<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 240.14a-11(c) or Rule 240.14a-12
Union Texas Petroleum Holdings, Inc.
- --------------------------------------------------------------------------------
(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):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[UNION TEXAS LOGO] UNION TEXAS PETROLEUM HOLDINGS, INC.
March 22, 1995
Dear Stockholder:
You are cordially invited to attend the 1995 Annual Meeting of Stockholders
of Union Texas Petroleum Holdings, Inc. on Wednesday, May 10, 1995, at 10:00
a.m., Houston time. The meeting will be held in the first floor auditorium of
the Company's offices located at 1330 Post Oak Blvd., Houston, Texas.
The attached Notice of Annual Meeting and Proxy Statement cover the formal
business of the meeting. To acquaint you better with the director nominees, the
Proxy Statement contains biographical sketches of each nominee.
During the meeting, I will report on the operations of the Company during
1994 and its plans for 1995. Directors and officers of the Company will be
present to respond to questions from stockholders.
The Board of Directors appreciates and encourages stockholder participation
in the Company's affairs. There is a space on the enclosed proxy for you to
indicate if you will be able to attend the meeting. Whether or not you plan to
attend the meeting, please sign, date and return the enclosed proxy promptly in
the envelope provided. If you attend the meeting, you may, at your discretion,
withdraw the proxy and vote in person.
Sincerely,
/s/ A. Clark Johnson
A. CLARK JOHNSON
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
UNION TEXAS PETROLEUM HOLDINGS, INC.
1330 POST OAK BOULEVARD
HOUSTON, TEXAS 77056
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 10, 1995
To the Stockholders of Union Texas Petroleum Holdings, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders of Union
Texas Petroleum Holdings, Inc. (the "Company") will be held in the first floor
auditorium of the Company's offices located at 1330 Post Oak Blvd., Houston,
Texas, on Wednesday, May 10, 1995, at 10:00 a.m., Houston time, for the
following purposes:
1. To elect 11 directors to serve until the next Annual Meeting of
Stockholders or until their successors are elected and qualified;
2. To ratify the appointment of Price Waterhouse LLP as the Company's
independent accountants for the fiscal year ending December 31,
1995;
3. To amend the Company's Restated Certificate of Incorporation to
authorize a new class of preferred stock and to eliminate
provisions relating to 2,000,000 shares of preferred stock;
4. To approve the 1994 Incentive Plan;
5. To amend the 1992 Stock Option Plan; and
6. To transact such other business as may properly come before the
meeting or any adjournment(s) thereof.
The Board of Directors has fixed the close of business on March 15, 1995,
as the record date for determining stockholders entitled to notice of and to
vote at the meeting and any adjournment thereof. Only stockholders of record at
the close of business on such date will be entitled to notice of and to vote at
the meeting and any adjournment thereof.
All stockholders are cordially invited and urged to attend the meeting.
Even if you expect to attend the meeting, you are requested to sign, date and
return the accompanying proxy in the enclosed addressed envelope. If you attend,
you may vote in person, if you wish, whether or not you have sent in your proxy.
By Order of the Board of Directors
/s/ Newton W. Wilson, III
NEWTON W. WILSON, III
Secretary
Houston, Texas
March 22, 1995
<PAGE> 4
UNION TEXAS PETROLEUM HOLDINGS, INC.
PROXY STATEMENT
SOLICITATION OF PROXIES
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of Union Texas Petroleum
Holdings, Inc. (the "Company") for use at the Annual Meeting of Stockholders of
the Company to be held in the first floor auditorium of the Company's offices
located at 1330 Post Oak Blvd., Houston, Texas, on Wednesday, May 10, 1995,
10:00 a.m., Houston time, and at any adjournment thereof pursuant to and for the
purposes set forth in the accompanying Notice of Meeting. The date of the first
mailing of this Proxy Statement to stockholders was on or about March 22, 1995.
The costs of soliciting proxies will be borne by the Company, including
reasonable costs incurred by custodians, nominees, fiduciaries and other agents
in forwarding the proxy material to their principals. The Company has retained
Kissel-Blake Inc. to assist in the solicitation of proxies for a fee estimated
at $10,000, plus reimbursement of out-of-pocket expenses. In addition to such
solicitation and the solicitation made hereby, certain directors, officers and
employees of the Company may solicit proxies by fax, telex, telephone and
personal interview.
A proxy will be voted in accordance with the stockholder's instruction, or
if no instruction is indicated, it will be voted in favor of the proposals set
forth in the notice attached hereto. Any stockholder may revoke his proxy at any
time prior to its exercise by written notice or by execution of a subsequent
proxy sent to Newton W. Wilson, III, Secretary, Union Texas Petroleum Holdings,
Inc., 1330 Post Oak Blvd., Houston, Texas 77056. The proxy also may be revoked
if the stockholder is present at the meeting and elects to vote in person.
VOTING SECURITIES AND CERTAIN BENEFICIAL OWNERS
At the close of business on March 15, 1995, the record date for
determination of stockholders entitled to notice of and to vote at the meeting,
there were issued and outstanding 87,651,859 shares of the Company's common
stock, par value $.05 per share ("Common Stock"), excluding Common Stock held by
the Company, each share being entitled to one vote upon each of the matters to
be voted upon at the meeting. There are no other voting securities outstanding.
The presence in person or by proxy of the holders of a majority of the
issued and outstanding Common Stock, excluding Common Stock held by the Company,
is necessary to constitute a quorum at this meeting. In the absence of a quorum
(43,825,931 shares) at the meeting, the meeting may be adjourned from time to
time without notice other than announcement at the meeting until a quorum shall
be formed. A plurality of the votes of the shares present in person or by proxy
at the meeting and entitled to vote is required for the election of directors,
meaning that the 11 nominees with the largest number of affirmative votes will
be elected as directors. The affirmative vote of a majority of the shares
outstanding and entitled to vote is required for the approval of the proposed
amendment to the Company's Restated Certificate of Incorporation to authorize
the issuance of a new class of preferred stock and to eliminate provisions
relating to an existing class of 2,000,000 shares of preferred stock. The
affirmative vote of a majority of the shares present in person or by proxy at
the meeting and entitled to vote is required for the approval of the 1994
Incentive Plan and to amend the 1992 Stock Option Plan. Any other matter that
may come before the meeting shall be adopted if the votes cast for such matter
exceed the votes cast against. Under Delaware law and under the Company's
Restated Certificate of Incorporation, each share of Common Stock entitles a
stockholder to one vote.
In certain circumstances, a stockholder will be considered to be present at
the meeting for quorum purposes but will not be deemed to have cast a vote on a
matter. Such circumstances exist when a stockholder is present but abstains from
voting on a matter or when shares are represented at the meeting by a proxy
conferring authority to vote only on certain matters as in the case of broker
non-votes.
<PAGE> 5
In connection with the amendment to the Company's Restated Certificate of
Incorporation, approval of the 1994 Incentive Plan and amendment of the 1992
Stock Option Plan, abstentions will be treated as negative votes and, therefore,
will affect the outcome of such votes. In conformity with the Company's Bylaws,
shares abstaining from voting on any other matters coming before the meeting
will not be treated as votes cast with respect to such matters, and therefore
will not affect the outcome of any such matter. In addition, broker non-votes
will be treated as negative votes with respect to the amendment of the Company's
Restated Certificate of Incorporation but not with respect to any other matters
coming before the meeting.
The table below sets forth certain information as of March 15, 1995,
regarding the beneficial ownership of the Common Stock, excluding Common Stock
held by the Company, by (i) each person known by the Company to own beneficially
more than 5% of its outstanding shares of Common Stock, (ii) each director of
the Company, (iii) the five executive officers of the Company named in the
Summary Compensation Table and (iv) all executive officers and directors of the
Company as a group:
<TABLE>
<CAPTION>
PERCENTAGE
OF
AMOUNT SHARES
AND OF
NATURE OF COMMON
BENEFICIAL STOCK
NAME OWNERSHIP(1) OUTSTANDING
- --------------------------------------------------------------- --------- -----------
<S> <C> <C>
Petroleum Associates, L.P.(2).................................. 33,333,334 38%
KKR Partners II, L.P.(2).......................................
9 W. 57th Street
New York, New York 10019
Oppenheimer Group, Inc.(3)..................................... 12,082,224 14%
Oppenheimer Tower, World Financial Center
New York, New York 10281
Loomis, Sayles & Company, L.P.(4).............................. 4,866,827 6%
One Financial Center
Boston, Massachusetts 02111
Glenn A. Cox, Director(5)(6)................................... 11,000 *
Saul A. Fox, Director(2)....................................... 0 *
Edward A. Gilhuly, Director(2)................................. 0 *
James H. Greene, Jr., Director(2).............................. 0 *
A. Clark Johnson(6)............................................ 67,357 *
Chairman of the Board and
Chief Executive Officer
Henry R. Kravis, Director(2)................................... 0 *
Michael W. Michelson, Director(2).............................. 0 *
Stanley P. Porter, Director(6)................................. 9,000 *
George R. Roberts, Director(2)................................. 0 *
Richard R. Shinn, Director(6).................................. 13,000 *
Sellers Stough, Director(6).................................... 9,000 *
William M. Krips, Senior Vice President(6)(7).................. 117,778 *
Arthur W. Peabody, Jr., Senior Vice President(6)(7)............ 191,838 *
Larry D. Kalmbach, Vice President(6)(7)........................ 24,852 *
Newton W. Wilson, III, Vice President(6)(7).................... 96,640 *
All executive officers and directors as a group
(16 persons)(6)(7)(8)........................................ 574,942 1%
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership of Common Stock, except as noted.
(2) KKR Associates is the sole general partner of each of Petroleum Associates,
L.P. and KKR Partners II, L.P. (collectively, the "KKR Partnerships") and
possesses sole voting and investment power with respect to the 33,333,334
shares owned by such stockholders. KKR Associates is a limited partnership
of which
(Footnotes continued on following page)
2
<PAGE> 6
Henry R. Kravis, George R. Roberts, Michael W. Michelson, Saul A. Fox, James
H. Greene, Jr., Edward A. Gilhuly (all directors of the Company), Robert I.
MacDonnell, Paul E. Raether, Michael T. Tokarz, Perry Golkin, Clifton S.
Robbins and Scott Stuart are the general partners. None of the
aforementioned individuals beneficially owns any other shares of Common
Stock.
The KKR Partnerships currently own approximately 38% of the issued and
outstanding Common Stock of the Company. As a result, the KKR Partnerships
and their general partners will be able to exercise control over the
Company, through their representation on the Board and by reason of their
substantial voting power with respect to the election of directors and
actions submitted to a vote of stockholders.
The Company has agreed that, upon request of the KKR Partnerships, the
Company will register under the Securities Act of 1933, as amended (the
"Securities Act"), and applicable state securities laws the sale of the
Common Stock owned by the KKR Partnerships as to which registration has been
requested. The Company's obligation is subject to certain limitations
relating to a minimum amount required for registration, the timing of a
registration and other similar matters. The Company is obligated to pay any
registration expenses incidental to such registration, excluding
underwriters' commissions and discounts.
(3) On February 1, 1995, Oppenheimer Group, Inc., as a parent holding company,
filed an amendment to its Schedule 13G on behalf of itself, Oppenheimer
Capital and certain related entities with respect to such shares. Such
shares of Common Stock may include shares held for investment advisory
clients or discretionary accounts.
(4) Loomis, Sayles & Company, L.P. is a registered investment advisor that filed
a Schedule 13G on February 14, 1995, to report holding such shares for
investment advisory clients.
(5) Voting and investment power are shared with Veronica Cox with respect to
such shares, all of which are held in the Glenn A. Cox Trust, UTA.
(6) Includes the following shares issuable upon the exercise of outstanding or
issuable stock options that are exercisable within 60 days after March 15,
1995: (i) subject to stockholder approval of the 1994 Incentive Plan, 8,000
for each of Messrs. Cox, Porter, Shinn and Stough, (ii) 46,357 for Mr.
Johnson; 104,774 for Mr. Krips; 116,844 for Mr. Peabody; 17,201 for Mr.
Kalmbach; 87,553 for Mr. Wilson; and (iii) 434,192 for all executive
officers and directors as a group.
(7) Shares held by executive officers in the Company's Savings Plan for Salaried
Employees are included in the table as of January 31, 1995. Additional
shares may have accumulated since that date.
(8) As of March 15, 1995, the executive officers of the Company include the five
executive officers named in the Summary Compensation Table and Mr. Knight.
See "Executive Officers."
ELECTION OF DIRECTORS
PROPOSAL 1: THE BOARD OF DIRECTORS OF THE COMPANY URGES YOU TO VOTE FOR THE
NOMINEES FOR THE BOARD OF DIRECTORS DESCRIBED BELOW. PROXIES WILL BE SO VOTED
UNLESS STOCKHOLDERS SPECIFY OTHERWISE IN THEIR PROXIES. NOMINEES FOR DIRECTOR
WILL BE ELECTED BY A PLURALITY OF VOTES.
The Board recommends election of the nominees listed below as directors to
hold office until the next Annual Meeting of Stockholders or until their
successors are elected and qualified. Each of such nominees is presently a
member of the Board. If, at the time of the 1995 Annual Meeting of Stockholders,
any of such nominees should be unable to serve or for good cause will not serve,
discretionary authority provided in the proxy will be used to vote for a
substitute or substitutes designated by the Board. The Board has no reason to
believe that any substitute nominees will be required.
The nominees, and certain information with respect to each of them, are as
follows:
Glenn A. Cox -- Age 65, Director since January 1993. Mr. Cox is a retired
President and Chief Operating Officer of Phillips Petroleum Company, a position
he held from 1985 until December 1991. Phillips Petroleum Company is a
corporation involved in petroleum exploration, production and refining and also
in the manufacturing and distribution of a variety of chemicals. Mr. Cox is a
director of BOK Financial Corp.,
3
<PAGE> 7
Bank of Oklahoma, The Williams Companies and Helmerich & Payne, Inc. Member of
the Audit Committee and the Succession Committee.
Saul A. Fox -- Age 41, Director since July 1985. Mr. Fox has been a partner
of Kohlberg Kravis Roberts & Co. ("KKR") since January 1991, and prior to that
he had been an associate with KKR since September 1984. KKR is a private
investment firm and an affiliate of KKR Associates. Mr. Fox is also a director
of Fred Meyer, Inc., American Re Corporation, Layne, Inc., RJR Nabisco Holdings
Corp. and RJR Nabisco, Inc.
Edward A. Gilhuly -- Age 35, Director since December 1992. Mr. Gilhuly was
an associate of KKR from 1986 until 1995, when he became a partner. He is a
director of Owens-Illinois, Inc., Red Lion Properties, Inc., Layne, Inc. and
Owens-Illinois Group, Inc. Member of the Organization and Compensation Committee
and the Succession Committee.
James H. Greene, Jr. -- Age 44, Director since December 1992. Mr. Greene
was an associate of KKR from 1986 until 1993, when he became a partner. He is a
director of Owens-Illinois, Inc., RJR Nabisco Holdings Corp., Safeway Inc., The
Stop & Shop Companies, Inc., Owens-Illinois Group, Inc., RJR Nabisco, Inc. and
The Vons Companies Inc.
A. Clark Johnson -- Age 64, Chairman of the Board since July 1985. Mr.
Johnson has also served as Chief Executive Officer since July 1984. Mr. Johnson
has responsibility for the overall management of the Company. Mr. Johnson joined
Allied Corporation, the Company's predecessor, in 1968 and since then has served
in a number of executive positions. He was first elected a director of the
Company in July 1984. For additional information, see discussion below in this
Proposal 1.
Henry R. Kravis -- Age 51, Director since July 1985. Mr. Kravis has been a
partner in KKR since its organization in 1976. He is also a director of
Owens-Illinois, Inc., Owens-Illinois Group, Inc., Safeway Inc., Duracell
International, Inc., IDEX Corporation, RJR Nabisco Holdings Corp., RJR Nabisco,
Inc., Walter Industries, Inc., The Stop & Shop Companies, Inc., AutoZone, Inc.,
K-III Communications Corp., American Re Corporation, Flagstar Companies, Inc.,
Flagstar Corporation and World Color Press, Inc.
Michael W. Michelson -- Age 43, Director since July 1985. Mr. Michelson has
been a partner of KKR since January 1987, and prior to that he had been an
associate of KKR. Mr. Michelson is also a director of Fred Meyer, Inc.,
Owens-Illinois, Inc., Owens-Illinois Group, Inc., AutoZone, Inc. and Red Lion
Properties, Inc. Member of the Organization and Compensation Committee and the
Succession Committee.
Stanley P. Porter -- Age 76, Director since July 1985. Mr. Porter is a
retired Vice Chairman of Arthur Young & Company. Mr. Porter was a director of
Allied-Signal Inc. (collectively with its predecessor, Allied
Corporation,"Allied") from 1980 until April 1989. Allied is an advanced
technology company. Mr. Porter is a former director of Fiber Industries, Inc.
and Engraph, Inc. Member of the Audit Committee.
George R. Roberts -- Age 51, Director since July 1985. Mr. Roberts has been
a partner in KKR since its organization in 1976. He is also a director of
Owens-Illinois, Inc., Duracell International, Inc., IDEX Corporation,
Owens-Illinois Group, Inc., RJR Nabisco Holdings Corp., RJR Nabisco, Inc., The
Stop & Shop Companies, Inc., Red Lion Properties, Inc., Walter Industries, Inc.,
Safeway Inc., AutoZone, Inc., K-III Communications Corp., American Re
Corporation, Flagstar Companies, Inc., Flagstar Corporation, World Color Press,
Inc. and Borden Inc. Mr. Roberts is a first cousin of Mr. Kravis.
Richard R. Shinn -- Age 77, Director since May 1988. Mr. Shinn was
Executive Vice Chairman of the New York Stock Exchange from May 1985 through
December 1990. Mr. Shinn retired as Chairman and Chief Executive Officer of
Metropolitan Life Insurance Company in 1983. Mr. Shinn was a director of Allied
from 1973 until April 1988. Mr. Shinn is also a director of Grey Advertising
Inc. Member of the Audit Committee, the Organization and Compensation Committee
and the Succession Committee.
Sellers Stough -- Age 72, Director since March 1988. Mr. Stough is a
retired Vice President, Finance of Chevron Corporation. Mr. Stough also served
on the Executive Committee of Chevron Corporation from August 1986 until his
retirement in December 1987. Mr. Stough was a consultant to the law firm of
Pillsbury Madison & Sutro from February 1988 until June 1991. Mr. Stough served
as Executive Director of the firm
4
<PAGE> 8
from November 1989 through December 1990. Mr. Stough was a director of Amax,
Inc. from 1982 until 1987. Member of the Audit Committee.
