) (1) EMPLOYEES IN 1997 SHARE) (2) DATE VALUE (3)
--------------- ----------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
James L. Pate............................. 30,000 3.6% $ 51.25 3/24/2007 $ 581,200
David P. Alderson, II..................... 5,200 0.6% $ 51.25 3/24/2007 $ 100,700
Stephen D. Chesebro'...................... 50,000 6.0% $ 60.813 2/10/2007 $ 1,149,400
18,250 2.2% $ 67.25 12/11/2007 $ 531,400
Donald A. Frederick....................... 20,000 2.4% $ 60.813 2/10/2007 $ 459,700
8,300 1.0% $ 67.25 12/11/2007 $ 241,700
James W. Shaddix.......................... 5,200 0.6% $ 51.25 3/24/2007 $ 100,700
</TABLE>

- ------------

(1) All the above options were granted on March 24, 1997, except for options
relating to 50,000 shares and 20,000 shares of Common Stock granted to
Messrs. Chesebro' and Frederick, respectively, on February 10, 1997 and
18,250 shares and 8,300 shares of Common Stock granted to Messrs. Chesebro'
and Frederick, respectively, on December 11, 1997. All the above options
become exercisable in 33 1/3% increments on each of the first, second and
third anniversaries of the date of grant. Such options were granted in
tandem with stock appreciation rights, but there is currently in effect a
moratorium on the exercise of any such stock appreciation rights. All the
above options were granted pursuant to the Company's 1997 Incentive Plan.

(2) The option exercise price is 100% of the average of the high and low trading
prices of the Common Stock on the New York Stock Exchange on the dates of
grant (February 10, 1997, March 24, 1997 or December 11, 1997) and may be
paid in cash or previously owned shares of Common Stock.

(3) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options. The actual value, if any, that may be realized will
depend on the excess of the underlying stock price over the exercise price
on the date the option is exercised, so that there is no assurance the value
realized will be at or near the value estimated by the Black-Scholes model.
The estimated values under the model are based on the following assumptions:
expected volatility based on a three-year historical volatility of month-end
Common Stock prices (20.5% for February and March and 29.5% for December), a
risk-free rate of return based on a 10-year zero-coupon U.S. Treasury rate
at the time of grant (6.6% for February and March and 6.0% for December),
the current dividend rate on the Common Stock ($1 per year), an option
exercise period of 10 years (with the exercise occurring at the end of such
period) and no adjustment for the risk of forfeiture over the three-year
vesting period.

23
<PAGE>
OPTION EXERCISES AND 1997 YEAR-END OPTION/SAR HOLDINGS. Shown below is
information with respect to unexercised options to purchase Common Stock granted
in 1997 and prior years to the named officers and held by them at December 31,
1997. None of the named officers exercised options or tandem stock appreciation
rights in 1997.

YEAR-END 1997 OPTION/SAR HOLDINGS

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997 (1)
----------------------------- ------------------------------
UNEXERCISABLE UNEXERCISABLE
EXERCISABLE (2) EXERCISABLE (2)
----------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
James L. Pate...................................... 238,199 125,001 $ 3,579,000 $ 2,879,700
David P. Alderson, II.............................. 52,566 23,034 $ 739,000 $ 532,800
Stephen D. Chesebro'............................... -- 68,250 -- $ 300,000
Donald A. Frederick................................ -- 28,300 -- $ 120,000
James W. Shaddix................................... 53,989 23,201 $ 759,200 $ 536,300
</TABLE>

- ------------

(1) The excess, if any, of the market value of Common Stock at December 31, 1997
($66.8125) over the option exercise price.

(2) All of these options become immediately exercisable upon a change in control
of the Company.

LONG-TERM INCENTIVE AWARDS. Shown below is information with respect to
awards in 1997 under the Company's long-term incentive arrangements.

LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER NON-
OTHER PERIOD STOCK-PRICE-BASED PLANS (1)
UNTIL MATURATION ------------------------------------
OR PAYOUT THRESHOLD TARGET MAXIMUM
---------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
James L. Pate............................................ 3 years $ 193,800 $ 635,500 $ 1,116,000
David P. Alderson, II.................................... 3 years 34,700 109,700 193,500
Stephen D. Chesebro'..................................... 3 years 93,500 302,500 528,000
Donald A. Frederick...................................... 3 years 50,400 172,800 302,400
James W. Shaddix......................................... 3 years 34,700 109,700 193,500
</TABLE>

- ------------

(1) Payout of the 1997 long-term incentive awards will be determined by
comparing the Company's total shareholder return ("TSR") to a selected group
of peer companies, designated at the time of grant. At the end of the
performance period, the Company and the peer companies will be ranked based
on their TSR. Maximum payout is achieved if the company is ranked fourth or
higher. Target payout is achieved if the company is ranked eighth. Threshold
payout occurs if the company is ranked thirteenth. The incentive awards are
targeted at the market 55th percentile. The Company's absolute total
shareholder return for a given performance cycle must be at least break-even
to trigger any payout under the plan. Awards, calculated as a percentage of
base salary, are paid (if earned) after the completion of the three-year
performance cycle.