The Board has standing audit and organization and compensation committees
that are composed of directors of the Company. The functions of the Audit
Committee include reviewing external financial reporting, both annual and
quarterly reports, and other financial portions of external reporting of the
Company, recommending engagement of the Company's independent accountants,
reviewing and approving the terms of engagement of the independent accountants,
reviewing the independence of such accountants, reviewing with the independent
accountants the plan, scope and results of the auditing engagement, and
reviewing the scope and results of the Company's procedures for internal
auditing and the adequacy of the Company's internal accounting controls.
The functions of the Organization and Compensation Committee (the
"Compensation Committee") include establishing compensation for executive
officers, monitoring compensation arrangements of certain management employees
for consistency with corporate objectives and to enhance shareholder value,
recommending remuneration arrangements for senior management, serving as the
Stock Option Committee under the Company's 1985, 1987 and 1992 Stock Option
Plans and the Company's proposed 1994 Incentive Plan, administering the
Incentive Compensation Plan and making recommendations with respect to employee
benefit plans.
In addition, although the Board does not have a standing nominating
committee, the Compensation Committee considers and makes recommendations to the
Board regarding persons to be nominated for election as directors by the Board
to fill vacancies that arise between annual meetings of stockholders.
Stockholders wishing to recommend a person for consideration as nominee for
election to the Board can do so in accordance with the Company's Bylaws by
giving timely written notice to the Secretary of the Company at 1330 Post Oak
Blvd., Houston, Texas 77056, giving each such nominee's name, appropriate
biographical information and any other information that would be required in a
proxy statement. Any such recommendation should be accompanied by a written
statement from the person recommended, giving his or her consent to be named as
a nominee and, if nominated and elected, to serve as a director. A notice must
be delivered to the Secretary not later than the close of business on the 60th
day nor earlier than the close of business on the 90th day prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is more than 30 days before or
more than 60 days after such anniversary date, notice by the stockholder must be
so delivered not earlier than the close of business on the 90th day prior to
such annual meeting and not later than the close of business on the later of the
60th day prior to such annual meeting or the close of business on the 10th day
following the day on which public announcement of the date of such meeting is
first made by the Company. Such notice to the Secretary must set forth the
number of shares that are owned beneficially by the stockholder that is giving
the notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made.
In addition to the standing committees, in 1994 the Board created a
Succession Committee. In light of the Company's policy mandating retirement of
officers at age 65, the Company has begun to plan for a successor to the
Chairman and Chief Executive Officer of the Company, Mr. Johnson, who will be 65
on December 7, 1995. The function of the Succession Committee is to study and
make recommendations to the full Board regarding such succession so as to
provide for an orderly transfer of responsibilities. The current members of the
Succession Committee are Messrs. Cox, Gilhuly, Michelson and Shinn.
During the year ended December 31, 1994, the Board held a total of six
meetings, the Audit Committee held four meetings, the Compensation Committee
held four meetings, and the Succession Committee held three meetings. Messrs.
Fox, Kravis and Roberts attended less than 75% of the Board meetings.
All directors who are not officers of the Company receive $40,000 per annum
for serving on the Board. In addition, all directors are reimbursed for
out-of-pocket costs of attending Board and committee meetings. In addition, if
Proposal 4 for the 1994 Incentive Plan is approved, non-employee directors will
receive annual grants of stock options. See "Proposal 4 -- Approval of 1994
Incentive Plan."
5
<PAGE> 9
RATIFICATION OF SELECTION OF ACCOUNTANTS
PROPOSAL 2: THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND URGES YOU
TO VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE LLP ("PRICE
WATERHOUSE") AS THE COMPANY'S INDEPENDENT ACCOUNTANTS TO SERVE UNTIL THE NEXT
ANNUAL MEETING OF STOCKHOLDERS. PROXIES WILL BE SO VOTED UNLESS THE STOCKHOLDERS
SPECIFY OTHERWISE IN THEIR PROXIES. PROPOSAL 2 WILL BE ADOPTED IF THE VOTES CAST
IN FAVOR EXCEED THE VOTES CAST OPPOSING THIS PROPOSAL.
The Board and the Audit Committee recommend ratification of the appointment
of Price Waterhouse. Price Waterhouse has audited the financial statements of
the Company since the Company's formation in 1982. Price Waterhouse will have a
representative at the meeting who will have the opportunity to make a statement,
if the representative desires to do so, and will be available to respond to
appropriate questions.
APPROVAL OF PROPOSED AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
TO AUTHORIZE NEW PREFERRED STOCK AND
TO ELIMINATE OLD PREFERRED STOCK
PROPOSAL 3: THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND URGES YOU
TO VOTE FOR THE PROPOSED AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION
TO AUTHORIZE NEW PREFERRED STOCK AND TO ELIMINATE OLD PREFERRED STOCK. PROXIES
WILL BE SO VOTED UNLESS THE STOCKHOLDERS SPECIFY OTHERWISE IN THEIR PROXIES.
PROPOSAL 3 WILL BE ADOPTED BY THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES
OUTSTANDING AND ENTITLED TO VOTE.
The Board has adopted resolutions declaring the advisability of an
amendment to the Restated Certificate of Incorporation of the Company (i) to
authorize the issuance of up to 15,000,000 shares of preferred stock, $.01 par
value ("New Preferred Stock"), and (ii) to eliminate the provisions relating to
the existing class of 2,000,000 shares of preferred stock (the "Old Preferred
Stock"). The proposed amendments to the Restated Certificate of Incorporation
are attached hereto as Appendix A and incorporated herein by reference. The
discussion hereunder is qualified in its entirety by reference to Appendix A.
Preferred stock is a widely used and attractive form of equity financing.
The Company's Restated Certificate of Incorporation currently does not provide
for the establishment of terms for the issuance of this financing instrument at
the Board's discretion. The Board believes it is highly desirable for the
Company to have the flexibility to issue preferred stock in addition to its
current ability to issue debt and additional Common Stock. If Proposal 3 is
approved, the Board will be able to act quickly to specify the precise
characteristics of the New Preferred Stock to be issued, depending on then
current market conditions and the nature of specific transactions, and will not
be required to solicit further authorization from stockholders for any specific
issue of New Preferred Stock (except where otherwise required by applicable laws
or regulations). The Company's purposes for any future issuance of New Preferred
Stock could include, without limitation, issuance in public or private sales for
cash as a means of obtaining additional capital for use in the Company's
business and operations, or issuance as part or all of the consideration
required to be paid by the Company for acquisitions of other businesses or
properties. The New York Stock Exchange currently requires stockholder approval
as a prerequisite to listing shares in several instances, including acquisition
transactions, where the present or potential issuance of shares, in any
transaction or series of related transactions, other than a public offering for
cash, could result in a 20% or more increase in the number of shares of Common
Stock outstanding. The Company is engaged in analyzing a full range of
financing, strategic acquisition and other corporate plans; however, as of the
date hereof, the Board has no specific plans to issue any series of New
Preferred Stock.
The Board has adopted a policy providing that no future issuance of New
Preferred Stock will be effected without stockholder approval unless the Board
(whose decision shall be conclusive) determines in good faith (i) that such
issuance is primarily for the purpose of facilitating a financing, an
acquisition or another proper corporate objective or transaction and (ii) that
any anti-takeover effects of such issuance are not the Company's primary purpose
for effecting such issuance. The Board will not amend or revoke this policy
6
<PAGE> 10
without giving written notice to the holders of all outstanding shares of the
Company's stock; however, stockholder approval will be required before an
amendment or revocation is effective that permits an issuance of New Preferred
Stock for the primary purpose of obstructing a takeover of the Company by any
person who has, prior to such written notice to stockholders, notified the Board
of such person's desire to pursue a takeover of the Company. Therefore, the
Board believes that, as structured, the authorization of New Preferred Stock is
in the best interests of the stockholders and the Company and will facilitate
the Company's ability to take advantage of acquisition or financing
opportunities that might not be available through the use of Common Stock.
The Board would authorize the issuance of any shares of New Preferred Stock
based upon its policy described above and judgment as to the best interests of
the Company and its stockholders. Under Delaware law and the Company's Restated
Certificate of Incorporation, stockholders do not have pre-emptive rights to
subscribe for any shares of New Preferred Stock or other securities of the
Company, whether now or hereafter authorized. Subject to the policy described
above, the authorization of New Preferred Stock could have the effect of
discouraging a tender offer or unsolicited attempt to acquire control of the
Company in a transaction that a stockholder might deem desirable, including
takeover attempts that might result in a premium over the market price of the
Common Stock. Preferred stock issuances involving certain voting or conversion
privileges can be used to make the acquisition of a company more difficult or
more costly. The Company is not aware of any present effort by any person to
accumulate the Company's Common Stock, except as described above under "Voting
Securities and Certain Beneficial Owners," or to obtain control of the Company.
The Board believes that its policy described above will permit the Company to
issue the New Preferred Stock for corporate purposes that are in the best
interests of its stockholders.
At present the Restated Certificate of Incorporation provides for the
issuance of up to 200,000,000 shares of Common Stock, par value $.05 per share,
and up to 2,000,000 shares of Old Preferred Stock, par value $1.00 per share.
Pursuant to Proposal 3, Section A of Article Fourth of the Restated Certificate
of Incorporation, containing the provisions relating to the Old Preferred Stock,
will be eliminated in its entirety and replaced with the provisions described
herein relating to the 15,000,000 shares of New Preferred Stock. The Board
adopted this approach because the Company does not intend to reissue the Old
Preferred Stock, which must be issued on the same terms as previously issued,
including a redemption price of $100 per share plus a redemption premium and a
fixed annual dividend rate of $20.00 and $20.75 per share, respectively, for
each 1,000,000 shares, of the total 2,000,000 shares currently authorized. In
1992, the Company redeemed all of the then outstanding shares of Old Preferred
Stock held by Allied for $200 million, together with accrued dividends through
the redemption date, as part of a financial restructuring through a series of
transactions. The New Preferred Stock would provide the Company flexibility to
issue from time to time this form of equity based on current market conditions
that result in market sensitive terms.
Under Proposal 3, the Board can authorize the issuance, at any time or from
time to time, of one or more series of New Preferred Stock at its discretion. In
addition, the Board would determine all designations, powers, preferences and
the rights of such stock and any qualifications, limitations and restrictions,
including but not limited to: (i) the designation of series and numbers of
shares (up to 15,000,000 shares authorized under Proposal 3); (ii) the dividend
rights, if any; (iii) the rights upon liquidation or distribution of the assets
of the Company, if any; (iv) the conversion or exchange rights, if any; (v) the
redemption provisions, if any; and (vi) the voting rights, if any; provided,
that the holders of shares of New Preferred Stock will not be entitled to more
than one vote per share, when voting as a class with the holders of shares of
the Common Stock and if such New Preferred Stock is convertible into Common
Stock, then holders can receive one vote on an as converted basis.
Any conversion privilege may include the right to convert or exchange New
Preferred Stock into Common Stock or into other securities, assets or property
of the Company. If the Board provides that shares of any series may be converted
or exchanged, the terms of any such conversion or exchange privilege will be
determined by the Board based on its assessment of the value of the Common Stock
or other security or asset for which the New Preferred Stock may be converted or
exchanged. If convertible or exchangeable into Common Stock or another security
or asset, the terms and conditions fixed and determined by the Board on which
such conversion or exchange may be made may include, without limitation,
provisions for the protection
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<PAGE> 11
of the conversion or exchange right against dilution in any manner whatsoever,
and provisions relating to the effect upon the conversion or exchange right of
any change in control, or any merger or consolidation of the Company into or
with any other corporation.
The holders of shares of New Preferred Stock would not be entitled to any
voting rights except as provided by resolution of the Board, by statute, or as
may be required by applicable rules or policies of any exchange on which the
Common Stock is listed or the New Preferred Stock may be listed. As currently in
effect, the rules of the New York Stock Exchange provide that, as a prerequisite
to listing, preferred stock must have certain minimum voting rights. The
preferred stock, voting as a class, should have the right to elect a minimum of
two directors upon the default of the equivalent of six quarterly dividends. The
right to elect directors should remain in effect until cumulative dividends have
been paid in full or until non-cumulative dividends have been paid regularly for
at least one year. In addition, the approval of at least two-thirds of
outstanding shares of preferred stock is required for the creation of a senior
equity security or the adoption of any amendment of the Restated Certificate of
Incorporation or Bylaws that would materially affect existing terms of the
preferred stock. The approval by a majority of the holders of outstanding shares
of a class of preferred stock is required for an increase in the authorized
amount of preferred stock of that class or the creation of a class of stock
ranking pari passu with that class.
It is not possible to state the actual effect of the authorization of the
New Preferred Stock upon the holders of Common Stock until the Board determines
the respective rights of the holders of one or more series of the New Preferred
Stock. However, such effects may include (i) restrictions on dividends on Common
Stock if dividends on the New Preferred Stock are in arrears; (ii) dilution of
the voting power of the Common Stock to the extent that a series of the New
Preferred Stock has voting rights; (iii) restrictions on the rights of the
holders of Common Stock to share in the Company's assets upon liquidation until
satisfaction of any liquidation preference granted to the New Preferred Stock;
and (iv) potential dilution of the equity of holders of Common Stock to the
extent that a series of the New Preferred Stock might be convertible into or
exchangeable for Common Stock.
If approved, the proposed amendment would become effective upon filing with
the Secretary of State of Delaware a Certificate of Amendment to the Company's
Restated Certificate of Incorporation, which filing is expected to take place
shortly after such stockholder approval. Under Delaware law, adoption of the
proposed amendment to the Restated Certificate of Incorporation will require the
affirmative vote of a majority of the outstanding shares of Common Stock. The
Board has expressly reserved the right to abandon such proposed amendment
notwithstanding stockholder approval. There are no outstanding shares of the Old
Preferred Stock; thus, there are no shares of Old Preferred Stock entitled to
vote on this proposal.
APPROVAL OF 1994 INCENTIVE PLAN
PROPOSAL 4: THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND URGES YOU
TO VOTE FOR THE 1994 INCENTIVE PLAN. PROXIES WILL BE SO VOTED UNLESS THE
STOCKHOLDERS SPECIFY OTHERWISE IN THEIR PROXIES. PROPOSAL 4 WILL BE ADOPTED BY
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES PRESENT IN PERSON OR BY PROXY
AT THE MEETING AND ENTITLED TO VOTE.
The Board recommends the approval of the 1994 Incentive Plan (the "1994
Plan"), which authorizes the grant of various stock, stock-related and cash
awards. The 1994 Plan, which is effective as of November 28, 1994, was adopted
by the Board on January 26, 1995, contingent upon approval by the stockholders.
The Board believes the Company's success and long-term progress are dependent
upon attracting and retaining directors, executive personnel and employees of
the Company and its subsidiaries. The 1994 Plan is intended to give the
Compensation Committee maximum flexibility to use various forms of incentive
awards as part of the Company's overall compensation program. Historically, the
Company has used stock options and annual bonuses as incentives for
pay-for-performance awards. The Compensation Committee has no current intention
to immediately utilize all the new types of awards available under the 1994
Plan, but will have the flexibility through the 1994 Plan to grant such
incentives in the future.
The 1994 Plan is intended to encourage employees of the Company, its
subsidiaries and affiliated entities, and non-employee directors of the Company
to acquire or increase their equity interest in the Company.
8
<PAGE> 12
Additionally, the 1994 Plan is intended to provide a means whereby employees may
develop a sense of proprietorship and personal involvement in the development
and financial success of the Company and to encourage them to remain with and
devote their best efforts to the business of the Company, thereby advancing the
interests of the Company and its stockholders. The 1994 Plan is also
contemplated to enhance the ability of the Company, its subsidiaries and
affiliated entities to attract and retain the services of individuals who can
contribute to the program, growth and profitability of the Company.
The Company first adopted a stock option plan in 1985 and has periodically
submitted each successive option plan (1987 and 1992) to the stockholders for
approval. If the 1994 Plan is approved, no future stock options will be granted
under any of such prior stock option plans. The 1994 Plan is intended to allow
the Compensation Committee continued flexibility to use stock, stock-related and
cash awards in the Company's overall compensation program.
The full text of the 1994 Plan is set forth in Appendix B to this Proxy
Statement. The essential features of the 1994 Plan are summarized below, but
such summary is qualified in its entirety by reference to the full text of the
1994 Plan. All capitalized terms not defined herein shall have the meaning as
defined in the 1994 Plan.
TYPES OF AWARDS
The 1994 Plan would permit the granting of any or all of the following
types of awards ("Awards"): (i) stock options, including incentive stock options
("ISOs"); (ii) stock appreciation rights ("SARs"), in tandem with stock options
or freestanding; (iii) restricted stock; (iv) performance awards; (v) stock
compensation awards; (vi) bonus shares; (vii) deferred shares; and (viii) other
stock-based or cash awards.
ELIGIBILITY FOR PARTICIPATION
In addition to officers and employees of the Company or any affiliate of
the Company, each non-employee director (each director who is not then an
employee of the Company or any subsidiary or affiliated with KKR, "Non-employee
Director") of the Company will be eligible to receive certain Awards under the
1994 Plan. As of the date of this Proxy Statement, the Company had approximately
1,000 employees and four Non-employee Directors.
ADMINISTRATION
The 1994 Plan will be administered by the Compensation Committee, which is
composed of disinterested directors appointed by the Board. Under the terms of
the 1994 Plan, the Compensation Committee must consist of disinterested persons
within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Compensation Committee will select the
participants who will receive Awards, determine the type and terms of Awards to
be granted, and interpret and administer the 1994 Plan.
AMENDMENT AND TERMINATION
The Board may terminate or amend the 1994 Plan without stockholder
approval, except that stockholder approval is required for any amendment that
would increase the number of shares available for grant, grant ISOs at an
exercise price of less than fair market value of the Common Stock on the date of
grant or otherwise cause the 1994 Plan to cease to satisfy the requirements of
Rule 16b-3 of the Exchange Act.
TERM OF THE PLAN
The 1994 Plan will terminate on November 27, 2004, after which time no
additional Awards may be made under the 1994 Plan.
SHARES SUBJECT TO THE PLAN
Subject to adjustment as described more fully below, 4,000,000 shares of
Common Stock may be awarded under the 1994 Plan; provided, however, that no more
than 1,200,000 shares available for Awards shall be issued as restricted stock.
The maximum aggregate number of shares available under the 1994 Plan for Awards
of options and SARs to any person during the term of the 1994 Plan is 500,000
shares per year, of which tandem Awards will be deemed to be one Award.
9
<PAGE> 13
STOCK OPTIONS
Stock options granted under the 1994 Plan will be subject to the terms and
conditions determined by the Compensation Committee, except that: (i) no options
may be granted after the termination of the 1994 Plan; (ii) the option exercise
price cannot be less than 100% of the fair market value of a share of Common
Stock at the time the option is granted; and (iii) no option may be exercised
more than ten years after it is granted. ISOs may be granted provided they meet
the requirements of the Internal Revenue Code of 1986, as amended (the "Code").
The Compensation Committee will determine the form in which payment of the
exercise price may be made, including cash, shares of Common Stock, other
securities or other property, or any combination thereof, having a fair market
value on the exercise date equal to the relevant exercise price.
STOCK APPRECIATION RIGHTS
An SAR may be granted in tandem with another Award, in addition to another
Award, or freestanding and unrelated to another Award. The grant price of an SAR
shall not be less than 100% of the fair market value of a share of Common Stock
at the time the SAR is granted. The Compensation Committee may impose such
conditions or restrictions on the exercise of any SAR as it shall deem
appropriate.
RESTRICTED STOCK
The Compensation Committee shall determine the employees to whom Restricted
Stock will be granted, the number of shares of Restricted Stock to be granted to
each participant, the duration of the restriction period, the conditions under
which the Restricted Stock may be forfeited to the Company and other terms and
conditions of Awards of Restricted Stock. Restricted Stock may not be disposed
of by the participant until the restrictions specified in the Award expire. The
participant will have, with respect to Restricted Stock, the right to vote the
shares and, unless otherwise determined by the Compensation Committee, the right
to receive any cash dividends. Except as otherwise determined by the
Compensation Committee, upon termination of a participant's employment for any
reason during the restriction period, all Restricted Stock will be forfeited by
the participant. A tandem cash unit can be granted with each share of Restricted
Stock in an amount calculated to provide a cash payout that will enable the
participant to pay taxes on Restricted Stock without having to sell such Common
Stock.
PERFORMANCE AWARDS
Performance Awards, which shall consist of a right payable in cash, shares
of Common Stock, other securities or other property, may be granted under the
1994 Plan upon the achievement of performance goals. Performance goals will
include, but are not limited to, the attainment of target levels of business
criteria. The Compensation Committee shall determine the performance goals to be
achieved during any performance period, the length of any performance period,
the amount of any Performance Award and the amount of any payment or transfer to
be made pursuant to any Performance Award. The Compensation Committee may
establish performance criteria associated with grants of Performance Awards, if
such Awards are intended to qualify for a tax deduction for certain compensation
paid in excess of $1 million, as discussed below in this Proposal under the
heading "Federal Income Tax Consequences -- Tax Consequences to the Company or
Subsidiary." Performance Awards may be paid in accordance with procedures
established by the Compensation Committee.
STOCK COMPENSATION
The Compensation Committee shall have the authority to pay all or a portion
of any amounts payable under (i) the 1994 Plan, other than Cash Awards granted
as a short-term annual incentive or in tandem with Restricted Stock, or (ii) if
requested by an employee, any other compensation program of the Company, in
shares of Common Stock. The number and type of shares to be distributed in lieu
of cash compensation, as well as the terms and conditions of any such stock
compensation, shall be determined by the Compensation Committee.
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<PAGE> 14
BONUS SHARES
The Compensation Committee may deliver shares of Common Stock to any
eligible employee as additional compensation for the employee's services to the
Company.
DEFERRED SHARES
An Award of Deferred Shares constitutes an agreement by the Company to
deliver shares of Common Stock to the participant in the future in consideration
of the fulfillment of such conditions, including the performance of services, as
the Compensation Committee may specify. Prior to the delivery of the Deferred
Shares, the participant has no right to transfer any rights under his or her
Award and no rights as a stockholder with respect to the shares covered by the
Award, except as to phantom dividends, that the Compensation Committee may elect
to credit in a bookkeeping account.
OTHER STOCK-BASED OR CASH AWARDS
In its discretion, the Compensation Committee may grant other forms of
Awards based on, payable in, or otherwise related in whole or in part to Common
Stock or grant cash Awards under the 1994 Plan. Subject to the terms of the 1994
Plan, the Compensation Committee shall determine the terms and conditions of any
such other stock-based or cash awards.
NON-EMPLOYEE DIRECTOR STOCK OPTIONS
Each Non-employee Director shall receive on the day of each Annual Meeting
of Stockholders options to purchase 3,000 shares of Common Stock. In addition,
subject to stockholder approval of the 1994 Plan, each Non-employee Director who
served on the Board on January 26, 1995, received options to purchase 5,000
shares of Common Stock at an exercise price of $18.625 per share, the fair
market value of the Common Stock on such date. Each new Non-employee Director
elected or appointed after such date shall also receive an initial award of
options to purchase 5,000 shares of Common Stock. The Compensation Committee and
Board shall have no discretion with respect to Non-employee Director stock
options. Each such option shall be fully vested and exercisable and have a term
of ten years and must be exercised within six months of termination of service
on the Board for any reason other than death, disability or retirement (after at
least five years of continuous Board service), in which event such option must
be exercised within two years of death or disability and within three years of
retirement. The price per share to be paid by the holder of such an option shall
equal the fair market value per share of Common Stock on the date the option is
granted. The purchase price of the shares to which such option is exercised
shall be paid only in cash. No transfer, sale or other disposition of Common
Stock acquired upon option exercise is permitted until the Non-employee Director
terminates service as a Non-employee Director of the Company, unless a prior
extraordinary corporate transaction occurs.
CHANGE IN CONTROL
In the event of a "Change in Control," as defined in the 1994 Plan, the
Compensation Committee shall accelerate the exercise or vesting date of all
Awards and may take any one or more of the following actions in connection with
any Awards made under the 1994 Plan: (i) provide for the purchase, in cash, of
such Award; (ii) make adjustments to such Award, including the exercise period;
or (iii) subject to certain provisions, cause any outstanding Award to be
assumed, or a new right substituted therefor, by the acquiring or surviving
corporation, or, with notice to the participant, cause the exercise period for
any such Award to terminate on a fixed date following such Change in Control.
A Change in Control is deemed to occur under the 1994 Plan (i) if any
person or persons or entity or entities (other than the KKR Partnerships)
acquires 75% or more of the assets of the Company or a successor of the Company
or such successor's parent corporation (based upon the then current fair market
value thereof) or 50% or more of the Company's then outstanding voting stock or
a successor's or such successor's parent corporation's then outstanding voting
securities, and, if there shall be more than one class of voting securities
thereof, then of the combined voting power held by all classes of voting
securities of the Company, a
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<PAGE> 15
successor corporation or its parent corporation (whether such acquisition of
stock or assets occurs pursuant to a single transaction or several related
transactions or series of transactions), (ii) upon the approval by the Company's
stockholders of a plan of liquidation or dissolution of the Company or a
successor of the Company or such successor's parent corporation, or (iii) upon
the approval by the Company's stockholders of a merger or consolidation and such
transaction was determined to be a Change in Control, which transaction and
determination was approved by a majority of the Board in actions taken prior to
and with respect to such transaction.
ADJUSTMENTS
In the event the Compensation Committee determines that any dividend or
other distribution, recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of shares of Common Stock or other similar corporate
transaction or event affects the Common Stock so that an adjustment is
determined by the Compensation Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended under the
1994 Plan, then the Compensation Committee shall adjust any or all of the
Awards.
No Awards have been made to any employee, including executive officers, as
of the date of this Proxy Statement, but option grants have been made to
Non-employee Directors under the 1994 Plan, subject to stockholder approval of
the 1994 Plan. See "New Plan Benefits -- 1994 Plan" below in this Proposal.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain of the federal income tax
consequences of certain transactions under the 1994 Plan based on federal income
tax laws and regulations in effect on January 1, 1995. This summary is not
intended to be exhaustive and does not describe state or local tax consequences.
Additional or different federal income tax consequences to the employee or the
Company may result depending upon any considerations not described below.
TAX CONSEQUENCES TO PARTICIPANTS
Non-Qualified Option Rights. In general: (i) no income will be recognized
by an optionee at the time a Non-Qualified Stock Option ("NQO") is granted; (ii)
at the time of exercise of an NQO, ordinary income will be recognized by the
optionee in an amount equal to the difference between the option price paid for
the shares and the fair market value of the shares if they are nonrestricted on
the date of exercise; and (iii) at the time of sale of shares acquired pursuant
to the exercise of an NQO, any appreciation (or depreciation) in the value of
the shares after the date of exercise will be treated as either short-term or
long-term capital gain (or loss), depending on how long the shares have been
held.
Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an ISO, although the excess of the fair
market value on the date of exercise over the option price is included in
alternative minimum taxable income for alternative minimum tax purposes. If
shares of Common Stock are issued to an optionee pursuant to the exercise of an
ISO and no disqualifying disposition of the shares is made by the optionee
within two years after the date of grant or within one year after the transfer
of the shares to the optionee, then upon the sale of the shares any amount
realized in excess of the option price will be taxed to the optionee as
long-term capital gain and any loss sustained will be a long-term capital loss.
If shares of Common Stock acquired upon the exercise of an ISO are disposed
of prior to the expiration of either holding period described above, the
optionee generally will recognize ordinary income in the year of disposition in
an amount equal to any excess of the fair market value of the shares at the time
of exercise (or, if less, the amount realized on the disposition of the shares
in a sale or exchange) over the option price paid for the shares. Any further
gain (or loss) realized by the optionee generally will be taxed as short-term or
long-term capital gain (or loss), depending on the holding period.
Stock Appreciation Rights. No income will be recognized by a participant in
connection with the grant of an SAR. When the SAR is exercised, the participant
normally will be required to include as taxable
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<PAGE> 16
ordinary income in the year of exercise an amount equal to the amount of any
cash, and the fair market value of any nonrestricted shares of Common Stock,
received pursuant to the exercise.
Restricted Stock. A recipient of Restricted Stock generally will be subject
to tax at ordinary income rates on the fair market value of the Restricted Stock
reduced by any amount paid by the recipient at such time as the shares are no
longer subject to a risk of forfeiture or restrictions on transfer for purposes
of Section 83 of the Code. However, a recipient who so elects under Section
83(b) of the Code within 30 days of the date of transfer of shares will have
taxable ordinary income on the date of transfer of the shares equal to the
excess of the fair market value of the shares (determined without regard to the
risk of forfeiture or restrictions on transfer) over any purchase price paid for
the shares. If a Section 83(b) election has not been made, any dividends
received with respect to Restricted Stock that is subject at that time to a risk
of forfeiture or restrictions on transfer generally will be treated as
compensation that is taxable as ordinary income to the recipient.
Performance Awards. No income generally will be recognized upon the grant
of Performance Awards. Upon payment in respect of earned Performance Awards, the
recipient generally will be required to include as taxable ordinary income in
the year of receipt an amount equal to the amount of cash received and the fair
market value of any nonrestricted shares of Common Stock received less any
amount paid for such Award at the time of payment or transfer pursuant to the
achievement of the performance goals.
Stock Compensation. When a participant receives shares of Common Stock in
lieu of cash compensation, the fair market value of the shares of Common Stock
will be ordinary income to the participant. Any gain or loss realized by a
participant on disposition of the Common Stock so acquired generally will be
capital gain or loss to such participant, long-term or short-term depending on
the holding period. The participant's basis in the shares of Common Stock for
determining gain or loss on the disposition will generally be the fair market
value of such Common Stock on the date the shares are issued.
Bonus Shares and Deferred Shares. No income generally will be recognized
upon the grant of Deferred Shares. The recipient of Bonus Shares or of
unrestricted shares upon the lapse of the restrictions on Deferred Shares
generally will be subject to tax at ordinary income rates on the fair market
value of nonrestricted shares of Common Stock on the date that such shares are
transferred to him or her, reduced by any amount paid by him or her, and the
capital gain or loss holding period for such shares will also commence on that
date.
Other Stock-Based or Cash Awards. Generally, Other Stock-Based Awards will
be subject to tax in the same manner as described above for a similar award. A
Cash Award would be subject to tax at ordinary income tax rates when paid.
Special Rules Applicable to Officers and Directors. Where the sale of stock
that is received as the result of a grant of an Award could subject an officer
or director to suit under Section 16(b) of the Exchange Act, the tax
consequences to the officer or director may differ from the tax consequences
described above. In these circumstances, the principal difference usually will
be to postpone the taxation (and valuation) of the stock received so long as the
sale of the stock received could subject the officer or director to suit under
Section 16(b) of the Exchange Act, but not longer than six months.
TAX CONSEQUENCES TO THE COMPANY OR SUBSIDIARY
To the extent that a participant recognizes ordinary income in the
circumstances described above, the Company or subsidiary for which the
participant performs services will be entitled to a corresponding deduction for
federal income tax purposes provided that, among other things, (i) the income
meets the test of reasonableness, is an ordinary and necessary business expense
and is not an "excess parachute payment" within the meaning of Section 280G of
the Code, (ii) any applicable withholding obligations are satisfied, and (iii)
the $1 million limitation of Section 162(m) of the Code is not exceeded.
Awards made under the 1994 Plan at a time when all Compensation Committee
members are not "outside" directors within the meaning of Section 162(m) will
not meet the "performance-based exemption" under Section 162(m) of the Code.
Beginning with the Company's 1996 Annual Meeting of Stockholders, two of the
present members of the Compensation Committee may, under present circumstances,
cease being
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"outside" directors. If in the future the Compensation Committee continues to
qualify under such Section 162(m), the Company has reserved the flexibility
under the 1994 Plan such that Awards granted after that time may qualify as
being performance based. The business criteria performance goals applicable to
Performance Awards intended by the Compensation Committee to qualify for the
exemption from the $1 million limitation of Section 162(m) of the Code will be
based upon the attainment of such target levels of either net income, cash
flows, reserve additions or revisions, total capitalization, total stockholder
return, assets, exploration successes, production volumes, finding and
development costs, costs reductions and savings, reportable incidents in safety
or environmental matters, return on sales, profit margin, earnings per share, or
personal objectives tied to operational studies, implementing policies and
plans, negotiating transactions and sales, developing long-term business goals,
managerial responsibilities and assessments as may be specified by the
Compensation Committee. The maximum amount of compensation that may be paid
under Performance Awards to any one individual with respect to any one year will
be $1,500,000 under an annual bonus Performance Award and $1,500,000 under a
long-term Award with a performance period longer than one fiscal year.
To qualify stock options and SARs as "performance-based compensation" for
Section 162(m) of the Code, the 1994 Plan limits the total number of stock
options and underlying SARs that may be awarded to any one person during any
calendar year to 500,000 shares, of which tandem Awards will be deemed to be one
Award.
The $1 million limitation of Section 162(m) of the Code applies only with
respect to compensation paid to "Covered Employees," i.e., the Company's Chief
Executive Officer and the four highest compensated executive officers of the
Company or those individuals deemed to be executive officers of the Company
(other than the Chief Executive Officer) and who are officers on the last day of
the year in question. Any future Award under the 1994 Plan expressly intended by
the Compensation Committee to qualify as "performance-based compensation" will
not be paid unless it so qualifies; Awards that either are not intended to
qualify or which cannot qualify as performance based will be paid without regard
to the limitation on deductibility under Section 162 of the Code.
PLAN AWARDS
Grants and Awards under the 1994 Plan that may be made to Company executive
officers and other employees are not presently determinable. If the stockholders
approve the 1994 Plan, such grants and Awards will be made at the discretion of
the Compensation Committee in accordance with its compensation policies, which
are discussed in the "Compensation Committee Report on Executive Compensation"
below. See the Amended Plan Benefits table under "Proposal 5 -- Approval of
Proposed Amendment to the 1992 Stock Option Plan" for information on stock
options granted in 1994 under the 1992 Plan. The following table sets forth the
numbers of stock options that will be granted to Non-employee Directors
(referred to as Non-Executive Directors) as a group under the 1994 Plan. Such
options are granted fully vested with a ten-year term. On January 26, 1995, the
initial options were granted at an exercise price of $18.625 per share, which
was the fair market value of the Common Stock at the time of grant. On March 15,
1995, the average trading price of the Common Stock was $21.125.
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<PAGE> 18
NEW PLAN BENEFITS
1994 PLAN
<TABLE>
<CAPTION>
NUMBER
OF
OPTIONS
GROUP (1)
- ---------------------------------------------------------------------------------- ------
<S> <C>
Non-Executive Director Group (4 persons)(2)....................................... 32,000
</TABLE>
- ---------------
(1) Subject to stockholder approval of the 1994 Plan, the initial grant in
January 1995 includes options to purchase 20,000 shares of Common Stock
(5,000 per Non-employee Director who served on the date of Board approval
of the 1994 Plan), and a subsequent grant after the 1995 Annual Meeting of
Stockholders includes 12,000 options (3,000 per Non-employee Director).
Each new Non-employee Director, hereafter, will receive an initial grant of
5,000 options at the date of his or her election or appointment. Each
Non-employee Director would then be granted 3,000 options effective as of
the date of each Annual Meeting of Stockholders at which he or she
continues to serve as a director. The exercise price of the options is
based on the fair market value of the Company's Common Stock on the date of
grant, which for the initial grant was $18.625 on January 26, 1995. For a
description of the terms of such options, see "Proposal 4 -- Approval of
1994 Incentive Plan -- Non-employee Director Stock Options."
(2) Current Non-Executive Directors who are eligible participants under the 1994
Plan as Non-employee Directors include Messrs. Cox, Porter, Shinn and
Stough.
APPROVAL OF PROPOSED AMENDMENT TO THE
1992 STOCK OPTION PLAN
PROPOSAL 5: THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND URGES YOU
TO VOTE FOR THE PROPOSED AMENDMENT TO THE 1992 STOCK OPTION PLAN TO AMEND THE
DEFINITION OF CHANGE IN CONTROL. PROXIES WILL BE SO VOTED UNLESS THE
STOCKHOLDERS SPECIFY OTHERWISE IN THEIR PROXIES. PROPOSAL 5 WILL BE ADOPTED BY
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES PRESENT IN PERSON OR BY PROXY
AT THE MEETING AND ENTITLED TO VOTE.
The Board recommends the approval of an amendment to the 1992 Stock Option
Plan (the "1992 Plan") to change the definition of a change in control. The 1992
Plan was adopted by the Board on December 2, 1992, and was submitted to and
approved by the Company's stockholders at the 1993 Annual Meeting. The 1992 Plan
authorizes the issuance of options to purchase up to 4,000,000 shares of Common
Stock to employees of the Company. As of the date of this Proxy Statement, the
Company had approximately 1,000 employees. If Proposal 4 for the 1994 Plan is
approved, no future stock options will be granted under the 1992 Plan.
The Board has recommended a revision to the definition of change in
control, which conforms to the definition in the 1994 Plan. Currently, in
general, unless 75% or more of the Company's voting stock or assets is acquired
(other than by the KKR Partnerships or their affiliates) or there is a
liquidation, dissolution or merger of the Company, no change in control is
triggered for purposes of the Company's outstanding options under the 1992 Plan.