RETIREMENT PLAN AND SUPPLEMENTAL AGREEMENTS. The Company has a
tax-qualified retirement plan applicable to salaried employees generally. The
retirement plan generally provides for annual retirement benefits approximating
between 1.1% and 1.6% of a calculated career average compensation multiplied by
the number of years of service. For purposes of the retirement plan, career
average compensation approximates the lesser of an employee's final five-year
average compensation and his 1997 annual compensation. The annual benefits under
the retirement plan are net of certain offsets based on social security benefits
and reflect limitations mandated by the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), on the maximum amounts payable. The Company has
agreements with Messrs. Pate, Alderson, Chesebro', Frederick and Shaddix to
supplement their benefits under the tax-qualified retirement plan in the event
and to the extent the aforesaid limitations on annual benefits mandated by ERISA
reduce the retirement benefits that otherwise would be payable under such plan.
The Company also has a deferred compensation agreement with Mr. Pate designed to
bring his total annual retirement benefits from all sources (including social
security and benefits from prior employers) to 57%

24
<PAGE>
of his annual salary rate at retirement. This percentage is comparable to the
proportion that retirement benefits provided by the Company's regular retirement
plan (and social security) for the majority of the Company's employees bear to
remuneration at the time of retirement. In addition, the deferred compensation
agreement provides for continuation of medical expense reimbursement plan
coverage for the participant, his spouse and dependents. Benefits under Mr.
Pate's deferred compensation agreement will commence upon termination of
employment for any reason. Based on salaries as of December 31, 1997, estimated
annual benefits payable upon retirement at normal retirement age (65) from all
sources would be $441,800 for Mr. Pate, $162,700 for Mr. Alderson, $87,800 for
Mr. Chesebro', $78,800 for Mr. Frederick and $152,900 for Mr. Shaddix.

TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS AND OTHER
AGREEMENTS. The Company maintains an Executive Severance Plan for selected
employees providing for severance benefits upon a termination of employment for
reasons other than cause within two years after a change in control of the
Company. Benefits are payable only in the event there occurs each of (a) a
change in control of the Company, (b) a designation by the Board of Directors
and the Compensation Committee that the employee is likely to be adversely
affected by the change in control and (c) a subsequent termination of employment
within two years for reasons other than cause. Benefits are prorated if the
employee is within three years of normal retirement age (65) at termination of
employment. Participants in the plan include Messrs. Pate, Alderson, Chesebro',
Frederick and Shaddix. Such severance benefits generally include a payment of up
to three times a participant's annual salary and incentive bonus and
continuation of life insurance and medical coverage for one year following
termination of employment.

Many of the Company's executive compensation programs were established
before provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
imposed punitive taxes upon, in some cases, virtually all of the payments or
benefits that retiring or departing executive officers receive from the Company.
If the Company's executive compensation arrangements were settled upon a change
in control of the Company, such punitive excise taxes would be imposed in every
case. The Company has designed its programs with a view to providing these
payments and benefits taking into account prevailing tax rates, and the
imposition of substantial unanticipated taxes upon the employees is inconsistent
with that planning.

To prevent benefits provided to the Company's executive officers under its
various compensation arrangements from being unfairly reduced by reason of
excise taxes imposed on such benefits under the Code, the Company has entered
into Tax Protection Agreements with all of its executive officers. Such Tax
Protection Agreements provide that, if there is a change in control of the
Company and if any payment or distribution to or for the benefit of an eligible
executive employee would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by such employee with respect
to such excise tax, such employee will be entitled to receive an additional
payment that, taking into account all taxes imposed in the payment, would place
the employee in the same position with respect to taxes on the Company's
compensation or benefits had such excise taxes not been imposed.

The Company also has agreements with Messrs. Pate, Alderson, Chesebro',
Frederick and Shaddix that provide for the acceleration of benefits in the event
of the occurrence, as determined by the Board of Directors, of a change in
control of the Company that has a reasonable likelihood of causing the
forfeiture of benefits that such persons otherwise would have earned by
depriving them of the opportunity to fulfill applicable service and age
prerequisites. The agreements provide that the covered persons will receive, in
the event of such a change in control but without regard to any termination of
employment, cash payments equal to the appreciated value of all unvested,
nonqualified stock options. The agreements also provide, in the event of
termination of employment of a covered employee within six months following such
a change in control, (a) for cash payments generally equal to the unvested
amounts under the Company's Savings and Investment Plan (as well as the
agreements providing for reimbursement of benefits that would be payable under
such Plan but for limitations imposed by ERISA) forfeitable on the date of
termination of employment, (b) for continuation of life insurance and, in
certain instances, medical expense coverage for one year, (c) for cash payments
equal to the discounted value of benefits otherwise payable under the deferred
compensation agreements referred to above under "-- Retirement Plan and
Supplemental

25
<PAGE>
Agreements," based on an assumed continuation of employment until age 65 and
actuarially determined life expectancies, (d) in certain instances, for cash
payments in settlement of long-term medical benefits otherwise payable and (e)
for cash payments equal to the discounted value of benefits otherwise payable
under a supplemental disability plan and a salary continuation plan. Other
agreements provide for certain executive officers that, upon any termination of
employment (other than termination for cause or voluntary termination prior to a
change in control), the executive officer will receive (i) in certain instances,
continued executive medical coverage to age 55 without any increase in cost, and
thereafter retiree medical coverage at no greater cost than currently applicable
to retirees with more than 20 years of service and (ii) supplemental retirement
benefits payable at age 55 equal to the benefit such executive officer would
have earned had salary and benefits continued to age 55. Deferred compensation
agreements and certain supplemental benefit agreements under which payments are
currently being made have been supplemented by the Company to provide, upon a
change in control of the Company, for the cash-out of retirement, spouse and
medical benefits. In addition, the Company's conditional stock award programs
provide for acceleration of benefits upon a change in control. Furthermore,
benefits under the Company's Long-Term Incentive Plans will be paid out
immediately as if such plans had reached the end of their terms and the target
goals had been achieved. The dollar amounts that would be payable under the
agreements and plan described in this and the preceding paragraph and the other
plans providing payments triggered by a change in control, exclusive of amounts
attributable to benefits already vested, would be (as of December 31, 1997)
$11,426,100 for Mr. Pate, $2,876,000 for Mr. Alderson, $4,193,300 for Mr.
Chesebro', $2,242,600 for Mr. Frederick and $2,880,800 for Mr. Shaddix. In
addition, a change in control would result in the accelerated payment of
benefits already earned and vested over a period of years in the amounts of
$7,062,900 for Mr. Pate, $1,258,500 for Mr. Alderson, $37,800 for Mr. Chesebro',
$4,300 for Mr. Frederick and $1,280,400 for Mr. Shaddix.