Since Allied sold its holdings of 39% of the Company's Common Stock, the Board
has approved reducing the voting stock change in control threshold. The revised
definition provides that a change in control is triggered for purposes of the
1992 Plan, as well as the proposed 1994 Plan, if 50% (not 75%) or more of the
Company's voting stock or 75% or more of the Company's assets are acquired
(other than by the KKR Partnerships or their affiliates). In addition, the
merger or consolidation of the Company with another entity will not trigger a
change in control unless the Board determines by a majority vote that such
transaction is a change in control. The primary effect under the 1992 Plan of a
change in control is to accelerate the vesting of outstanding stock options and
other Awards.
The following summary describes briefly the principal features of the 1992
Plan, and is qualified in its entirety by reference to the full text of the 1992
Plan as amended by the proposed First Amendment, the full text of which
Amendment is provided as Appendix C to this Proxy Statement.
The Compensation Committee of the Board authorizes the grant of options and
otherwise makes all decisions with respect to the operation of the 1992 Plan.
The Compensation Committee, under the terms of
15
<PAGE> 19
the 1992 Plan, must consist of disinterested persons within the meaning of Rule
16b-3 of the Exchange Act. Options are exercisable for a maximum period of ten
years at an exercise price of not less than the fair market value of the
underlying Common Stock at the time of grant. The value of the stock options in
the 1992 Plan is directly dependent upon an increase in the value of the Common
Stock of the Company. At the discretion of the Compensation Committee, any
option granted under the 1992 Plan may be granted in tandem with an SAR allowing
the optionee, subject to certain restrictions, to surrender his option in return
for a payment in cash or shares of Common Stock or a combination thereof equal
in value to the excess of the fair market value of the shares of Common Stock
over the option price thereof. To date, all options granted by the Compensation
Committee have been granted in tandem with SARs. However, such SARs currently
are exercisable only by the officers of the Company subject to restrictions on
insider trading pursuant to Section 16(b) of the Exchange Act, which at the date
of this Proxy Statement include each of the executive officers named in the
Summary Compensation Table. The 1992 Plan allows options to be granted with
limited SARs payable in cash upon the occurrence of certain change in control
events. Such right provides for the automatic payment of cash upon a change in
control of the Company (currently generally defined (prior to the proposed
amendment as described above) as merger, consolidation, liquidation, dissolution
or acquisition of 75% or more of the Company's assets or 75% of the outstanding
voting stock, other than such transactions with the KKR Partnerships), equal to
the difference in the market value of the Common Stock on the date of grant and
on the date of payment. In addition, the 1992 Plan allows options to be granted
with limited SARs payable in cash in certain circumstances involving transfer of
stock by the KKR Partnerships, which SARs are exercisable only by officers,
including the executive officers named in the Summary Compensation Table.
Options may be granted under the 1992 Plan only to employees (including
officers and directors who are also employees) of the Company or a subsidiary of
the Company. Options granted under the 1992 Plan may be either ISOs under the
provisions of Section 422 of the Code or NQOs. To date, all options granted by
the Compensation Committee have been NQOs, except for ISOs granted to officers
of the Company in 1994.
All options expire upon the earlier of ten years from the date of grant,
immediately upon an optionee's termination of employment with the Company and
its subsidiaries for fraud, misappropriation of property or willful gross
misconduct or a period of 90 days to three years following termination of
employment for any other reason.
Pursuant to the discretion given to the Compensation Committee to impose
conditions upon options granted under the 1992 Plan, all options granted prior
to 1994 under the 1992 Plan are exercisable to the extent of a five-year vesting
schedule and options granted in 1994 under the 1992 Plan are exercisable to the
extent of a four-year vesting schedule. Each option vests in full upon death,
disability, voluntary resignation for the purpose of accepting employment with
Virginia Indonesia Company, normal retirement or a change in control.
The Board may amend the 1992 Plan at any time, except that any amendment
will require stockholder approval if it affects (i) the aggregate number of
shares that may be issued under options granted pursuant to the 1992 Plan, (ii)
the class of employees eligible to participate in the 1992 Plan or (iii) the
material terms of the options granted or that may be granted pursuant to, or any
extension of the 1992 Plan.
Federal Income Taxes. The federal income tax consequences of option
transactions under the 1992 Plan are the same as described for options under the
1994 Plan based on federal income tax laws in effect on January 1, 1995. See
"Proposal 4 -- Approval of 1994 Incentive Plan -- Federal Income Tax
Consequences." Currently, to the extent an optionee who is one of the five
executive officers named in the Summary Compensation Table recognizes ordinary
income in the circumstances described above, the Company has been entitled to a
corresponding deduction for federal income tax purposes despite the $1 million
cap limitation of Section 162(m) of the Code. For a discussion of such
deduction, see "Proposal 4 -- Approval of the 1994 Incentive Plan -- Federal
Income Tax Consequences." Stock options granted under the 1992 Plan are intended
to qualify for exemption from the cap under the transition rules that apply to
stock options granted under such plan before the Company's 1997 Annual Meeting
of Stockholders; however, if the 1992 Plan is materially modified before that
meeting or any member of the Compensation Committee ceases to be an "outside"
director, within the meaning of Section 162(m), stock option grants made after
that modification
16
<PAGE> 20
will not qualify unless the 1992 Plan requalifies under Section 162(m) of the
Code. If this amendment to the 1992 Plan is a material modification that
adversely affects the transition status of the stock options previously awarded
to Covered Employees under the 1992 Plan, such option awards will be paid
without regard to the limitation on deductibility under Section 162 of the Code.
If a change in control of the Company, as defined in the 1992 Plan, were to
occur, the acceleration of vesting and automatic cashout provisions might result
in excess "parachute payments" under Section 4999 of the Code. The Company would
not be entitled to a tax deduction with respect to such excess parachute
payments, and the optionees would be subject to a 20% excise tax on the amount
of such payments.
It is not possible to determine at this time the numbers of shares of
Common Stock covered by options that may be granted in the future under the
amended 1992 Plan to any employee. If Proposal 4 to approve the 1994 Plan is
adopted, no future stock options will be granted under the 1992 Plan.
The following table sets forth, as to the executive officers of the Company
named in the Summary Compensation Table, all current executive officers as a
group and all other employees as a group and the number of shares covered by
outstanding options granted under the 1992 Plan as of December 31, 1994, that
will be amended if this Proposal 5 is approved. Such options were granted with
five-year and four-year vesting periods at exercise prices that were the fair
market value of the Common Stock at the time of grant and range from $18.3125 to
$20.875 per share. On March 15, 1995, the average trading price of the Common
Stock was $21.125.
AMENDED PLAN BENEFITS
1992 STOCK OPTION PLAN
<TABLE>
<CAPTION>
NUMBER
OF
NAME POSITION OPTIONS(1)
- ----------------------------------- ---------------------------------------------- --------
<S> <C> <C>
A. Clark Johnson................... Chairman of the Board and Chief Executive 190,300
Officer
William M. Krips................... Senior Vice President 107,100
Arthur W. Peabody, Jr.............. Senior Vice President 107,100
Newton W. Wilson, III.............. General Counsel, Vice
President -- Administration
and Secretary 86,600
Larry D. Kalmbach.................. Vice President and Chief Financial Officer 51,700
Executive Group (6 persons)(2)...................................................... 583,800
Non-Executive Officer
Employee Group(3)................................................................. 2,059,580
</TABLE>
- ---------------
(1) For information on options granted in 1994 under the 1992 Plan, see
Option/SAR Grants in 1994 Table.
(2) Current executive officers include the five individuals named in the Summary
Compensation Table and Mr. Knight. See "Executive Officers" below.
(3) Directors are not eligible for participation in the 1992 Plan.
OTHER MATTERS
It is not anticipated that there will be presented to the meeting any
business other than election of directors, the ratification of the appointment
of independent accountants, amendment of the Company's Restated Certificate of
Incorporation, approval of the 1994 Plan and amendment of the 1992 Plan. If any
other matters requiring the vote of the stockholders arise, including the
question of adjourning the meeting and other matters not known reasonably in
advance by the Company, the persons appointed as proxies in the accompanying
proxy will vote on such matters according to their best judgment.
Regardless of the number of shares owned by you, it is important that they
be represented at the meeting, and you are respectfully requested to sign, date
and return the accompanying proxy at your earliest convenience.
17
<PAGE> 21
EXECUTIVE OFFICERS
A. Clark Johnson -- Age 64, Chairman of the Board and Chief Executive
Officer. Information about Mr. Johnson is included on pages 4 and 5 with the
information on nominees for the Board.
William M. Krips -- Age 55, Senior Vice President since May 1994, after
having served as Senior Vice President -- Exploration and Production, Senior
Vice President and General Manager -- U.S. Exploration and Production, Senior
Vice President and General Manager -- Hydrocarbon Products Group and Vice
President and General Manager -- International Operations. Mr. Krips has
responsibility for Producing Operations. Mr. Krips joined Allied in 1964, and
served in a number of management positions in planning, finance, marketing and
operations. Mr. Krips is also a member of the Unimar Company Management Board,
and a director of ENSTAR Corporation ("ENSTAR") and of ENSTAR Indonesia, Inc.,
Virginia International Company and Virginia Indonesia Company, which entities
are subsidiaries of ENSTAR.
Arthur W. Peabody, Jr. -- Age 51, Senior Vice President since May 1994,
after having served as Senior Vice President -- Exploration and Production,
Senior Vice President and General Manager -- Hydrocarbon Products Group, Vice
President -- Planning and Administration and Vice President -- Acquisitions and
Planning. Mr. Peabody has responsibility for New Exploration Ventures and
Petrochemicals. Mr. Peabody is also a member of the Unimar Company Management
Board, and a director of ENSTAR and of ENSTAR Indonesia, Inc. and Virginia
International Company, which entities are subsidiaries of ENSTAR. Mr. Peabody
joined Allied in 1981 and, prior to assuming his current position, held various
positions in management and in planning and development with Allied and
thereafter with the Company.
Larry D. Kalmbach -- Age 43, Vice President and Chief Financial Officer
since February 1995, after having served as Vice President -- Finance and Vice
President and Controller of the Company. Mr. Kalmbach has responsibility for
Accounting, Tax, Treasury, Audit, Management Information Systems and Planning
and Investor Relations. He joined the Company in 1974 and has held various
financial management positions with the Company. He is also a member of the
Unimar Company Management Board, and a director of ENSTAR and of Virginia
International Company and Virginia Indonesia Company, which entities are
subsidiaries of ENSTAR.
James E. Knight -- Age 49, Vice President -- Technical Services since
December 1991, after having served as Vice President -- International Operations
and Engineering and Vice President -- International Drilling. Mr. Knight has
responsibility for Production and Reservoir Engineering, Project Management,
Drilling and Safety and Environmental. Mr. Knight joined the Company in 1980,
and has served in a number of positions in planning, engineering and operations.
Newton W. Wilson, III -- Age 44, General Counsel, Vice
President -- Administration and Secretary since January 1993, and Vice
President, General Counsel and Secretary from October 1985 until he assumed his
current position. Mr. Wilson has responsibility for Law, Acquisitions, Human
Resources, Health Services, Security, Purchasing, Administration and Corporate
Communications.
The executive officers also serve as directors of certain of the Company's
subsidiaries and affiliates other than those named above. The Company's Bylaws
provide that each officer shall hold office until the officer's successor is
elected or appointed or until the officer's death, resignation or removal by the
Board.
18
<PAGE> 22
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION
The following table sets forth information regarding aggregate cash
compensation, stock option awards and other compensation earned by the Company's
Chief Executive Officer and the four other most highly compensated executive
officers for services rendered in all capacities to the Company and its
subsidiaries in the years 1992 to 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
----------
NUMBER
OF
SECURITIES
ANNUAL COMPENSATION UNDERLYING
NAME AND -------------------- OPTIONS/SARS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) GRANTED(2) COMPENSATION(3)(4)
- ---------------------------------- ---- -------- -------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
A. Clark Johnson.................. 1994 $533,333 $409,100 74,800 $ 42,667
Chairman of the Board and 1993 $500,000 $200,900 65,000 $ 58,667
Chief Executive Officer 1992 $475,000 $276,000 50,500 $2,947,470
William M. Krips.................. 1994 $290,000 $160,000 39,100 $ 23,200
Senior Vice President 1993 $280,000 $ 85,100 34,000 $ 32,683
1992 $261,667 $113,500 34,000 $ 20,867
Arthur W. Peabody, Jr............. 1994 $281,250 $160,000 39,100 $ 22,500
Senior Vice President 1993 $270,000 $ 85,100 34,000 $ 31,687
1992 $256,667 $113,500 34,000 $ 19,867
Newton W. Wilson, III............. 1994 $270,000 $135,000 31,600 $ 21,600
General Counsel, Vice
President -- 1993 $260,000 $ 73,700 27,500 $ 29,921
Administration and Secretary 1992 $232,083 $ 81,400 27,500 $ 17,683
Larry D. Kalmbach................. 1994 $205,000 $105,000 20,700 $ 16,400
Vice President and 1993 $196,667 $ 46,500 18,000 $ 21,776
Chief Financial Officer 1992 $153,750 $ 45,400 13,000 $ 11,850
</TABLE>
- ---------------
(1) Includes compensation under the Company's Incentive Compensation Plan for
Executive Officers and Key Salaried Employees (the "Incentive Compensation
Plan"), which provides cash awards for executive officers and key salaried
employees of the Company. For a description of the Incentive Compensation
Plan, see "Report of the Organization and Compensation Committee of the
Board of Directors." Awards are paid currently in a lump sum or deferred for
a period determined by the Compensation Committee. No incentive compensation
accrued in 1994, 1993, or 1992 was deferred by any of the executive officers
to later years.
(2) Each option granted included an equal number of SARs.
(3) Amounts reflected on the Summary Compensation Table above for Mr. Johnson
include early payment of his entire supplemental retirement benefits in 1992
in the amount of $2,910,287 to eliminate the incentive for Mr. Johnson to
retire at year-end 1992. Mr. Johnson was required to withdraw as a
participant in the supplemental retirement plans upon receipt of such
payment.
(4) Other than with respect to an additional amount for Mr. Johnson described in
Footnote 3 above, information in this column includes amounts contributed by
the Company under the Company's Savings Plan for Salaried Employees and
Supplemental Non-Qualified Savings Plan for Executive Employees. The
Company's matching contributions to the Savings Plan for Salaried Employees
for 1994 were in the respective amounts of none for Mr. Johnson, $9,240 for
Mr. Krips, $8,307 for Mr. Peabody, $8,373 for Mr. Wilson, and $9,240 for Mr.
Kalmbach. The Company's matching contributions to the Supplemental
Non-Qualified Savings Plan for Executive Employees for 1994 were in the
respective amounts of $42,667 for Mr. Johnson, $13,960 for Mr. Krips,
$14,193 for Mr. Peabody, $13,227 for Mr. Wilson, and $7,160 for Mr.
Kalmbach.
19
<PAGE> 23
During each of the three years ended December 31, 1992, 1993, and 1994,
perquisites for each individual named in the Summary Compensation Table
aggregated less than 10% of the total annual salary and bonus reported for such
individual in the Summary Compensation Table, or $50,000, if lower. Accordingly,
no such amounts are included in the Summary Compensation Table.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table sets forth information concerning the grant of stock
options and tandem SARs under the Company's 1992 Stock Option Plan to the
executive officers named in the Summary Compensation Table:
OPTION/SAR GRANTS IN 1994
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------
PERCENT
GRANT
REPRESENTS
OF
NUMBER TOTAL
OF OPTIONS/SARS
SECURITIES GRANTED
UNDERLYING TO ALL GRANT
OPTIONS/ EMPLOYEES DATE
SARS IN EXERCISE EXPIRATION PRESENT
GRANTED(1) 1994 PRICE(2) DATE VALUE(3)
---------- ----- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
A. Clark Johnson.............. 74,800 7.78% $18.75 11/27/2004 $622,710.00
William M. Krips.............. 39,100 4.07% $18.75 11/27/2004 $325,507.50
Arthur W. Peabody, Jr......... 39,100 4.07% $18.75 11/27/2004 $325,507.50
Newton W. Wilson, III......... 31,600 3.29% $18.75 11/27/2004 $263,070.00
Larry D. Kalmbach............. 20,700 2.15% $18.75 11/27/2004 $172,327.50
</TABLE>
- ---------------
(1) A total of 960,900 options were granted on November 28, 1994. Options were
received by all U.S.-based employees of the Company, with 220,300 options
(120,900 of which were ISOs) being granted to the executive officers (the
five officers named above plus Mr. Knight) and 740,600 options being granted
to 518 other employees. The options become exercisable for 25% of the shares
after the expiration of one year from the date of grant, 50% after the
expiration of two years, 75% after the expiration of three years and in full
after the expiration of four years. Options are granted for a term of ten
years, subject to termination between 90 days to three years following
termination of employment. Each option vests in full upon death, disability,
normal retirement, voluntary resignation for the purpose of accepting
employment with Virginia Indonesia Company, involuntary termination of an
executive officer, or a change in control (generally defined as merger,
consolidation, liquidation, dissolution or acquisition of 75% or more of the
Company's assets or outstanding voting stock other than such a transaction
with the KKR Partnerships, subject to amendment as described in Proposal 5).
Upon the occurrence of a change-in-control event, including specified sales
of Common Stock by the KKR Partnerships, the options held by executive
officers are automatically exchanged for cash equal to the difference in the
value of the Common Stock and the option exercise price. In addition, each
option to executive officers is accompanied by an equivalent number of SARs.
The SARs allow the optionee, subject to certain restrictions, to surrender
his option in return for a payment in cash or shares of Common Stock or a
combination thereof equal in value to the excess of the fair market value of
the shares of Common Stock over the option price thereof. The SARs are
subject to the same vesting, expiration and termination provisions as the
related option.
(2) The options other than ISOs contain an "early payment provision" whereby the
Board or the Compensation Committee may authorize the Company to make a cash
payment, equal to the difference in the market value of a share of Common
Stock on the date of payment and the exercise price, to the holder of the
option and adjust the exercise price of the option to the then market price
of the Common Stock.
(3) To calculate the present value of option/SAR grants in 1994, the Company has
used the Black-Scholes option pricing model. The actual value, if any, an
executive may realize will depend on the excess of the stock price over the
exercise price on the date the option is exercised, so that there is no
assurance the
(Footnotes continued on following page)
20
<PAGE> 24
value realized by an executive will be at or near the value estimated by the
Black-Scholes model. The estimated values under that model are based on
assumptions that include (i) a stock price volatility of 26.9%, calculated
using monthly stock prices for the three years prior to the grant date, (ii)
an interest rate of 7%, (iii) a dividend yield of 1% and (iv) an option
exercise term of ten years. This value has been adjusted to reflect any risk
of forfeiture prior to vesting. The Securities and Exchange Commission (the
"SEC") requires disclosure of the potential realizable value or present
value of each grant. The Company's use of the Black-Scholes model to
indicate the present value of each grant is not an endorsement of this
valuation, which is based on certain assumptions, including the assumption
that the option will be held for the full ten-year term prior to exercise.
Studies conducted by the Company's independent consultants indicate that
options are usually exercised before the end of the full ten-year term.
OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth information with respect to the executive
officers named in the Summary Compensation Table concerning the exercise of
options and SARs during 1994 and unexercised options and SARs held as of the end
of 1994, which include grants made under the Company's 1985 and 1992 Stock
Option Plans.
AGGREGATED OPTION/SAR EXERCISES IN 1994
AND OPTION/SAR VALUES AT DECEMBER 30, 1994
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER UNDERLYING IN-THE-MONEY
OF UNEXERCISED OPTIONS/SARS HELD AT
SECURITIES OPTIONS/SARS HELD AT 1994 FISCAL
UNDERLYING 1994 FISCAL YEAR-END YEAR-END(2)
OPTIONS/SARS VALUE -------------------------- --------------------------
NAME EXERCISED REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
A. Clark Johnson........... 0 $ 0 46,357 157,100 $128,387 $177,475
William M. Krips........... 0 $ 0 104,774 86,700 $514,202 $101,894
Arthur W. Peabody, Jr...... 0 $ 0 124,444 86,700 $738,344 $101,894
Newton W. Wilson, III...... 17,000 $230,562.50 87,553 70,100 $476,497 $ 82,375
Larry D. Kalmbach.......... 16,800 $227,850.00 17,201 42,900 $ 66,582 $ 47,944
</TABLE>
- ---------------
(1) Market value of the Company's Common Stock at the time of exercise, minus
the exercise price, multiplied by the number of shares underlying the
options or SARs exercised.
(2) Value calculated by subtracting the exercise price from the market value of
the Company's Common Stock on December 30, 1994, which was $20.3125 based on
the average of the high and low price on December 30, 1994, multiplied by
the number of shares underlying the unexercised options or SARs.
PENSION BENEFITS
Certain employees of the Company, including each of its executive officers,
are participants in the Company's Salaried Employees' Pension Plan (the "Pension
Plan"). The table below illustrates the annual straight life annuity benefits
payable to an employee under the Pension Plan as if the employee were age 65 in
1994.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL PENSION BENEFIT FOR YEARS OF CREDITED SERVICE INDICATED
-----------------------------------------------------------------------------------
AVERAGE 5 10 15 20 25 30 35 40
ANNUAL PAY YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS
- --------------------- ------ ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$300,000............. 24,600 49,200 73,800 98,400 123,000 147,600 172,200 196,800
400,000............. 32,800 65,600 98,400 131,200 164,000 196,800 229,600 262,400
500,000............. 41,000 82,000 123,000 164,000 205,000 246,000 287,000 328,000
600,000............. 49,200 98,400 147,600 196,800 246,000 295,200 344,400 393,600
700,000............. 57,400 114,800 172,200 229,600 287,000 344,400 401,800 459,200
800,000............. 65,600 131,200 196,800 262,400 328,000 393,600 459,200 524,800
900,000............. 73,800 147,600 221,400 295,200 369,000 442,800 516,600 590,400
</TABLE>
21
<PAGE> 25
The Pension Plan is a noncontributory, tax-qualified plan and provides that
the normal retirement age is 65. The benefits listed in the table above are not
subject to any reduction for Social Security benefits or, with respect to the
executive officers named in the Summary Compensation Table, for other offset
amounts. The amount of pension payable at normal or later retirement under the
Pension Plan is based on an employee's years of credited service and the
employee's average pay (including salary, Incentive Compensation Plan payments
that are not deferred, elective deferrals made under the Company's Savings Plan
for Salaried Employees or Section 125 cafeteria plans, and severance pay
(excluding officers), but excluding amounts deferred under a deferred
compensation plan, income from an exercise of a stock option or SAR and certain
other fringe benefits as specified in the Pension Plan) during the most highly
paid five consecutive years of the employee's last ten years of employment
(including employment by Allied). An employee who was employed by the Company on
April 29, 1990, may elect to receive a lump sum payment at retirement in lieu of
a pension.
The Code places certain maximum limitations on the amount of benefits that
may be payable under tax-qualified plans, such as the Pension Plan. Any excess
over such maximum limitation calculated in accordance with the provisions of the
Pension Plan will be paid separately by the Company through one or more unfunded
excess benefit plans. Such excess benefit plans also provide benefits to certain
employees in excess of those provided under the Pension Plan, based upon
deferred compensation, severance pay and certain additional service that is not
taken into account under the Pension Plan and to the extent the formula in
effect for the Pension Plan prior to 1989 would produce a larger benefit than
the current formula. Such additional benefits are calculated and included in the
table above, with the exception of benefits related to the formula in effect
prior to 1989. In 1988, the Company adopted a trust pursuant to which the
Company may, at its discretion, including in the event of a change of control,
contribute amounts to the trust to provide for all or part of the benefits the
Company is obligated to pay pursuant to the excess benefit plans. Any assets
placed in the trust will remain subject to the general unsecured creditors of
the Company.
At December 31, 1994, the following individuals had the number of years of
credited service indicated: Mr. Johnson, 26; Mr. Krips, 30; Mr. Peabody, 13; Mr.
Wilson, 9; and Mr. Kalmbach, 20. Although additional excess benefits are
calculated and included in the table above, with the exception of benefits
related to the formula in effect prior to 1989, Mr. Johnson has received an
early payment of supplemental retirement benefits, which included such excess
benefit. For further information describing this payment, see Footnote 3 to the
Summary Compensation Table.
EXECUTIVE SEVERANCE PLAN
The Company's Executive Severance Plan provides for certain salary and
other severance benefits to certain of the Company's employees, including each
of the Company's executive officers, if the employee's employment with the
Company is terminated under certain circumstances following a change of control
(as defined therein) of the Company. For purposes of the Executive Severance
Plan, the acquisition by affiliates of KKR of approximately 50% of the Common
Stock from Allied (the "1985 Stock Acquisition") constituted a change of control
of the Company. The period following such change of control through the later of
March 31, 1997, or 24 months after a change of control is referred to as the
"Protected Period." Since benefits are payable if employment with the Company is
terminated during the Protected Period, benefits could be required to be paid in
the future to employees who are covered by the Executive Severance Plan. The
Executive Severance Plan does not restrict the termination of a participant's
employment, and no benefits are payable if the participant voluntarily
terminates his employment, accepts employment with the purchaser of assets from
the Company, or receives a comparable offer of employment (as defined) by the
purchaser of assets from the Company. Certain offers of continued employment
either at lower compensation or that require a participant to change his work
site are deemed involuntary terminations of employment. If a change of control
occurs, certain reductions in benefits and changes in an employee's
responsibilities are also deemed involuntary terminations of employment.
A participant in the Executive Severance Plan who is involuntarily
terminated other than for gross cause during the Protected Period is entitled to
receive his base salary together with incentive compensation payments for a
period of not less than 24, nor greater than 36 months, as specified in the
Executive Severance
22
<PAGE> 26
Plan as to such participant. Payments under the Executive Severance Plan will
not continue, however, past the month in which the participant attains age 65.
Also, an employee who is so terminated is entitled to have 12 months of service
and compensation payments credited toward calculation of benefits payable under
the excess benefit plans. Under the Executive Severance Plan, Messrs. Johnson,
Krips and Peabody are entitled to 36 months of benefits, and Messrs. Wilson and
Kalmbach are entitled to 24 months of benefits. A participant entitled to
Executive Severance Plan benefits is also entitled to continuation of certain
basic life and medical insurance coverage. If a change of control occurs after
July 25, 1991, an employee who either becomes entitled to salary and benefit
continuation pursuant to the Executive Severance Plan after such change of
control or who was receiving benefits pursuant to the Executive Severance Plan
on the date of such change of control is entitled to receive in a lump sum any
cash benefits which he is entitled to receive or which remain to be paid as of
the change of control. The cash benefits will be discounted at the rate of 8%
per annum if paid in a lump sum. Assuming that Messrs. Johnson, Krips, Peabody,
Wilson and Kalmbach were entitled to receive payments as of December 31, 1994,
such payments would total $859,651, $1,129,207, $1,129,207, $704,538 and
$519,286, respectively.
The Company may generally terminate the Executive Severance Plan, but no
termination is permitted prior to the later of March 31, 1997, or 24 months
after a change of control. In addition, no termination may adversely affect the
rights of participants already receiving benefits at the time of termination.
Benefits may be reduced, eliminated or deferred in order to prevent application
of the "golden parachute" provisions of the Code if such provisions would result
in a net after-tax financial detriment to the participant if the benefits were
paid in full to the participant. Such reduction, elimination or deferral will
not apply if a participant is provided with a "golden parachute" tax gross-up.
Currently Mr. Johnson is the only employee with a "golden parachute" tax
gross-up right.
DESCRIPTION OF CERTAIN EMPLOYMENT AGREEMENTS
In connection with the 1985 Stock Acquisition by affiliates of KKR of
approximately 50% of the Company's stock from Allied, the Company summarized in
letter agreements its existing understandings with certain officers, including
the executive officers named in the Summary Compensation Table, regarding
compensation and benefits. In all cases, these letter agreements provide for
employment at will, which may be terminated by the Company or such officers at
any time, with or without cause. The compensation and benefits summarized in the
letter agreements are consistent with the Compensation and Benefits Agreement
among the Company, Allied and affiliates of KKR (the "Compensation and Benefits
Agreement"), which was executed in connection with the 1985 Stock Acquisition,
in part as an inducement for employees to continue employment with the Company.
Under the terms of one such letter agreement with the Company dated June
25, 1985, Mr. Johnson has an annual incentive compensation (bonus), as
determined by the Compensation Committee, and is covered by the Company's
Executive Severance Plan (with 36 months of benefits), 1985 and 1992 Stock
Option Plans, Pension Plan, Savings Plan for Salaried Employees ("Savings
Plan"), Supplemental Non-Qualified Savings Plan ("Supplemental Savings Plan"),
supplemental executive retirement plans, and life insurance program providing
for a minimum of $1.4 million in life insurance coverage that was transferred to
Mr. Johnson in 1990. Mr. Johnson will be eligible to participate in the 1994
Plan, subject to stockholder approval of such plan. Under his letter agreement
with the Company, Mr. Johnson has a tax gross-up right applicable to the extent
the "golden parachute" tax under the Code is imposed on benefits subject to such
tax, such as payments made under the Executive Severance Plan. Early payment of
Mr. Johnson's supplemental retirement benefits was made in 1992, which required
his withdrawal as a future participant in such supplemental retirement plans. In
addition to his letter agreement, the Board has confirmed that Mr. Johnson's
compensation and benefits would not be diminished as a result of the succession
process approved by the Board as described above under "Proposal 1 -- Election
of Directors."
Letter agreements similar to Mr. Johnson's were entered into with the
executive officers named in the Summary Compensation Table, although such letter
agreements did not provide for tax gross-up rights or for participation in the
life insurance program. Currently, each of Messrs. Krips, Peabody, Wilson and
Kalmbach has an annual incentive compensation (bonus), as determined by the
Compensation Committee, and each is
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<PAGE> 27
covered by the Executive Severance Plan (with 36, 36, 24 and 24 months of
benefits, respectively), 1985 and 1992 Stock Option Plans, Pension Plan, Savings
Plan, Supplemental Savings Plan and supplemental executive retirement plans.
Messrs. Krips, Peabody, Wilson and Kalmbach will be eligible to participate in
the 1994 Plan, subject to stockholder approval of such plan. Such letter
agreements have not been formally amended since the original date of the
agreements to reflect changes in benefits resulting from promotions and
increased job responsibilities.
STOCK PRICE PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return (change in year-end stock price plus
reinvested dividends) on the Company's Common Stock against the cumulative total
return of the Standard & Poor's 500 Stock Index and the Dow Jones Secondary Oil
Industry published index for the period of five years ended December 31, 1994.
VALUE OF INVESTMENT ($)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD DOW JONES
(FISCAL YEAR COVERED) UNION TEXAS S&P 500 SECONDARY OIL
<S> <C> <C> <C>
1989 100 100 100
1990 84 97 83
1991 114 126 82
1992 107 136 82
1993 117 149 91
1994 121 152 88
</TABLE>
Assumes $100 invested December 31, 1989, in the Company's Common Stock, S&P 500
Stock Index and published industry index (dividends reinvested).
Source: Standard & Poor's Compustat Database.
The Stock Price Performance Graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or under the Exchange Act,
except to the extent that the Company specifically incorporates this graph by
reference, and shall not otherwise be deemed filed under such Acts.
There can be no assurance that the Company's stock performance will
continue into the future with the same or similar trends depicted in the graph
above. The Company will not make or endorse any predictions as to future stock
performance.
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<PAGE> 28
REPORT OF THE ORGANIZATION AND COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
COMPENSATION PROGRAM
The Company's compensation program for all executives, including the
executive officers named in the Summary Compensation Table, is administered by
the Compensation Committee of the Company's Board. The Compensation Committee
currently consists of three members, all of whom are non-employee directors and
two of whom are affiliated with the KKR Partnerships, which collectively own
approximately 38% of the Company's Common Stock. Set forth below is a report
submitted by the Compensation Committee addressing the Company's executive
compensation programs for 1994.
The Company's executive compensation program is designed to attract,
motivate and retain executives critical to the long-term success of the Company.
An important consideration in this philosophy is to relate the interests of the
executive officers with those of the stockholders. In connection with this
philosophy, the compensation package of the executive employees of the Company
consists of four components: a base salary, an annual incentive, long-term
incentives in the form of stock options, and savings programs. Further, the
Company's proposed new 1994 Plan is intended to continue the alignment between
executives' compensation and stockholder wealth creation. See "Proposal
4 -- Approval of 1994 Incentive Plan." The Compensation Committee annually
reviews the Company's executive compensation program on the basis of information
provided by the Chief Executive Officer and the senior human resources executive
of the Company with the assistance of the Company's human resources department
as well as studies, data and reports provided by independent consultants. Each
component of the executive compensation program is described below.
BASE SALARIES
The objective of the Company's base salary program for key management
positions is to provide its executives with base salary opportunities that are
competitive with similar positions in companies similar in size to the Company,
based on annual revenues (referred to in this report as comparable companies).
In order to motivate and retain key executives critical to the long-term success
of the Company, the Company has established certain practices in regard both to
base salary and to the relationship of incentive bonus to predetermined
performance-oriented goals for the Company. The base salaries established for
1994 for the Chief Executive Officer and other executive officers of the Company
were reviewed at the April 1994 meeting of the Compensation Committee. In
setting base salaries for fiscal 1994, the Compensation Committee reviewed
compensation data for comparable companies, including a comparison of market
salary data from an April 1994 comprehensive study, prepared by Towers Perrin,
an independent consultant (the "Consultant Study"), of the Company's executive
compensation program. The Consultant Study included data collected from
nationally recognized compensation surveys of energy and other industry
companies of comparable size to the Company for fiscal year 1993, as well as
data from proxy statements published in 1994 for fiscal year 1993 for
substantially all of the companies included in the Dow Jones Secondary Oil
Industry published index. The Company's survey data also compared current
Company officer salaries with annualized 1994 market data salaries. The
Compensation Committee was also provided survey data comparing the officers'
current compensation with market data that summarized (i) target total cash
rates (base salary plus target annual incentive award), (ii) actual total cash
rates (base salary plus most recent actual annual incentive paid) and (iii)
target annual incentive award levels for the market median and the 75th
percentile.
The data obtained from the foregoing surveys is more reflective of
competitive compensation among companies of similar size, based on annual
revenues, than the data pertaining to companies included in the Dow Jones
Secondary Oil Industry published index for purposes of the Company's Stock Price
Performance Graph, which index includes several companies that are much larger
and other companies that are smaller than the Company in terms of annual
revenues. The energy and other industry survey data provide additional detail
about actual current compensation practices and levels to supplement the
information provided to the Compensation Committee from proxy statements
published in prior years. With the data collected, the Compensation Committee's
objective is to establish the executives' salary and bonus opportunities above
the market median (50th percentile) in an effort to be competitive with
compensation provided to executives of
25
<PAGE> 29
the Company's competitors. The Company believes it is crucial to provide
strongly competitive salaries in order to attract and retain managers who are
highly talented. The specific competitive markets considered depend on the
nature and level of the particular positions and the labor markets from which
qualified individuals would be recruited for such positions. Base salary levels
also reflect the performance of each individual employee over time. Thus,
employees with higher levels of performance sustained over time will be paid
correspondingly higher salaries. The Chief Executive Officer and the senior
human resources executive of the Company reviewed with the Compensation
Committee a proposed 1994 salary plan for the Company's executives and other key
management personnel (excluding the Chief Executive Officer) following which the
Compensation Committee approved the proposed plan.
All base salary increases for the executive officers were based on a
philosophy of pay-for-performance and assessments of an individual's significant
accomplishments and long-term value to the Company. In addition to reviewing the
market salary data and the Company's 1993 and first quarter 1994 financial and
operating results, the Compensation Committee recognized the importance of
individual achievements and, accordingly, reviewed individual significant
accomplishments for 1993 for each executive officer who received a salary
increase. Such accomplishments included financial and operational successes in
supervising the Company's programs as well as general and administrative costs
reductions and efficiencies for the Company. The Compensation Committee took
into account both qualitative and quantitative factors in making its salary
compensation decisions for the Chief Executive Officer and each of the other
executive officers; however, no quantitative formula was applied for weighing
the importance of these factors in its decision. Base salaries for the Chief
Executive Officer and other executive officers were established at levels
considered appropriate in view of the duties and scope of responsibilities of
each such officer's position and were in a range at or above the market median
(50th percentile) of competitors.
ANNUAL INCENTIVES
The objectives of the Company's annual Incentive Compensation Plan and
proposed 1994 Plan are to motivate and reward the accomplishment of corporate
and individual annual objectives, reinforce a strong performance orientation
with differentiation and variability in individual awards based on contributions
to business results, and enhance rewards for meeting and exceeding corporate and
personal objectives both annually and over time. Under this pay-for-performance
program, annual bonus targets as a percentage of salary for 1994 are set for
each executive position and range from 35% to 45% for each of the executive
officers named in the Summary Compensation Table, excluding the Chief Executive
Officer. See "Chief Executive Officer Compensation" below. The annual incentive
awards are paid upon the achievement of performance objectives established for
the fiscal year and an assessment of management's contributions to the Company
for the year. Each year, the Compensation Committee establishes specific goals
relating to each executive's bonus opportunity. The Chief Executive Officer of
the Company reviews all of the calculated awards for key salaried employees,
adjusts such awards as he deems appropriate and reviews with the Compensation
Committee a list of recommended awards for all officers of the Company. The
Compensation Committee administers the Incentive Compensation Plan and the
proposed 1994 Plan, recommends to the Board the aggregate amount of incentive
compensation and approves individual officer awards. The Board approves the
aggregate amount of the incentive compensation awards to all participants.