In 1997, the Company entered into employment agreements with Messrs.
Chesebro' and Frederick. The Company's agreement with Mr. Chesebro' establishes
his base salary and his bonus for 1997 and provides for initial grants of stock
options and conditional stock units (all of which are included in the
disclosures under "--Summary Compensation Table") and provides, among other
things, for coverage under the Company's executive severance plan and for
participation in the Company's excess benefits, benefits acceleration,
retirement and savings plans. The agreement also provides for perquisites
consistent with Mr. Chesebro's level of employment and participation in other
compensation programs of the Company applicable to executives generally. The
Company's agreement with Mr. Frederick establishes his base salary and provides
for initial grants of stock options and conditional stock units (all of which
are included in the disclosures under "--Summary Compensation Table") and
provides, among other things, for eligibility for annual bonus opportunities,
participation in the Company's long-term incentive plan and receipt of a
perquisite allowance, in each case at levels commensurate with pay and
responsibility levels, and provides for participation in other compensation
programs of the Company applicable to executives generally.

OTHER MATTERS. In 1977, the Board of Directors formally adopted and
confirmed a policy relating to the use of Company facilities. In certain
circumstances, the policy requires use by officers of Company facilities in
order to increase the time available for performance of Company business and for
reasons of security and other corporate purposes. Under applicable federal
income tax regulations, the Company imputes income to employees of the Company
for federal income tax purposes with respect to their use of Company facilities
when and to the extent required by the regulations. When the policies and
procedures adopted by the Board have been duly observed, it is contemplated that
the Company will hold employees harmless from any tax (including penalty and
interest) sought to be imposed on a basis in excess of the amount of income
imputed by the Company as described above. To date, no amounts have been paid or
requested to reimburse employees for such a tax.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION -- The members
of the Compensation Committee of the Board are Messrs. Cockrell, Cullen and
Fanjul, all of whom are nonemployee directors.

26
<PAGE>
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION --

COMPENSATION PHILOSOPHY. The Company's executive compensation program has
been designed to help the Company attract, motivate and retain the executive
talent that the Company needs in order to maximize its return to shareholders.
To this end, the Company's executive compensation program provides appropriate
compensation levels and incentive pay that varies based on corporate, business
unit and individual performance.

Base salary, annual incentives, long-term incentives and executive benefits
are the elements of compensation provided to the Company's executives. The
Compensation Committee's philosophy is to place more emphasis on variable
performance-based incentive pay and less emphasis on base salary because the
primary compensation program objective is to reward executives for maximizing
long-term returns to shareholders. The Compensation Committee determines
appropriate levels of compensation for

executive positions based on information drawn from compensation surveys, proxy
statements for comparative organizations and compensation consultants. The proxy
statement analyses on pay levels generally use the same group of companies shown
as industry peer companies in the Company's total shareholder return performance
graphs ("peer group"). However, the Compensation Committee also considers proxy
data for other energy companies. The data drawn from compensation surveys are
for energy and general industry companies with revenues comparable to the
Company's revenues.

BASE SALARY PROGRAM. The Company's base salary program is based on a
philosophy of providing salaries that are equivalent with the market median for
companies of comparable size (as measured by revenues). In aggregate, the
Company's executive salaries are consistent with this philosophy. Base salary
levels are also based on each individual employee's performance over time and
each individual's role in the Company. Consequently, employees with higher
levels of sustained performance over time and/or employees assuming greater
responsibilities are paid correspondingly higher salaries. Executive salaries
are reviewed annually based on a variety of factors, including individual
performance, company performance, general levels of market salary increases and
the Company's overall financial results. Individual performance assessment is
subjective; the Compensation Committee considers earnings levels, progress in
implementing strategic initiatives and effectiveness in business development
efforts in establishing base salary increases for executives. No specific
performance formula or weighting of these or other factors is used in
determining base salary levels. In 1997, the CEO's salary was increased from
$730,000 to $775,000 based on median market salaries for companies in the peer
group and on the performance indicators described above.

ANNUAL INCENTIVE PLAN. The Company's annual incentive plan is intended to
(1) reward key employees based on company, business unit and individual
performance, (2) motivate key employees and (3) provide appropriate cash
compensation opportunities to plan participants. Under the plan, target award
opportunities, which are based at the market 55th percentile, vary by individual
position and are expressed as a percent of base salary. The amount that a
particular executive may earn is directly dependent on the individual's
position, responsibility and ability to impact the Company's financial success.

For 1997, the annual incentive plan was structured so that the Company had
to achieve a minimum level of net income in order for any incentives to be paid.
This threshold was exceeded by a significant amount. Also, awards for the CEO
were limited to no more than 0.5% of EBITDA, although the Compensation Committee
could use discretion to make awards less than this amount based on other
performance factors.