Awards are paid currently in a lump sum or deferred for a period determined by
the Compensation Committee.
The executive officers receive a bonus on the basis of target percentage
award levels established at the time of hiring, which may be increased in
connection with promotions and increased job responsibilities. The annual bonus
is based upon achievement of predetermined performance-oriented indicators, 80%
of which are financial measures directly related to the Company. For 1994, the
corporate financial measures considered in the Incentive Compensation Plan
included growth in the Company's net income, cash flow and reserve additions or
revisions. Financial results are measured against targets established at the
beginning of the fiscal year by the Compensation Committee. Accordingly, the
executive officer's bonus and a significant portion of each executive officer's
compensation are annually at risk and dependent upon the Company's successful
performance each year. The Incentive Compensation Plan provides for an increase
in the incentive award, subject to a maximum percentage, when the Company's
financial performance exceeds the target objective.
26
<PAGE> 30
To permit adjustments for unforeseen events or to allow senior management
discretion in rewarding performance, basic calculated annual incentive awards to
participate in the Incentive Compensation Plan may be adjusted upward or
downward by senior management, generally no more than 20% in either direction.
These adjustments are subject to approval by the Chairman and Chief Executive
Officer of the Company. Additionally, with respect to adjustments to awards for
officers, such adjustments are subject to the review and approval of the
Compensation Committee.
In 1994, for the 80% portion of the incentive award tied to financial
objectives, the financial results of the Company were above target levels
primarily due to improved performance in the Company's petrochemical business, a
larger than expected increase in proved oil and gas reserves and lower capital
and operating expenses than contemplated in the Company's business plan. As to
each executive officer in the Incentive Compensation Plan, the remaining portion
of the awards was based on the individual's achievement of established personal
objectives, which are performance-oriented goals that directly support the
Company's overall business objectives but are more specific in nature to the
individual's assigned business unit or particular job responsibility with
varying weighted values that total 20%. Specific personal objectives for
management, which are tied to predetermined time frames, include undertaking
detailed operational studies, implementing specific operational policies and
plans, negotiating strategic business acquisitions and alliances and developing
long-term business goals, each of which relates directly to such officer's
managerial responsibilities. The 1994 personal objectives were recommended by
management and approved by the Compensation Committee at the January 1994
meeting of the Compensation Committee. The accomplishment of such personal
objectives was evaluated by the Chief Executive Officer. The results of this
evaluation were reflected in a recommended award for each officer which was
reviewed and approved by the Compensation Committee. Certain of the personal
objectives are non-quantifiable, and thus the evaluation of the completion of
these objectives is subjective in nature. Annual incentive awards for 1994 for
executive officers were higher than 1993 awards for the Company's executive
officers. The 1994 awards to executive officers were above target objectives
because the Company exceeded its financial objectives in 1994. Based on the
Consultant Study provided to the Compensation Committee, the Company's 1994
target annual incentive awards were generally competitive with the market median
rates described in the Consultant Study.
LONG-TERM INCENTIVES
Another important consideration in the compensation philosophy of the
Company is to align the interests of the key executive officers and employees
with the long-term interests of the stockholders of the Company. In connection
with this philosophy, the Company historically has attempted to periodically
award its employees with stock options whose value depends upon an increase in
the value of the Common Stock of the Company. The use of stock options is an
integral part of the entire compensation package of the employees of the
Company, which also serves as a pay-for-performance plan. Through providing the
executives an opportunity for stock ownership, stock options reward executives,
on the basis of the Company's future performance reflected in increased stock
price, for long-term service to the Company and for enhancing shareholder value.
On November 28, 1994, the Compensation Committee granted a total of 960,900
stock options pursuant to the 1992 Plan. Options were received by all U.S.-based
employees, including the named executive officers as described in the Summary
Compensation Table and the Option/SAR Grants in 1994 Table. The option exercise
price is equal to the fair market value of the stock on November 28, 1994, the
date of the grants. The 1994 option grants vest at a rate of 25% per year
beginning one year after the grant date. In considering the stock option grants,
the Compensation Committee reviewed an updated comprehensive compensation study,
prepared by Towers Perrin, of the Company's executive compensation program. Such
updated Consultant Study was based on published and private sources similar to
the Consultant Study described above. The updated Consultant Study provided a
number of alternative long-term incentive award scenarios for the Company, which
included alternative restricted stock and stock option allocation approaches to
position the Company's total direct compensation for officers between the market
median and the 75th percentile. Towers Perrin's overall assessment, as indicated
in the updated Consultant Study, placed the Company's officer total direct
compensation at the market median or 50th percentile. The updated Consultant
Study also included an
27
<PAGE> 31
analysis of the value of long-term incentive compensation grants and payments
made by companies similar in size to executives in similar positions, using the
Black-Scholes model as a valuation methodology for the stock option grants made
by each such company. This analysis provided a means for the Compensation
Committee to compare values of stock option grants made by the Company with the
values of long-term incentive grants made by competitors and to confirm the
competitiveness of the stock option grants made by the Company. The updated
Consultant Study included companies of comparable size to the Company in the
energy and other industries. The updated Consultant Study also included the
companies in the Dow Jones Secondary Oil Industry published index, which was
referenced in the Company's proxy statement for last year, which companies made
more extensive use of stock-related awards, such as restricted stock grants,
than did companies in other industries.
The Compensation Committee's overall stock option grant guidelines were
generally to position grants above the market median (50th percentile) of the
competitors, in accordance with the Company's salary and bonus objectives. The
1994 stock option grants to officers were made at 115% of the prior year's
awards. The 1994 stock option grants were above the market median. The
Compensation Committee also considered the aggregate number of options being
awarded and previously granted in determining the size of individual grants
under the 1992 Plan, which grants in 1993 were closer to the market median, as
reflected in the updated Consultant Study. In addition, the Compensation
Committee considered the percentage of total number of shares of Common Stock
outstanding to be granted by the Company as options, although not as compared to
the percentage of outstanding shares granted as options in 1993 by the companies
included in the Dow Jones Secondary Oil Industry published index. The
Compensation Committee periodically grants stock options to provide continuing
incentives for individuals to enhance the value of the Company and to remain
with the Company and thereby receive value from such compensation. Accordingly,
the long-term stock options are granted to vest over time without regard to the
number of options held currently by each executive officer on the date of grant.
As reflected in the Company's Stock Price Performance Graph, the Company's share
price has risen, with the share price rise during 1994 exceeding that of the
average price gain for the Dow Jones Secondary Oil Industry published index in
1994 included in the graph. By working to increase the Company's stock value,
one of the Company's performance goals is met, and the executives and employees
are likewise compensated through increased option value.
In accordance with the Company's philosophy that compensation should be
significantly aligned to stockholder value, after reviewing the recommendation
of Towers Perrin, the Compensation Committee has proposed the 1994 Plan for
stockholder approval. See "Proposal 4 -- Approval of 1994 Incentive Plan." A
copy of the plan document is provided as Appendix B to this Proxy Statement. The
proposed plan provides authority for the Compensation Committee to use a range
of long-term incentive devices in addition to stock options to motivate, attract
and retain high quality executive talent. In addition, the plan is flexible
enough to allow the Compensation Committee to make long-term incentive awards in
a form responsive to changes in legislation and regulations affecting accounting
treatment, taxation and securities compliance requirements for the Company and
its employees and directors. If the 1994 Plan is approved by the stockholders,
all officers of the Company will be eligible to receive grants of stock options
under the 1994 Plan and no future grants of stock options will be made to
employees under the Company's existing stock option plans.
OTHER COMPENSATION PROGRAMS AND POLICIES
Another aspect of the Company's compensation package is to encourage
employees to save for the future through the Savings Plan. The Savings Plan
permits most regular salaried employees of the Company to contribute a
percentage of their annual base salary to the Savings Plan on a before-tax
basis. A participant's contributions to the Savings Plan are matched by the
Company. Generally, the Company's basic matching contribution is an amount equal
to 100% of the first 8% of the participant's annual base salary contributed to
the Savings Plan, which 8% is referred to as the participant's basic
contribution. To encourage alignment of the employees' and stockholders'
long-term financial interests, all of the Company's contributions to the Savings
Plan are invested in the Company's Common Stock, and participants may elect to
invest their contributions in four investment funds, including the one invested
in the Company's Common Stock. The Code places certain maximum limitations on
the amount of contributions which otherwise could be
28
<PAGE> 32
contributed to the Savings Plan. Highly compensated participants limited by such
provisions, which include all of the executive officers, may contribute to the
Supplemental Savings Plan and have their contributions matched by the Company in
cash in accordance with the terms of the Supplemental Savings Plan. The
Supplemental Savings Plan is unfunded, and benefits are paid from the general
assets of the Company. Company contributions to the Supplemental Savings Plan in
1994 were $183,810, and 1994 contributions of $196,550 were made by the
participants. See the Summary Compensation Table for information with respect to
each named executive officer.
The Company has certain broad-based employee benefit plans in which all
employees, including the executives, participate, such as life and health
insurance plans. Also, the executives of the Company are provided director and
officer insurance coverage. The incremental cost to the Company of the
executives' benefits provided under these plans is not material to the Company.
For employee participants (which include all of the executive officers) whose
benefits under the Savings Plan or Pension Plan are reduced or restricted due to
tax law limits, the Company has applicable excess supplemental benefit plans.
Benefits under these plans are not directly or indirectly tied to Company
performance.
Although the Company's 1994 executive compensation was within the newly
enacted provisions for the $1 million deductibility cap set forth in the Omnibus
Budget Reconciliation Act of 1993, the Compensation Committee intends to
consider actions that may be taken in the future that could qualify compensation
paid to its executives for deductibility under the provisions of the Code. Stock
options granted under the 1992 Plan are intended to qualify for exemption from
the cap under the transition rules. The proposed 1994 Plan has been structured
so that Awards made may be performance based, provided the Compensation
Committee qualifies under Section 162 of the Code. Awards under the 1994 Plan
that are not intended to qualify under Section 162(m) will be paid without
regard to the limitation on deductibility under the Code.
CHIEF EXECUTIVE OFFICER COMPENSATION
In accordance with the discussion above of the Company's philosophy for
executive compensation, a significant portion of the compensation for the Chief
Executive Officer is based upon the Company's performance. Mr. Johnson, who has
served as Chief Executive Officer since July 1984, joined Allied, the Company's
predecessor, in 1968 and served in a number of executive positions. The
Company's senior human resources executive reviewed Mr. Johnson's salary
separately with the Compensation Committee at its April 1994 Compensation
Committee meeting in the absence of Mr. Johnson. To assist in such review, the
Compensation Committee was provided marketplace data prepared by Towers Perrin
regarding salary levels and total compensation rates, in addition to the
Consultant Study described above, which data included compensation information
for Chief Executive Officers. In addition to the companies in the Dow Jones
Secondary Oil Industry public index shown in the Company's Stock Price
Performance Graph, Towers Perrin provided proxy data compensation information on
selected exploration and production companies, certain of which Towers Perrin
believes are comparable overall to the Company (based on their revenues), as
well as published and private sources of market data compensation information
for selected oil and gas companies. The Towers Perrin analysis indicated that
the Chief Executive Officer's total compensation approximated the market median
(50th percentile) of market rates.
As reflected in the Company's Stock Price Performance Graph, the
Compensation Committee recognized that the Company has performed well under Mr.
Johnson's leadership, including the historical, financial, operating and stock
price performance, with regular payment of dividends to stockholders and
long-term reduction in the Company's debt and financing costs. In addition, the
Compensation Committee was presented a salary history review for Mr. Johnson. In
view of the Compensation Committee's objectives described above, Mr. Johnson's
personal performance and the Company's performance, the Compensation Committee
increased Mr. Johnson's base salary to $550,000, effective May 1, 1994, and also
increased the target percentage for his annual incentive award from 60% to 65%,
effective January 1, 1994. His annual incentive bonus for 1994, paid in January
1995, was $409,100, which was equal to 77% of his salary compensation, and 43%
of his combined bonus and salary compensation for 1994. His annual incentive
compensation was based on the achievement of predetermined financial and
personal objectives by the Company and Mr. Johnson, respectively, as described
above. The Compensation Committee established the
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<PAGE> 33
objectives for Mr. Johnson in January 1994, 80% of which included financial
measures directly related to growth in the Company's net income, cash flow and
reserve additions or revisions. The financial results of the Company were above
target levels in 1994, primarily due to improved performance in the Company's
petrochemical business, a larger than expected increase in proved oil and gas
reserves, and lower capital and operating expenses than contemplated in the
Company's business plan. The remaining portion of the incentive target award was
based on personal objectives, which objectives were substantially met by Mr.
Johnson in 1994. These personal objectives included pursuing appropriate
acquisition opportunities, maintaining compliance with safety and environmental
requirements, ensuring implementation of the Company's employee development and
succession programs, submitting a program to restructure the Company's debt,
preparing a recommendation regarding stock ownership objectives for officers,
initiating a study of coalbed methane recovery opportunities, focusing the
Company's United Kingdom exploration program, and ensuring completion of the
Company's Indonesia operations and programs within budget. In January 1995, the
Compensation Committee evaluated the attainment of Mr. Johnson's objectives and
approved Mr. Johnson's 1994 bonus in accordance with the terms of the Incentive
Compensation Plan. Mr. Johnson's 1994 annual incentive compensation increased in
1994 from 1993. His 1994 award was above target objectives because the Company
exceeded its financial objectives in 1994. Also, Mr. Johnson participated in the
Supplemental Savings Plan as reflected in the Summary Compensation Table. See
"Executive Compensation and Other Information -- Description of Certain
Employment Agreements."
The Compensation Committee considered Mr. Johnson's performance and the
Company's results in determining the size of his grant of stock options in
November 1994. In addition, as discussed above under "Long-Term Incentives," the
Compensation Committee considered the size and terms of Mr. Johnson's stock
option grant in 1993, which provided for 65,000 shares of the Company's Common
Stock. Based on its review of the market data provided by the independent
consultant, and to promote the alignment of the long-term interests of the Chief
Executive Officer and the stockholders, the Compensation Committee granted an
option to Mr. Johnson in 1994 to purchase 74,800 shares of the Company's Common
Stock. The option is subject to a four-year vesting period, and the size of such
grant is at approximately the median in the market data for Chief Executive
Officers of companies of comparable size.
As discussed above under "Proposal 1 -- Election of Directors," in light of
the Company's policy of mandatory retirement of officers at age 65, the Company
has begun to plan for a successor to Mr. Johnson, who will be 65 on December 7,
1995. In consideration of Mr. Johnson's assistance with such succession process,
the Compensation Committee confirmed that Mr. Johnson's compensation and
benefits would not be diminished by the succession process.
The report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or under the Exchange Act,
except to the extent that the Company specifically incorporates this information
by reference, and shall not otherwise be deemed filed under such Acts.
Organization and Compensation Committee:
Edward A. Gilhuly
Michael W. Michelson
Richard R. Shinn
January 26, 1995
30
<PAGE> 34
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Two of the current members of the Compensation Committee, Mr. Michelson and
Mr. Gilhuly, are affiliates of KKR and the KKR Partnerships. The KKR
Partnerships collectively own approximately 38% of the Company's Common Stock.
KKR was paid a fee of $562,692 in 1994 for financial advisory services to the
Company. The Company is obligated pursuant to a Consulting Agreement to continue
to pay this annual fee (which increases at a compounded rate of 10% per annum)
until the KKR Partnerships own less than 20% of the number of shares of Common
Stock outstanding.
STOCKHOLDER PROPOSALS
To be considered for inclusion in the Company's Proxy Statement relating to
the 1996 Annual Meeting of Stockholders, a stockholder proposal must be received
in proper form at the Company's principal executive office no later than
November 23, 1995, and must otherwise comply with the requirements of Rule 14a-8
under the Exchange Act. See "Proposal 1 -- Election of Directors" and the
Company's Bylaws for notice procedures to recommend a person for nomination as a
director and to propose business to be considered by the stockholders at a
meeting.
ANNUAL REPORT AND INFORMATION FOR STOCKHOLDERS
The annual report to stockholders, including consolidated financial
statements, accompanies this Proxy Statement but does not constitute a part of
the proxy soliciting materials. THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY
OF ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994,
INCLUDING FINANCIAL STATEMENTS AND THE FINANCIAL STATEMENT SCHEDULES BUT WITHOUT
EXHIBITS, TO EACH PERSON WHOSE VOTE IS SOLICITED BY THIS PROXY STATEMENT, UPON
WRITTEN REQUEST TO JOHN M. ZIMMERMAN, VICE PRESIDENT -- PLANNING AND INVESTOR
RELATIONS, UNION TEXAS PETROLEUM HOLDINGS, INC., 1330 POST OAK BLVD., HOUSTON,
TEXAS 77056. Upon the payment of the Company's reasonable expense of furnishing
the exhibit requested, the Company, upon request, will furnish any exhibit to
the Form 10-K to any person whose vote is solicited by this Proxy Statement.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file initial reports of ownership and reports of
changes in ownership (Forms 3, 4 and 5) of Common Stock and other equity
securities of the Company with the SEC and the New York Stock Exchange.
Officers, directors and greater than 10% beneficial holders are required by SEC
regulation to furnish the Company with copies of all such forms that they file.
To the Company's knowledge, based solely on the Company's review of the
copies of such reports received by the Company and, if applicable, written
representations from certain reporting persons that no reports on Form 5 were
required, the Company believes that during the fiscal year ended December 31,
1994, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied with.
By Order of the Board of Directors
/s/ NEWTON W. WILSON, III
NEWTON W. WILSON, III
Secretary
Houston, Texas
March 22, 1995
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APPENDIX A
AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
It is proposed that ARTICLE FOURTH of the Certificate be amended as follows:
1. The first paragraph of Article Fourth is hereby amended to read in its
entirety as follows:
"The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is Two Hundred Fifteen Million
(215,000,000), of which Fifteen Million (15,000,000) shall be Preferred
Stock of the par value one cent ($.01) per share and Two Hundred Million
(200,000,000) shares shall be Common Stock of the par value of five cents
($.05) per share."
2. Section A of Article Fourth, entitled Preferred Stock, is hereby amended
to read in its entirety as follows:
"A. Preferred Stock. The Board of Directors is expressly authorized to
provide for the issue of all or any shares of the Preferred Stock, in one
or more series, and to fix for each such series such voting powers, full or
limited, or no voting powers, and such designations, preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of
Directors providing for the issue of such series (a "Preferred Stock
Designation") and as may be permitted by the General Corporation Law of the
State of Delaware. The number of authorized shares of Preferred Stock may
be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the
voting power of all of the then outstanding shares of the capital stock of
the Corporation entitled to vote generally in the election of directors
(the "Voting Stock") voting together as a single class, without a separate
vote of the holders of the Preferred Stock, or any series thereof, unless a
vote of any such holders is required pursuant to any Preferred Stock
Designation."