The annual incentive plan provided for incentive payouts to be determined
based on a combination of corporate, business unit, and individual/team
performance. For senior level management (including all named officers), the
plan provides generally for 50% of the annual incentive award to be based on
corporate performance, 20% on aggregate performance of all business units and
30% on key individual/ team strategic performance. However, the Committee
retains the authority to vary the relative weighting

27
<PAGE>
of individual/team strategic performance above or below the 30% level. The
corporate performance objectives, which were equally weighted, were earnings
before interest, taxes, depreciation and amortization ("EBITDA") to revenue
ratio relative to an internal plan and EBITDA return on average equity compared
to the peer group. The business unit performance objectives varied by unit
depending on the strategic direction of the unit, but included such items as
cash flow, cost management, reserve replacement, economic value added, market
share, and environmental and safety measures. For corporate positions, weighted
average business unit results (with the weighting determined by unit assets)
were considered in determining the 20% of the incentive tied to business unit
performance. This feature of the plan is intended to focus corporate staff on
providing effective support to each business unit. The individual/team element
of the plan is managed on a subjective basis in a qualitative fashion with no
specific weightings assigned to individual performance factors.

In 1997, the Company exceeded targeted levels of performance on the EBITDA
to revenue ratio and achieved maximum performance on the return on average
equity measure. Business unit performance varied by measure and by unit, but
generally fell below corporate financial results. Consequently, total incentive
awards ranged from slightly below target to between target and maximum for
business unit participants and fell between target and maximum for corporate
executive positions. The Committee believes this level of incentive payment is
appropriate given the Company's financial results and total shareholder returns
in 1997.

The CEO's annual incentive payout for 1997 performance was $757,300. The
award was based on the same corporate and business unit performance measures
described above for other executives as well as an assessment by the
Compensation Committee of the CEO's individual performance in contributing to
improvement in financial results and growth in shareholder return. The total
award was between targeted and maximum levels.

LONG-TERM INCENTIVE PLANS. The Company has several types of long-term
incentive awards intended to achieve various objectives. Stock options are the
primary long-term incentive award used by the Company and are granted at 100% of
fair market value at the date of grant. Stock options are intended to award
executives for appreciation in the market value of the Company's Common Stock.
Conditional stock grants are also used and are made to increase executive share
ownership levels and reward executives for maintaining and enhancing the
Company's total shareholder return. In addition, the Company has a long-term
performance plan, which rewards participants for improving the Company's total
shareholder return relative to the peer group. Awards under this plan are paid
(if earned) after the completion of three-year performance cycles. The total
award level under the aggregate of incentive awards is targeted at the market
55th percentile.

In 1997, the CEO received stock options for 30,000 shares of Common Stock
and 6,350 shares of conditional stock. He also earned a payment under the
Company's long-term performance plan of $368,100, which was slightly above
target since the Company's total shareholder return performance exceeded target.
The actual stock option and conditional stock awards provided to the CEO in 1997
(when considered together with the targeted value of the long-term performance
plan) placed the CEO's total long-term incentives at between the market 50th and
75th percentiles. This award was slightly above targeted levels because of the
continued efforts taken by the CEO to improve the company's operating and
financial results.

OTHER PLANS AND BENEFITS. The Company's executive officers participate in
several other compensation plans and benefit programs. These programs provide
benefits generally related to salary levels and length of service (as in the
case of retirement plan benefits, savings plan benefits, disability benefits and
death benefit coverages), or are independent of salary levels (such as the
perquisite allowances and medical coverages). There is no specific
performance-based relationship between benefits under these plans and corporate
performance (except that savings plan contributions are invested in Common
Stock).

28
<PAGE>
SECTION 162(M). The 1997 Incentive Plan of the Company provides for stock
option grants, annual incentive plan awards and long-term performance plan
awards, each of which can be qualified as performance-based compensation under
Section 162(m) of the Code. Whether one or more awards made under the 1997
Incentive Plan are qualified as performance-based components is in the
discretion of the Company and the Compensation Committee. Currently, some of the
awards under the 1997 Incentive Plan are not qualified under Section 162(m), and
the Compensation Committee may determine to grant awards in the future that are
not so qualified.

This report is furnished by the Compensation Committee of the Board of
Directors.

Ernest H. Cockrell, Chairman
Harry H. Cullen
Alfonso Fanjul

February 17, 1998

29
<PAGE>
PERFORMANCE GRAPH

FIVE YEARS ENDED DECEMBER 31, 1997. The following performance graph
compares the cumulative total shareholder return on the Common Stock to the
cumulative total return of the Standard & Poor's 500 Stock Index and the
Standard & Poor's Oil-Integrated Domestic Index for the last five years. The
graph assumes that the value of the investment in the Common Stock and each
index was $100 at December 31, 1992 and that all dividends were reinvested.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
PENNZOIL COMPANY S&P 500 S&P OIL-INTEGRATED DOMESTIC
<S> <C> <C> <C>
1992 100.0000 100.0000 100.0000
1993 112.2797 110.0561 105.4159
1994 98.7728 111.5029 112.9018
1995 99.8577 153.3541 125.9212
1996 136.3431 188.5413 159.2473
1997 163.6571 251.4218 189.4768
</TABLE>

SOLICITATION OF PROXIES

Proxies may be solicited by mail, advertisement, telephone or other methods
and in person. Solicitations may be made by directors, officers, investor
relations personnel and other employees of the Company, none of whom will
receive additional compensation for such solicitations. The Company will request
banks, brokerage houses and other custodians, nominees and fiduciaries to
forward all of its solicitation materials to the beneficial owners of the shares
of Common Stock they hold of record. The Company will reimburse these record
holders for customary clerical and mailing expenses incurred by them in
forwarding these materials to their customers.

The Company has retained Morrow & Co., Inc. ("Morrow") for solicitation and
advisory services in connection with the solicitation, for which Morrow is to
receive a fee estimated at $300,000, together with reimbursement for its
reasonable out-of-pocket expenses. The Company has also agreed to indemnify
Morrow against certain liabilities and expenses. It is anticipated that Morrow
will employ approximately 75 persons to solicit stockholders for the Annual
Meeting.

The cost of soliciting proxies on behalf of the Board of Directors for the
Annual Meeting is being borne by the Company. Costs incidental to these
solicitations of proxies include expenditures for printing, postage, legal,
accounting, public relations, soliciting, advertising and related expenses and
are expected to be approximately $500,000 in addition to the fees of Morrow
described above (excluding the amount normally expended by the Company for the
solicitation of proxies at its annual meetings). Total costs incurred to date
for, in furtherance of, or in connection with these solicitations of proxies are
approximately $100,000.

Certain information about the directors, director nominees and executive
officers of the Company and certain employees and other representatives of the
Company who may also solicit proxies is set forth in the attached Schedule I.
Schedule II sets forth certain information relating to shares of Common Stock
owned by such parties and certain transactions between any of them and the
Company.

30
<PAGE>
ADDITIONAL INFORMATION

SECURITY OWNERSHIP OF CERTAIN SHAREHOLDERS -- The following table sets forth
information as to persons known to possess voting or dispositive power over more
than 5% of the Company's outstanding Common Stock.

<TABLE>
<CAPTION>
NUMBER
TITLE OF NAME AND ADDRESS OF OF PERCENTAGE
CLASS BENEFICIAL OWNER SHARES OF CLASS
- ---------------------- ---------------------------------------------- ---------- -----------
<S> <C> <C> <C>
Common Stock State Farm Mutual 3,746,692 7.9%
Automobile Insurance Company
One State Farm Plaza
Bloomington, Illinois 61710

Common Stock Mellon Bank Corporation 3,139,259 6.6%
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258

Common Stock Franklin Mutual Advisers, Inc. 2,864,900 6.0%
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
</TABLE>

The information in the foregoing table regarding State Farm Mutual
Automobile Insurance Company ("State Farm") is based on filings made with the
SEC reflecting ownership of Common Stock as of December 31, 1996, and no filing
having been made to reflect any changes as of December 31, 1997. The filings
state that the shares of Common Stock were acquired in the ordinary course of
business and not for the purpose of influencing control of the Company. The
filings indicate sole voting and dispositive power for 3,746,692 shares of
Common Stock by State Farm and related entities.

The information in the foregoing table regarding Mellon Bank Corporation
("Mellon") is based on a filing made with the SEC reflecting ownership of Common
Stock as of December 31, 1997. The filing states that the shares of Common Stock
were acquired in the ordinary course of business and not for the purpose of
influencing control of the Company. The filing indicates sole voting power for
2,626,875 shares of Common Stock, shared voting power for 36,134 shares of
Common Stock, sole dispositive power for 3,005,902 shares of Common Stock and
shared dispositive power for 80,280 shares of Common Stock by Mellon and related
entities.

The information in the foregoing table regarding Franklin Mutual Advisers,
Inc. ("Franklin") is based on a filing made with the SEC reflecting ownership of
Common Stock as of December 31, 1997. The filing states that the shares of
Common Stock were acquired in the ordinary course of business and not for the
purpose of influencing control of the Company. The filing indicates sole voting
and dispositive power for 2,864,900 shares of Common Stock by Franklin and
related entities.

SHAREHOLDER PROPOSALS FOR 1999 MEETING -- In order to be included in the
Company's proxy material for its 1999 annual meeting of shareholders, eligible
proposals of shareholders intended to be presented at the annual meeting must be
received by the Company on or before December 1, 1998 (directed to the Corporate
Secretary of the Company at the address indicated on the first page of this
Proxy Statement).

ADVANCE NOTICE REQUIRED FOR SHAREHOLDER NOMINATIONS AND PROPOSALS -- The
By-laws of the Company require timely advance written notice of shareholder
nominations of director candidates and of any other proposals to be presented at
an annual meeting of shareholders. In the case of director nominations by
shareholders, the By-laws require not less than 90 days' nor more than 120 days'
advance written notice be delivered to the Company's Corporate Secretary (at the
address indicated on the first page of this Proxy Statement) and set forth for
each person whom the shareholder proposes to nominate for election or re-

31
<PAGE>
election as a director, (a) the name, age, business address and residence
address of such person, (b) the principal occupation or employment of such
person, (c) the class or series and number of shares of capital stock of the
Company owned beneficially or of record by such person, (d) any other
information relating to such nominee that would be required to be disclosed in
connection with the solicitation of proxies under the Exchange Act and (e) the
written consent of such person to having such person's name placed in nomination
at the meeting and to serve as a director if elected. The shareholder giving the
notice must also include, among other things, the name and address, as they
appear on the Company's books, of such shareholder and the class or series and
number of shares of capital stock of the Company that are then owned
beneficially or of record by such shareholder.

In the case of other proposals by shareholders at an annual meeting, the
By-laws require that not less than 90 days' nor more than 120 days' advance
written notice be delivered to the Company's Corporate Secretary (at the address
indicated on the first page of this Proxy Statement) and set forth, among other
things, (a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the Company's books, of the
shareholder proposing such business, (c) the class or series and number of
shares of the capital stock of the Company owned beneficially or of record by
the shareholder on the date of such notice and (d) a description of all
arrangements or understandings between such shareholder and any other person or
persons (including their names) in connection with the proposal of such business
by such shareholder and any material interest of the shareholder in such
business. A copy of the By-laws of the Company setting forth the requirements
for the nomination of director candidates by shareholders and the requirements
for proposals by shareholders may be obtained from the Company's Corporate
Secretary at the address indicated on the first page of this Proxy Statement.