The Board has expressly reserved the right to abandon such proposed amendment
notwithstanding stockholder approval.
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APPENDIX B
UNION TEXAS PETROLEUM HOLDINGS, INC.
1994 INCENTIVE PLAN
SECTION 1. PURPOSE OF THE PLAN
The Union Texas Petroleum Holdings, Inc. 1994 Incentive Plan (the "Plan")
is intended to promote the interests of Union Texas Petroleum Holdings, Inc., a
Delaware corporation (the "Company"), by encouraging employees of the Company,
its subsidiaries and affiliated entities, and non-employee directors of the
Company to acquire or increase their equity interest in the Company and to
provide a means whereby employees may develop a sense of proprietorship and
personal involvement in the development and financial success of the Company,
and to encourage them to remain with and devote their best efforts to the
business of the Company thereby advancing the interests of the Company and its
shareholders. The Plan is also contemplated to enhance the ability of the
Company, its subsidiaries and affiliated entities to attract and retain the
services of individuals who are essential for the program, growth and
profitability of the Company.
SECTION 2. DEFINITIONS
As used in the Plan, the following terms shall have the meanings set forth
below:
"Affiliate" shall mean (i) any entity that, directly or through one or
more intermediaries, is controlled by the Company and (ii) any entity in
which the Company has a significant equity interest, as determined by the
Committee.
"Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Performance Award, Stock Compensation Award, Deferred Shares, Bonus
Shares, Other Stock-Based or Cash Award.
"Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a participant.
"Board" shall mean the Board of Directors of the Company.
"Bonus Shares" shall mean an award of Shares granted pursuant to
Section 6(e) of the Plan.
"Cash Award" shall mean an award payable in cash granted pursuant to
Section 6(g) of the Plan.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations thereunder.
"Committee" shall mean the Organization and Compensation Committee of
the Board.
"Covered Employees" shall have the meaning specified in Section
162(m)(3) of the Code.
"Deferred Shares" shall mean an Award of the right to receive Shares
issued at the end of a Restricted Period which is granted pursuant to
Section 6(f) of the Plan.
"Disability" shall mean (i) with respect to an Employee of the Company
or of any Affiliate, becoming permanently disabled under the standards of
the Company's disability program as determined by the Committee or (ii)
with respect to a non-employee Director, inability to perform duties and
services as a director of the Company by reason of a medically determinable
physical or mental impairment supported by medical evidence which in the
opinion of the Committee can be expected to result in death or which can be
expected to last for a continuous period of not less than twelve (12)
months.
"Employee" shall mean any employee of the Company or of any Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall mean the fair market value of the property
or other item being valued, as determined by the Committee. With respect to
Shares, if the Shares are traded on a national stock
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exchange, the fair market value of a Share on a particular date shall be
equal to the average of the reported high and low sales prices of the Share
on such exchange on that date, or if no prices are reported on that date,
on the last preceding date on which such prices of the Share are so
reported. If the Shares are publicly traded but are not traded on a
national stock exchange at the time a determination of its fair market
value is required to be made hereunder, its fair market value shall be
deemed to be equal to the average between the closing bid and asked price
of the Share on the most recent date the Shares were publicly traded. In
the event the Shares are not publicly traded at the time a determination of
its fair market value is required to be made hereunder, the determination
of fair market value shall be made in good faith by the Committee.
"Incentive Stock Option" or "ISO" shall mean an option granted under
Section 6(a) of the Plan that is intended to qualify as an "incentive stock
option" under Section 422 of the Code or any successor provision thereto.
"non-employee Director" shall mean a director of the Company who is
not (i) otherwise an employee of the Company or any Affiliate or (ii) a
general partner, limited partner or employee of Kohlberg Kravis Roberts &
Co.
"Non-Qualified Stock Option" or "NQO" shall mean an option granted
under Sections 6(a) or 6(h) of the Plan that is not intended to be an
Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
"Other Stock-Based Award" shall mean any right granted under Section
6(g) of the Plan.
"Participant" shall mean any individual granted an Award under the
Plan. Any other provisions hereof to the contrary notwithstanding, no
non-employee Director may receive benefits under this Plan except for
Non-Qualified Stock Options as provided in Section 6(h).
"Performance Award" shall mean any right granted under Section 6(d) of
the Plan.
"Person" shall mean individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or
political subdivision thereof or other entity.
"Restricted Period" shall mean the period established by the Committee
with respect to an Award during which the Award either remains subject to
forfeiture or is not exercisable by the Participant.
"Restricted Stock" shall mean any Share, prior to the lapse of
restrictions thereon, granted under Section 6(c) of the Plan.
"Retirement" shall mean (i) with respect to an employee of the Company
or one of its Affiliates, retirement as determined by the Committee, and
(ii) with respect to a non-employee Director of the Company, termination of
service as a director or honorary director, after at least five (5) years
of continuous service.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the SEC under the
Exchange Act, or any successor rule or regulation thereto as in effect from
time to time.
"SEC" shall mean the Securities and Exchange Commission, or any
successor thereto.
"Shares" or "Common Shares" or "Common Stock" shall mean the common
stock of the Company, $0.05 par value, and such other securities or
property as may become the subject of Awards or become subject to Awards
pursuant to an adjustment made under Section 4(c) of the Plan.
"Stock Appreciation Right" or "Right" shall mean any right to receive
the appreciation of Shares granted under Section 6(b) of the Plan.
"Stock Compensation" shall mean any right granted under Section 6(e)
of the Plan.
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"Substitute Award" shall mean Awards granted in assumption of, or in
substitution for, outstanding awards previously granted by (i) a company
acquired by the Company or one or more of its Affiliates, or (ii) a company
with which the Company or one or more of its Affiliates combines.
SECTION 3. ADMINISTRATION
The Plan shall be administered by the Committee, which Committee shall
consist of at least two members. Members of the Committee shall be
"disinterested persons" within the meaning of Rule 16b-3 which has been adopted
by the SEC under the Exchange Act as such Rule or its equivalent is then in
effect. A majority of the Committee shall constitute a quorum, and the acts of
the members of the Committee who are present at any meeting thereof at which a
quorum is present, or acts unanimously approved by the members of the Committee
in writing, shall be the acts of the Committee. Subject to the terms of the Plan
and applicable law, and in addition to other express powers and authorizations
conferred on the Committee by the Plan, the Committee shall have full power and
authority to: (i) designate Participants; (ii) determine the type or types of
Awards to be granted to an eligible Employee; (iii) determine the number of
Shares to be covered by, or with respect to which payments, rights, or other
matters are to be calculated in connection with, Awards; (iv) determine the
terms and conditions of any Award; (v) determine whether, to what extent, and
under what circumstances Awards may be settled or exercised in cash, Shares,
other securities, other Awards or other property, or cancelled, forfeited, or
suspended and the method or methods by which Awards may be settled, exercised,
cancelled, forfeited, or suspended; (vi) determine whether, to what extent, and
under what circumstances cash, Shares, other securities, other Awards, other
property, and other amounts payable with respect to an Award shall be deferred
either automatically or at the election of the holder thereof or of the
Committee; (vii) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (viii) establish, amend,
suspend, or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (ix) make any
other determination and take any other action that the Committee deems necessary
or desirable for the administration of the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations, and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time and shall be
final, conclusive, and binding upon all Persons, including the Company, any
Affiliate, any Participant, any holder or beneficiary of any Award, any
stockholder and any Employee. The provisions of this Section 3 with respect to
decisions made by, and authority of, the Committee shall be subject to the
controlling provisions of Section 6(h).
SECTION 4. SHARES AVAILABLE FOR AWARDS
(a) Shares Available
Subject to Section 4(d) and to adjustment as provided in Section 4(c), the
number of Shares with respect to which Awards may be granted under the Plan
shall be 4,000,000. If, after the effective date of the Plan, any Shares covered
by an Award granted under the Plan, or to which such an Award relates, are
forfeited, or if an Award otherwise terminates or is cancelled without the
delivery of Shares or of other consideration, then the Shares covered by such
Award, or to which such Award relates, or the number of Shares otherwise counted
against the aggregate number of Shares with respect to which Awards may be
granted, to the extent of any such forfeiture, termination or cancellation,
shall again be, or shall become, to the extent permissible under Rule 16b-3,
Shares with respect to which Awards may be granted. In the event that any Option
or other Award granted hereunder is exercised through the delivery of Shares,
the number of Shares available for Awards (other than an Incentive Stock Option)
under the Plan shall be increased by the number of Shares surrendered, to the
extent permissible under Rule 16b-3. Notwithstanding the foregoing, no more than
1,200,000 Shares available for Awards shall be issued as Restricted Stock.
(b) Sources of Shares Deliverable Under Awards
Any Shares delivered pursuant to an Award may consist, in whole or in part,
of authorized and unissued Shares or of treasury Shares.
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(c) Adjustments
In the event that the Committee determines that any dividend or other
distribution (whether in the form of cash, Shares, other securities, or other
property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or exchange
of Shares or other securities of the Company, issuance of warrants or other
rights to purchase Shares or other securities of the Company, or other similar
corporate transaction or event affects the Shares such that an adjustment is
determined by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, in such manner as it may deem
equitable, adjust any or all of (i) the number and type of Shares (or other
securities or property) with respect to which Awards may be granted, (ii) the
number and type of Shares (or other securities or property) subject to
outstanding Awards, and (iii) the grant or exercise price with respect to any
Award or, if deemed appropriate, make provision for a cash payment to the holder
of an outstanding Award; provided, in each case, that with respect to Awards of
Incentive Stock Options and Awards intended to qualify as performance based
compensation under Section 162(m)(4)(C) of the Code, no such adjustment shall be
authorized to the extent that such authority would cause the Plan to violate
Section 422(b)(1) of the Code or would cause such Award to fail to so qualify
under Section 162(m) of the Code, as the case may be, or any successor
provisions thereto; and provided, further, that the number of Shares subject to
any Award denominated in Shares shall always be a whole number.
(d) Substitute Awards
Any Shares underlying Substitute Awards shall not, except in the case of
Shares with respect to which Substitute Awards are granted with respect to
Incentive Stock Options or, if not permissible under Rule 16b-3, to Employees
who are officers or directors of the Company for purposes of Section 16 of the
Exchange Act or any successor section thereto, be counted against the Shares
available for Awards other than Incentive Stock Options under the Plan.
SECTION 5. ELIGIBILITY
Other than Awards granted to non-employee Directors pursuant to Section
6(h) of the Plan, any Employee who is not a member of the Committee, including
any officer or employee-director of the Company or any Affiliate, shall be
eligible to be designated a Participant. All Employees shall be eligible for
Awards under the Plan. However, no Employee under this Plan may receive in any
calendar year Stock Options and/or Rights that, in the aggregate, are with
respect to more than 500,000 Shares (tandem Awards shall be deemed to be one
Award for this purpose).
SECTION 6. AWARDS
(a) Options
Subject to the provisions of the Plan, the Committee shall have authority
to determine the Employees to whom Options shall be granted, the number of
Shares to be covered by each Option, the purchase price therefor and the
conditions and limitations applicable to the exercise of the option including
the following terms and conditions and such additional terms and conditions, as
the Committee shall determine are not inconsistent with the provisions of the
Plan.
(i) Exercise Price. The purchase price per Share purchasable under an
Option shall be determined by the Committee at the time each Option is
granted; provided, however, that the purchase price per Share shall not be
less than 100% of the Fair Market Value on the date of grant, except in the
case of Options that are Substitute Awards.
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, and
the method or methods by which, and the form or forms (which may include,
without limitation, cash, Shares, outstanding Awards, Shares that would
otherwise be acquired upon exercise of the Option, other securities or
other property, or any combination thereof,
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having a Fair Market Value on the exercise date equal to the relevant
exercise price) in which payment of the exercise price with respect thereto
may be made or deemed to have been made. Pursuant to Section 7(b) of the
Plan, the Committee may, at its discretion, accelerate the time at which
Options may be exercised and otherwise modify the time or methods of
exercise of the Options.
(iii) Incentive Stock Options. The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the provisions of
Section 422 of the Code, or any successor provision, and any regulations
promulgated thereunder. Incentive Stock Options may be granted only to
Employees of the Company and its "subsidiaries" within the meaning of
Section 424(f) of the Code.
(b) Stock Appreciation Rights
Subject to the provisions of the Plan, the Committee shall have authority
to determine the Employees to whom Stock Appreciation Rights shall be granted,
the number of Shares to be covered by each Stock Appreciation Right Award, the
grant price thereof and the conditions and limitations applicable to the
exercise thereof. A Stock Appreciation Right may be granted in tandem with
another Award, in addition to another Award, or freestanding and unrelated to
another Award. A Stock Appreciation Right granted in tandem with or in addition
to another Award may be granted either at the same time as such other Award or
at a later time.
(i) Grant Price. The grant price of a Stock Appreciation Right shall
be determined by the Committee; provided, however, that the grant price
shall not be less than 100% of the Fair Market Value on the date of grant
or on the date of original grant of any related Award.
(ii) Other Terms and Conditions. Subject to the terms of the Plan and
any applicable Award Agreement, the Committee shall determine, at or after
the grant of a Stock Appreciation Right, the term, methods of exercise,
methods of settlement, and any other terms and conditions of any Stock
Appreciation Right. Any such determination by the Committee may be changed
by the Committee from time to time and may govern the exercise of Stock
Appreciation Rights granted or exercised prior to such determination as
well as Stock Appreciation Rights granted or exercised thereafter. The
Committee may impose such conditions or restrictions on the exercise of any
Stock Appreciation Right as it shall deem appropriate.
(c) Restricted Stock
Subject to the provisions of the Plan, the Committee shall have authority
to determine the Employees to whom Restricted Stock shall be granted, the number
of Shares of Restricted Stock to be granted to each such Participant, the
duration of the Restricted Period during which, and the conditions under which,
the Restricted Stock may be forfeited to the Company, and the other terms and
conditions of such Awards.
(i) Dividends. Unless otherwise determined by the Committee,
Restricted Stock Awards shall provide for the payment of dividends during
the Restricted Period. Any Restricted Stock Award may require that any or
all dividends or other distributions paid on the Restricted Stock during
the Restricted Period be automatically sequestered and held in a
bookkeeping cash account (with or without interest) or reinvested on an
immediate or deferred basis in additional shares of Common Stock, which
credit or shares may be subject to the same restrictions as the underlying
Award or such other restrictions as the Committee may determine. Dividends
paid on Restricted Stock may be paid directly to the Participant, may be
subject to risk of forfeiture and/or transfer restrictions during any
period established by the Committee, all as determined by the Committee in
its discretion.
(ii) Registration. Any Restricted Stock may be evidenced in such
manner as the Committee shall deem appropriate, including, without
limitation, book-entry registration or issuance of a stock certificate or
certificates. In the event any stock certificate is issued in respect of
Restricted Stock granted under the Plan, such certificate shall be
registered in the name of the Participant and shall bear an appropriate
legend referring to the terms, conditions, and restrictions applicable to
such Restricted Stock.
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(iii) Forfeiture and Restrictions Lapse. Except as otherwise
determined by the Committee or the terms of the Award that granted the
Restricted Stock, upon termination of a Participant's employment (as
determined under criteria established by the Committee, including, without
limitation, in the Committee's discretion, goals described under Section
6(d)(i)) for any reason during the applicable Restricted Period, all
Restricted Stock shall be forfeited by the Participant and re-acquired by
the Company. The Committee may, when it finds that a waiver would be in the
best interests of the Company and not cause such Award, if it is intended
to qualify as performance based compensation under Section 162(m) of the
Code, to fail to so qualify under Section 162(m) of the Code, waive in
whole or in part any or all remaining restrictions with respect to such
Participant's Restricted Stock. Unrestricted Shares, evidenced in such
manner as the Committee shall deem appropriate, shall be issued to the
holder of Restricted Stock promptly after the applicable restrictions have
lapsed or otherwise been satisfied.
(iv) Transfer Restrictions. During the Restricted Period, Restricted
Stock will be subject to the limitations on transfer as provided in Section
6(i)(iii).
(d) Performance Awards
The Committee shall have authority to determine the Employees who shall
receive a Performance Award, which shall (A) consist of a right, denominated or
payable in cash, Shares, Deferred Shares, other securities or other property
(including, without limitation, Restricted Stock, or any combination thereof),
and (B) confer on the holder thereof rights valued as determined by the
Committee and payable to, or exercisable by, such holder, in whole or in part,
upon the achievement of such performance goals during such performance periods
as the Committee shall establish.
(i) Terms and Conditions. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the performance
goals to be achieved during any performance period, the length of any
performance period, the amount of any Performance Award and the amount of
any payment or transfer to be made pursuant to any Performance Award.
Without limiting the generality of the foregoing, it is intended that the
Committee may establish performance goals applicable to Performance Awards
granted to Participants who, in the judgment of the Committee, may be
Covered Employees in such a manner as shall permit payments with respect
thereto to qualify as "performance-based compensation" as described in
Section 162(m)(4)(C) of the Code. It is specifically provided that the
material terms of such performance goals for Participants who, in the
judgment of the Committee, may be Covered Employees, shall, until changed
by the Committee with the approval of the stockholders, if such stockholder
approval is required by the Code, be as follows: (x) the business criteria
on which the performance goals shall be based shall be the attainment of
such target levels of either net income, cash flows, reserve additions or
revisions, total capitalization, total shareholder return, assets,
exploration successes, production volumes, finding and development costs,
costs reductions and savings, reportable incidents in safety or
environmental matters, return on sales, profit margin, earnings per share
or personal objectives tied to operational studies, implementing policies
and plans, negotiating transactions and sales, developing long-term
business goals, managerial responsibilities and assessments as may be
specified by the Committee; and (y) the maximum amount of compensation that
may be paid to any one Participant with respect to any one year shall be
$1.5 million under an annual performance bonus Award and $1.5 million under
a long-term Award with a performance period longer than one fiscal year.
(ii) Payment of Performance Awards. Performance Awards may be paid in
a lump sum or in installments following the close of the performance period
or, in accordance with procedures established by the Committee, on a
deferred basis.
(e) Stock Compensation and Bonus Shares
(i) Stock Compensation. The Committee shall have the authority, in its
discretion, to pay in Shares all, or such portion as it shall determine, of
amounts payable (x) under any Award of the Plan, other than Performance Awards
payable in cash as a short term annual incentive or Cash Awards granted in
tandem with Restricted Stock or (y) if requested by an Employee, under any
compensation program of the Company. The
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number and type of Shares to be distributed in lieu of the cash compensation to
which an Employee would otherwise be entitled, as well as the terms and
conditions of any such bonus awards, shall be determined by the Committee.
(ii) Bonus Shares. The Committee may also grant Bonus Shares to eligible
Employees. Each Bonus Share shall constitute a transfer of Common Shares to the
Participant, without other payment therefor, as additional compensation for the
Participant's services to the Company.