The Annual Report to Shareholders, which includes the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 and financial
statements of the Company for the year then ended, has been mailed to all
shareholders.

By Order of the Board of Directors

James L. Pate
Chairman

March 30, 1998

32
<PAGE>
SCHEDULE I
INFORMATION CONCERNING THE DIRECTORS, DIRECTOR NOMINEES,
EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES OF THE COMPANY

The following table sets forth the name and the present principal occupation
or employment (except with respect to the directors, whose principal occupation
is set forth in the Proxy Statement), and the name, principal business and
address of any corporation or other organization in which such employment is
carried on, of (1) the directors, director nominees and executive officers of
the Company and (2) certain employees of the Company who may assist in
soliciting proxies from stockholders of the Company. Unless otherwise indicated
below, the principal business address of each such person is Pennzoil Place, P.
O. Box 2967, Houston, Texas 77252 and such person is an employee of the Company.
Directors are indicated with a single asterisk.

DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS OF THE COMPANY

<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRESENT OFFICE OR OTHER
BUSINESS ADDRESS PRINCIPAL OCCUPATION OR EMPLOYMENT
- -------------------------------------------------- ------------------------------------------------------------
<S> <C>
Howard H. Baker, Jr.*.............................
801 Pennsylvania Ave., N.W.
Washington, DC 20004

W. J. Bovaird*....................................
P. O. Box 2590
Tulsa, OK 74102

W. L. Lyons Brown, Jr.*...........................
501 Fourth Avenue
Louisville, KY 40202

Ernest H. Cockrell*...............................
1600 Smith Street
Houston, TX 77002

Harry H. Cullen*..................................
P. O. Box 3331
Houston, TX 77253

Alfonso Fanjul*...................................
P. O. Box 1059
Palm Beach, FL 33480

Berdon Lawrence*..................................
P. O. Box 1343
Houston, TX 77251

James L. Pate*.................................... Chairman of the Board and Chief Executive Officer

Brent Scowcroft*..................................
900 Seventeenth Street, N.W.
Washington, DC 20006

Gerald B. Smith*..................................
600 Travis Street
Houston, TX 77002
</TABLE>

I-1
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRESENT OFFICE OR OTHER
BUSINESS ADDRESS PRINCIPAL OCCUPATION OR EMPLOYMENT
- -------------------------------------------------- ------------------------------------------------------------
<S> <C>
Cyril Wagner, Jr.*................................
P. O. Box 1714
Midland, TX 79702

Stephen D. Chesebro'.............................. President and Chief Operating Officer

David P. Alderson, II............................. Group Vice President -- Finance and Accounting

Clyde W. Beahm.................................... Group Vice President -- Products Marketing

Donald A. Frederick............................... Group Vice President -- Oil and Gas

William M. Robb................................... Group Vice President -- Products Manufacturing

James M. Wheat.................................... Group Vice President -- Franchise Operations

James W. Shaddix.................................. General Counsel

Linda F. Condit................................... Vice President and Corporate Secretary

Michael J. Maratea................................ Vice President and Controller

Bruce K. Misamore................................. Vice President and Treasurer
</TABLE>

CERTAIN EMPLOYEES OF THE COMPANY WHO MAY ALSO SOLICIT PROXIES

<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRESENT OFFICE OR OTHER
BUSINESS ADDRESS PRINCIPAL OCCUPATION OR EMPLOYMENT
- -------------------------------------------------- ------------------------------------------------------------
<S> <C>
Gregory S. Panagos................................ Vice President -- Corporate Communications

Mae Dell Carpenter................................ Manager -- Shareowner Services

John E. Roueche, III.............................. Manager -- Investor Relations
</TABLE>

I-2
<PAGE>
SCHEDULE II
SHARES HELD BY DIRECTORS, DIRECTOR NOMINEES, EXECUTIVE OFFICERS
AND CERTAIN EMPLOYEES OF THE COMPANY AND
CERTAIN TRANSACTIONS BETWEEN ANY OF THEM AND THE COMPANY

The shares of Common Stock held by directors, director nominees and David P.
Alderson, II, Stephen D. Chesebro', Donald A. Frederick and James W. Shaddix are
set forth in the Proxy Statement. The following employees of the Company own the
following shares as of March 5, 1998.

<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK
NAME OF BENEFICIALLY
BENEFICIAL OWNER OWNED (1)
- ------------------------------------------------------------------------------- -----------------
<S> <C>
Clyde W. Beahm................................................................. 50,493

William M. Robb................................................................ 66,106

James M. Wheat................................................................. 21,781

Linda F. Condit................................................................ 18,686

Michael J. Maratea............................................................. 24,532

Bruce K. Misamore.............................................................. 9,962

Gregory S. Panagos............................................................. 9,143

Mae Dell Carpenter............................................................. 589

John E. Roueche, III........................................................... 306
</TABLE>

- ------------

(1) Amounts include shares acquirable within 60 days of March 5, 1998 pursuant
to the exercise of currently outstanding options as follows: 48,298 for Mr.
Beahm, 60,053 for Mr. Robb, 19,209 for Mr. Wheat, 16,146 for Ms. Condit,
23,477 for Mr. Maratea, 9,291 for Mr. Misamore, 8,398 for Mr. Panagos, 106
for Ms. Carpenter and 160 for Mr. Roueche.

PURCHASES AND SALES OF SECURITIES

The following table sets forth information concerning all purchases and
sales of securities of the Company by directors, officers, and certain employees
since March 5, 1996:

<TABLE>
<CAPTION>
DATE OF NATURE OF NUMBER OF SHARES
NAME TRANSACTION TRANSACTION OF COMMON STOCK
- --------------------------------------------------------------------- ----------- ----------- -------------------
<S> <C> <C> <C>
DIRECTORS AND DIRECTOR NOMINEES:

Howard H. Baker, Jr.................................................. 12/16/97 Purchase 2,000

Berdon Lawrence...................................................... 08/02/96 Purchase 5,000

James L. Pate........................................................ 12/31/96 (1) 604
04/02/97 Purchase 1,000
12/31/97 (1) 436

Brent Scowcroft...................................................... 11/12/97 Purchase 1,000

Gerald B. Smith...................................................... 01/06/98 Purchase 1,000
01/09/98 Purchase 500

OFFICERS:

Stephen D. Chesebro'................................................. 12/23/97 Purchase 2,500

David P. Alderson, II................................................ 12/31/96 (1) 270
12/31/97 (1) 213
</TABLE>

II-1
<PAGE>

William M. Robb...................................................... 12/31/96 (1) 276
12/31/97 (1) 175

James M. Wheat....................................................... 12/31/96 (1) 204
12/31/97 (1) 415

James W. Shaddix..................................................... 12/31/96 (1) 518
12/31/97 (1) 408

Linda F. Condit...................................................... 12/31/96 (1) 183
12/31/97 (1) 181

Michael J. Maratea................................................... 12/31/96 (1) 197
(2) 132
12/31/97 (1) 200

Bruce K. Misamore.................................................... 12/31/96 (1) 232
12/31/97 (1) 225

CERTAIN EMPLOYEES:

Gregory S. Panagos................................................... 12/31/96 (1) 147
12/31/97 (1) 165

Mae Dell Carpenter................................................... 12/31/96 (1) 69
12/31/96 (3) 6
12/31/97 (1) 58
12/31/97 (3) 11

John E. Roueche, III................................................. 12/31/96 (1) 58
12/31/97 (1) 70
12/31/97 (3) 18
</TABLE>

- ------------

(1) Purchase made pursuant to the Pennzoil Company Savings and Investment Plan
during the year ended on the date indicated.

(2) Sale made pursuant to the Pennzoil Company Savings and Investment Plan
during the year ended on the date indicated.

(3) Purchase made pursuant to the Pennzoil Company Dividend Reinvestment Plan.

II-2
<PAGE>
David P. Alderson, II, Linda F. Condit and Bruce K. Misamore have agreed to
serve as the proxies on the Company's WHITE Annual Meeting proxy card.

Except as disclosed in this Schedule or in the Proxy Statement, none of the
Company, any of its directors, director nominees, executive officers or the
employees of the Company named in Schedule I owns any securities of the Company
or any subsidiary of the Company, beneficially or of record, has purchased or
sold any of such securities within the past two years or is or was within the
past year a party to any contract, arrangement or understanding with any person
with respect to any such securities. Except as disclosed in this Schedule or in
the Proxy Statement, to the best knowledge of the Company, its directors,
director nominees, executive officers or the employees of the Company named in
Schedule I, none of their associates beneficially owns, directly or indirectly,
any securities of the Company.

Other than as disclosed in this Schedule and in the Proxy Statement, to the
knowledge of the Company, neither the Company nor any of its directors, director
nominees or executive officers or its employees named in Schedule I has any
substantial interest, direct or indirect, by security holdings or otherwise, in
any matter to be acted upon at the Annual Meeting.

Other than as disclosed in this Schedule and in the Proxy Statement, to the
knowledge of the Company, neither of the Company nor any of its directors,
director nominees or executive officers or its employees named in Schedule I is,
or has been within the past year, a party to any contract, arrangement or
understanding with any person with respect to any securities of the Company,
including, but not limited to, joint ventures, loan or option arrangements, puts
or calls, guarantees against loss or guarantees of profit, division of losses or
profits, or the giving or withholding of proxies.

Other than as set forth in this Schedule or in the Proxy Statement, to the
knowledge of the Company, neither the Company nor any of its directors, director
nominees or executive officers or its employees named in Schedule I, or any of
their associates, has had or will have a direct or indirect material interest in
any transaction or series of similar transactions since the beginning of the
Company's last fiscal year or any currently proposed transactions, or series of
similar transactions, to which the Company or any of its subsidiaries was or is
to be a party in which the amount involved exceeds $60,000.

Other than as set forth in this Schedule and in the Proxy Statement, to the
knowledge of the Company, neither the Company nor any of its directors, director
nominees or executive officers or its employees named in Schedule I, or any of
their associates, has any arrangements or understandings with any person with
respect to any future employment by the Company or its affiliates or with
respect to any future transactions to which the Company or any of its affiliates
will or may be a party.

II-3
<PAGE>
IMPORTANT

Your proxy is important. No matter how many shares of Common Stock you own,
please give the Company your proxy "FOR" the election of your Board's nominees
for director and "AGAINST" the Wyser-Pratte Proposals by signing, dating and
returning the Company's WHITE proxy card today in the postage prepaid envelope
provided.

DO NOT RETURN ANY GOLD PROXY CARDS
THAT YOU MAY RECEIVE FROM MR. WYSER-PRATTE

If you have already submitted a proxy to Mr. Wyser-Pratte for the Annual
Meeting, you may change your vote to a vote "FOR" the election of your Board's
nominees and "AGAINST" the Wyser-Pratte Proposals by signing, dating and
returning the Company's WHITE proxy card, which must be dated after any proxy
you may have submitted to Mr. Wyser-Pratte. Only your latest dated proxy for the
Annual Meeting will count at the meeting.

If any of your shares of Common Stock are held in the name of a brokerage
firm, bank, bank nominee or other institution, only it can vote such shares and
only upon receipt of your specific instructions. Accordingly, please contact the
person responsible for your account and instruct that person to execute the
Company's WHITE proxy card as soon as possible.

If you have any questions or require any additional information or
assistance, please contact our proxy solicitor:

MORROW & CO., INC.
CALL TOLL FREE: (800) 566-9061
<PAGE>
[LOGO]
PROXY

PENNZOIL COMPANY

PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS, ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD THURSDAY, MAY 7, 1998.

The undersigned hereby appoints David P. Alderson, II, Linda F. Condit and Bruce
K. Misamore, jointly and severally, proxies with full power of substitution and
resubstitution and with discretionary authority, to represent and to vote, in
accordance with the instructions set forth below, all shares of Common Stock
which the undersigned is entitled to vote at the 1998 annual meeting of
shareholders of Pennzoil Company, and any adjournments or postponements thereof.
In their discretion, the proxies may vote cumulatively for the election of
directors (other than any for whom authority to vote is withheld below) and upon
such other business as may properly come before the meeting.

THIS PROXY WILL BE VOTED AS SPECIFIED BY THE UNDERSIGNED. IF NO CHOICE IS
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE DIRECTOR NOMINEES LISTED ON THE
REVERSE, FOR APPROVAL OF AUDITORS (ITEM 2) AND AGAINST EACH OF THE WYSER-PRATTE
PROPOSALS (LISTED UNDER ITEM 3), AND ACCORDING TO THE DISCRETION OF THE PROXY
HOLDERS ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY
POSTPONEMENT OR ADJOURNMENT THEREOF.

PLEASE MARK THIS PROXY AS INDICATED ON THE REVERSE SIDE TO VOTE ON ANY ITEM. IF
YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS,
PLEASE SIGN THE REVERSE SIDE; NO BOXES NEED TO BE CHECKED.

CONTINUED AND TO BE VOTED AND SIGNED ON REVERSE

Fold and Detach Here Fold and Detach Here

- --------------------------------------------------------------------------------

[LOGO]

1998 Annual Meeting of Shareholders

May 7, 1998
Wortham Theater Center
500 Texas Avenue
Houston, Texas 77002

Registration and seating of shareholders begins at 9:00 a.m.
Meeting begins at 10:00 a.m.
Cameras and recording devices will not be allowed in the meeting.
<PAGE>
FORM 34-102 PLEASE MARK ALL CHOICES LIKE THIS /X/

/ / TO VOTE FOR ALL ITEMS AS RECOMMENDED BY THE BOARD OF DIRECTORS, MARK THIS
BOX, SIGN, DATE AND RETURN THIS PROXY. (NO ADDITIONAL VOTE NECESSARY)

YOUR BOARD OF DIRECTORS UNANIMOUSLY URGES YOU TO VOTE "FOR"
THE DIRECTOR NOMINEES AND "FOR" ITEM 2.
YOUR BOARD OF DIRECTORS UNANIMOUSLY URGES YOU TO VOTE "AGAINST"
EACH OF THE WYSER-PRATTE PROPOSALS LISTED UNDER ITEM 3.
<TABLE>
<S> <C> <C> <C> <C> <C>
1. ELECTION OF DIRECTORS 3. WYSER-PRATTE PROPOSALS:
Nominees are W. L. Lyons Brown, Jr. and Ernest H. Cockrell. (a) To amend the By-laws FOR
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE (i) To require redemption of rights / /
THROUGH THE NOMINEE'S NAME ABOVE. under shareholder rights plan
following certain types of offers.
(ii) To require unanimous vote of / /
directors for certain corporate
actions.
/ / FOR / / WITHHOLD
(iii) To allow calling of special meetings
all nominees (except authority to vote for all by holders of 10% of the shares. / /
nominees
as marked to the contrary above)
(iv) To change advance notice procedures for / /
director nominations
2. APPROVAL OF AUDITORS: FOR AGAINST ABSTAIN and shareholders proposals.
To approve Arthur Andersen LLP as
independent public accountants. / / / / / / (v) To deny directors power to amend / /
or repeal certain By-Laws.
(vi) To elect not to be governed by Section / /
203 of the Delaware General Corporation
Law.
(vii) To repeal all By-Laws adopted by / /
directors since November 1, 1997.
(b) To recommend reimbursement of / /
Wyser-Pratte's proxy solicitation and
litigation expenses.

NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS
SHOULD EACH SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL
TITLE AS SUCH. IF A CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY DULY AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.

<CAPTION>
1. ELECTION OF DIRECTORS
Nominees are W. L. Lyons Brown, Jr. and AGAINST ABSTAIN
TO WITHHOLD AUTHORITY TO VOTE FOR ANY I / / / /
THROUGH THE NOMINEE'
/ / / /
/ / FOR
all nominees (except / / / /
as marked to the contrary above)
/ / / /
2. APPROVAL OF AUDITORS:
To approve Arthur Andersen LLP as
independent public accountants. / / / /
/ / / /
/ / / /
/ / / /
</TABLE>

Signature ______________________________ Signature _____________________________

Title ______________________________ Date _______________, 1998

- --------------------------------------------------------------------------------

THANK YOU FOR VOTING