(f) Deferred Shares
The Committee may also grant Awards of Deferred Shares to eligible
Employees upon such terms and conditions as the Committee may determine.
(i) Terms and Conditions. Each Deferred Share award shall constitute
an agreement by the Company to issue or transfer a specified number of
Shares to the Participant in the future, subject to the fulfillment during
the Restricted Period of such conditions, including performance objectives
or, as described in Section 6(d)(i), performance goals, if any, as the
Committee may specify at the date of grant. During the Restricted Period,
the Participant shall not have any right to transfer any rights under the
subject Award, shall not have any rights of ownership in the Deferred
Shares and shall not have any right to vote such shares.
(ii) Dividends. Any Deferred Share award may provide that any or all
dividends or other distributions paid on Shares during the Restricted
Period be credited in a cash bookkeeping account (without interest) or that
equivalent additional Deferred Shares be awarded, which account or shares
may be subject to the same restrictions as the underlying Award or such
other restrictions as the Committee may determine.
(g) Other Stock-Based and Cash Awards
(i) Other Stock Based Awards. The Committee is hereby authorized to grant
to eligible Employees an "Other Stock-Based Award," which shall consist of a
right (i) which is not an Award or right described in Section 6(a), (b), (c),
(d), (e) or (f) above and (ii) which is denominated or payable in, valued in
whole or in part by reference to, or otherwise based on or related to, Shares
(including, without limitation, securities convertible into Shares) as are
deemed by the Committee to be consistent with the purposes of the Plan;
provided, that any such rights must comply, to the extent deemed desirable by
the Committee, with Rule 16b-3 and applicable law. Subject to the terms of the
Plan and any applicable Award Agreement, the Committee shall determine the terms
and conditions of any such Other Stock-Based Award.
(ii) Cash Awards. Subject to the provisions of the Plan, the Committee
shall have authority to determine the Employees to whom Cash Awards shall be
granted, the amount, and the terms or conditions, if any, as additional
compensation for the Employee's services to the Company or its Affiliates. A
Cash Award may be granted (simultaneously or subsequently) in tandem with
another Award and may entitle a Participant to receive a specified amount of
cash from the Company upon such other Award becoming taxable to the Participant,
which cash amount may be based on a formula relating to the anticipated taxable
income associated with such other Award and the payment of the Cash Award or
other terms determined by the Committee.
(h) Awards to Non-employee Directors
(i) Initial Granting of Options. Subject to stockholder approval of the
Plan pursuant to Section 10, and to the limitation of the number of shares of
Stock set forth in Section 4(a), each non-employee Director who serves in such
capacity on the date of the approval of the Plan by the Board (the "Current
non-employee Directors") shall receive, as of such date and without the exercise
of the discretion of any person or persons, a Non-Qualified Stock Option
exercisable for 5,000 shares of Stock. Subject to stockholder approval of the
Plan pursuant to Section 10, and to the limitation of the number of shares of
Stock set forth in Section 4(a), each non-employee Director who is elected or
appointed to the Board for the first time after the effective date of the
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Plan (excluding the Current non-employee Directors) shall receive, as of the
date of his or her election or appointment and without the exercise of the
discretion of any person or persons, a Non-Qualified Stock Option exercisable
for 5,000 shares of Stock (subject to adjustment in the same manner as provided
in Section 7 hereof with respect to shares of Stock subject to Options then
outstanding). Any nominee non-employee Director may make an irrevocable election
in advance of election not to receive an option pursuant to this Section
6(h)(i).
(ii) Annual Granting of Options. Subject to stockholder approval of the
Plan pursuant to Section 10, and to the limitation of the number of shares of
Stock set forth in Section 4(a), as of the date of the annual meeting of the
stockholders of the Company in each year that the Plan is in effect as provided
in Section 11 hereof (commencing with the 1995 annual meeting of stockholders),
each non-employee Director who is in office immediately after such meeting and
who is not then entitled to receive an Option pursuant to the preceding
provisions of this Section 6(h) shall receive, without the exercise of the
discretion of any person or persons, a Non-Qualified Stock Option exercisable
for 3,000 shares of Stock (subject to adjustment in the same manner as provided
in Section 7 hereof with respect to shares of Stock subject to Options then
outstanding). Any non-employee Director may make an irrevocable election in
advance not to receive an option pursuant to this Section 6(h)(ii).
(iii) Other Terms and Conditions. The following provisions are applicable
to Options granted pursuant to Sections 6(h)(i) and (ii):
A. Options shall be exercisable on the day following the date of
grant.
B. The purchase price of a Share covered under an Option granted under
this Section 6(h) shall be the Fair Market Value of a Share on the date of
grant.
C. The Option may be exercised in full at one time or in part from
time to time by giving written notice, signed by the optionee exercising
the Option, to the Company, stating the number of Shares with respect to
which the Option is being exercised, accompanied by payment in full for
such Shares, which payment may be in whole or in part in Shares of the
Company already owned by said optionee, valued at Fair Market Value;
provided, however, that (i) no Option shall be exercisable after ten (10)
years from the date on which it was granted, and (ii) there shall be no
such exercise at any one time for fewer than one hundred (100) Shares or
for all of the remaining Shares then purchasable by the optionee exercising
the Option, if fewer than one hundred (100) Shares.
D. Each Option shall expire ten (10) years from the date of grant
thereof, but shall be subject to earlier termination as follows. Options,
to the extent exercisable as of the date a non-employee Director optionee
ceases to serve as a director of the Company, must be exercised within six
months of such date unless such event results from death, Disability or
Retirement, in which case Options may be exercised by the optionee, the
optionee's legal representative, heir or devisee, as the case may be,
within two (2) years from the date of death or Disability and within three
(3) years from the date of Retirement; provided, however, that no such
event shall extend the normal expiration date of such Options.
E. Upon exercise of the Option, subject to paragraph F below, delivery
of a certificate for fully paid and nonassessable Shares shall be made
either at the corporate office of the Company in Houston, Texas to the
optionee exercising the Option at such time during ordinary business hours
after fifteen (15) days but not more than thirty (30) days from the date of
receipt of the notice by the Company as shall be designated in such notice,
or at such time, place and manner as may be agreed upon by the Company and
the optionee exercising the Option.
F. Until the earlier to occur of the following events (i) the
non-employee Director no longer serves as a Director of the Company for any
reason, (ii) a Change in Control, (iii) the approval by the Company's
stockholders of a merger or consolidation or (iv) a tender offer for the
Common Stock of the Company ("Termination of Restriction"), the Shares
received by the non-employee Director upon the exercise of an Option
granted pursuant to Section 6(h)(i) and (ii) shall not be subject to
disposition by the non-employee Director, by sale, transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether
such disposition be voluntary or involuntary or by operation of law by
judgment,
B-8
<PAGE> 44
levy, attachment, garnishment or any other legal or equitable proceeds
(including bankruptcy), and any attempted disposition thereof, shall be
null and void and of no effect; provided, however, that nothing in this
Section 6(h)(iii)F shall prevent transfer by will, the applicable laws of
descent and distribution or pursuant to a qualified domestic relations
order. The certificates evidencing the Shares may bear a legend restricting
or incorporating the restrictions, and the Company may cause the
certificates to be delivered upon issuance to the Secretary of the Company
or such other depositary as may be designated by the Company as a
depositary for safe-keeping until Termination of Restriction. Upon
Termination of Restriction, the Company will cause a new certificate or
certificates to be issued without legend in the name of such former
director.
(iv) Notwithstanding anything in the Plan to the contrary, a non-employee
Director shall be ineligible to receive a grant provided for in Section 6(h) if
as of the date of such grant the Director (i) is an employee of the Company or
any Affiliate or (ii) has been an employee of the Company or any Affiliate for
any part of the calendar year preceding the calendar year in which such a grant
is to be made.
(v) In the event that the number of Shares available for grants under the
Plan is insufficient to make all grants provided for in this Section 6(h) hereby
made on the applicable date, then all non-employee Directors who are entitled to
a grant on such date shall share ratably in the number of Shares then available
for grant under the Plan, and shall have no right to receive a grant with
respect to the deficiencies in the number of available Shares and the grants
under this Section 6(h) shall terminate.
(vi) Except as expressly provided in this Section 6(h) grants made pursuant
to this Section 6(h) shall be subject to the terms and conditions of the Plan;
however, if there is a conflict between the terms and conditions of the Plan and
this Section 6(h) then the terms and conditions of this Section 6(h) shall
control. The Committee may not exercise any discretion with respect to this
Section 6(h) which would be inconsistent with the intent expressed in Section
6(h)(vii).
(vii) It is intended that the Plan meet the requirements of Rule 16b-3 and
that any non-employee Director who is eligible to receive a grant or to whom a
grant is made pursuant to this Section 6 will not for such reason cease to be a
"disinterested person" within the meaning of Rule 16b-3 with respect to the Plan
and other stock related plans of the Company.
(viii) All Options under this Section 6(h) shall be evidenced by Award
Agreements.
(i) General
(i) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in
tandem with, or in substitution for any other Award granted under the Plan or
any award granted under any other plan of the Company or any Affiliate. Awards
granted in addition to or in tandem with other Awards or awards granted under
any other plan of the Company or any Affiliate may be granted either at the same
time as or at a different time from the grant of such other Awards or awards.
(ii) Forms of Payment by Company Under Awards. Subject to the terms of the
Plan and of any applicable Award Agreement, payments or transfers to be made by
the Company or an Affiliate upon the grant, exercise or payment of an Award may
be made in such form or forms as the Committee shall determine, including,
without limitation, cash, Shares, other securities, other Awards or other
property, or any combination thereof, and may be made in a single payment or
transfer, in installments, or on a deferred basis, in each case in accordance
with rules and procedures established by the Committee. Such rules and
procedures may include, without limitation, provisions for the payment or
crediting of reasonable interest on installment or deferred payments.
(iii) Limits on Transfer of Awards
(A) Each Award, and each right under any Award, shall be exercisable
only by the Participant during the Participant's lifetime, or, if
permissible under applicable law, by the Participant's guardian or
B-9
<PAGE> 45
legal representative or by a transferee receiving such Award pursuant to a
qualified domestic relations order (a "QDRO") as determined by the
Committee.
(B) No Award and no right under any such Award may be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered
by a Participant otherwise than by will or by the laws of descent and
distribution (or, in the case of Restricted Stock, to the Company) or
pursuant to a QDRO and any such purported assignment, alienation, pledge,
attachment, sale, transfer or encumbrance shall be void and unenforceable
against the Company or any Affiliate.
(C) To the extent approved by the Committee and in compliance with
Rule 16b-3 and the Securities Act of 1933, as amended, a Non-Qualified
Stock Option may be transferred to immediate family members.
(iv) Term of Awards. The term of each Award (other than pursuant to Section
6(h)) shall be for such period as may be determined by the Committee; provided,
that in no event shall the term of any Incentive Stock Option Award exceed a
period of ten years from the date of its grant.
(v) Share Certificates. All certificates for Shares or other securities of
the Company or any Affiliate delivered under the Plan pursuant to any Award or
the exercise thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the rules,
regulations, and other requirements of the SEC, any stock exchange upon which
such Shares or other securities are then listed, and any applicable Federal or
state laws, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
(vi) Consideration for Grants. Awards may be granted for no cash
consideration or for such consideration as the Committee determines including,
without limitation, such minimal cash consideration as may be required by
applicable law.
(vii) Delivery of Shares or other Securities and Payment by Participant of
Consideration. No Shares or other securities shall be delivered pursuant to any
Award until payment in full of any amount required to be paid pursuant to the
Plan or the applicable Award Agreement is received by the Company. Such payment
may be made by such method or methods and in such form or forms as the Committee
shall determine, including, without limitation, cash, Shares, other securities,
other Awards or other property, withholding of Shares, cashless exercise with
simultaneous sale, or any combination thereof; provided, that the combined
value, as determined by the Committee, of all cash and cash equivalents and the
Fair Market Value of any such Shares or other property so tendered to the
Company, as of the date of such tender, is at least equal to the full amount
required to be paid pursuant to the Plan or the applicable Award Agreement to
the Company.
SECTION 7. AMENDMENT AND TERMINATION
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan
The Board may amend, alter, suspend, discontinue, or terminate the Plan
without the consent of any shareholder, Participant, other holder or beneficiary
of an Award, or other Person; provided, however, that the provisions of Section
6(h) may not be amended more than once every six months other than to comport
with changes in the Code, the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder and; provided, further, that notwithstanding
any other provision of the Plan or any Award Agreement, without the approval of
the stockholders of the Company no such amendment, alteration, suspension,
discontinuation, or termination shall be made that would:
(i) increase the total number of Shares available for Awards under the
Plan, except as provided in Section 4(c) of the Plan;
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<PAGE> 46
(ii) permit Incentive Stock Options to be granted with per Share
grant, exercise or purchase prices of less than the Fair Market Value of a
Share on the date of grant thereof; or
(iii) result in this Plan no longer satisfying the requirements of
Rule 16b-3.
(b) Amendments to Awards
The Committee may waive any conditions or rights under, amend any terms of,
or alter any Award theretofore granted (other than Awards granted pursuant to
Section 6(h)), provided no change in any Award, other than pursuant to Section
7(c), shall reduce the benefit to Participant without the consent of such
Participant. Notwithstanding the foregoing, with respect to any Award intended
to qualify as performance-based compensation under Section 162(m) of the Code,
no adjustment shall be authorized to the extent such adjustment would cause the
Award to fail to so qualify.
(c) Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events
The Committee is hereby authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 4(c) of the Plan) affecting the Company, any Affiliate, or the financial
statements of the Company or any Affiliate, or of changes in applicable laws,
regulations, or accounting principles, whenever the Committee determines that
such adjustments are appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the Plan.
Notwithstanding the foregoing, with respect to any Award intended to qualify as
performance-based compensation under Section 162(m) of the Code, no adjustment
shall be authorized to the extent such adjustment would cause the Award to fail
to so qualify.
SECTION 8. CHANGE IN CONTROL
(a) In addition to the Committee's authority set forth in Section 7(c) of
the Plan, in order to maintain the Participants' rights in the event of any
Change in Control, as hereinafter defined, the Committee, as constituted before
such Change in Control, is hereby authorized and directed to provide for the
acceleration of any time periods relating to the exercise or realization of all
Awards so that such Award may be exercised or realized in full, and has sole
discretion, as to any Award, either at the time such Award is made hereunder or
any time thereafter, to take any one or more of the following actions: (i)
provide for the purchase of any such Award, either automatically or upon the
Participant's request, for an amount of cash equal to the amount that could have
been attained upon the exercise of such Award or realization of the
Participant's rights had such Award been currently exercisable or payable; (ii)
make such adjustment to any such Award then outstanding as the Committee deems
appropriate to reflect such Change in Control; or (iii) if equitable and in the
best interests of the Company and its stockholders, cause (x) any such Award
then outstanding to be assumed, or new rights substituted therefor, by the
acquiring or surviving corporation after such Change in Control or (y) the
exercise period for any such Award then outstanding to terminate on a fixed date
following such Change in Control provided the Participant receives written
notice of such event and the fixed date at least twenty days prior to the
effective date of such Change in Control. The Committee may, in its discretion,
include such further provisions and limitations in any Award Agreement as it may
deem equitable and in the best interests of the Company and its stockholders.
(b) A "Change in Control" shall be deemed to occur (i) if any person or
persons or entity or entities (other than Petroleum Associates, L.P., KKR
Partners II, L.P. and any entity controlling, controlled by or under common
control with any such entities, separately or in the aggregate ("KKR")) acquires
75% or more of the assets of the Company or a successor of the Company or such
successor's parent corporation (based upon the then current fair market value
thereof) or 50% or more of the Company's then outstanding voting stock or a
successor's or such successor's parent corporation's then outstanding voting
securities, and, if there shall be more than one class of voting securities
thereof, then of the combined voting power held by all classes of voting
securities of the Company, a successor corporation or its parent corporation
(whether such acquisition of stock or assets occurs pursuant to a single
transaction or several related transactions or series of
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<PAGE> 47
transactions), (ii) upon the approval by the Company's stockholders of a plan of
liquidation or dissolution of the Company or a successor of the Company or such
successor's parent corporation, or (iii) upon the approval by the Company's
stockholders of a merger or consolidation and such transaction was determined to
be a Change in Control, which transaction and determination was approved by a
majority of the Company's Board of Directors in actions taken prior to, and with
respect to such transaction.
SECTION 9. GENERAL PROVISIONS
(a) No Rights to Awards
No Employee, Participant or other Person shall have any claim to be granted
any Award, and there is no obligation for uniformity of treatment of Employees,
Participants, or holders or beneficiaries of Awards. The terms and conditions of
Awards need not be the same with respect to each recipient.
(b) Delegation
Subject to the terms of the Plan and applicable law, the Committee may
delegate to one or more officers or managers of the Company or any Affiliate, or
to a committee of such officers or managers, the authority, subject to such
terms and limitations as the Committee shall determine, to grant Awards to, or
to cancel, modify or waive rights with respect to, or to alter, discontinue,
suspend, or terminate Awards held by, Employees who are not officers or
directors of the Company for purposes of Section 16 of the Exchange Act, or any
successor Section thereto, or who are otherwise not subject to such Section.
(c) Withholding
The Company or any Affiliate is hereby authorized to withhold from any
Award, from any payment due or transfer made under any Award or under the Plan
or from any compensation or other amount owing to a Participant the amount (in
cash, Shares, other securities, Shares that would otherwise be issued pursuant
to such Award (including automatic withholding), other Awards or other property)
of any applicable taxes payable in respect of an Award, its exercise, the lapse
of restrictions thereon, or any payment or transfer under an Award or under the
Plan and to take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for the payment of such taxes.
(d) No Limit on Other Compensation Arrangements
Nothing contained in the Plan shall prevent the Company or any Affiliate
from adopting or continuing in effect other compensation arrangements (subject
to shareholder approval of such other arrangement, if such approval is
required), and such arrangements may be either generally applicable or
applicable only in specific cases.
(e) No Right to Employment
The grant of an Award shall not be construed as giving a Participant the
right to be retained in the employ of the Company or any Affiliate. Further, the
Company or an Affiliate may at any time dismiss a Participant from employment,
free from any liability or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any Award Agreement.
(f) Governing Law
The validity, construction, and effect of the Plan and any rules and
regulations relating to the Plan shall be determined in accordance with the laws
of the State of Delaware and applicable Federal law.
(g) Severability
If any provision of the Plan or any Award is or becomes or is deemed to be
invalid, illegal, or unenforceable in any jurisdiction or as to any Person or
Award, or would disqualify the Plan or any Award under any law deemed applicable
by the Committee, such provision shall be construed or deemed amended to
B-12
<PAGE> 48
conform to the applicable laws, or if it cannot be construed or deemed amended
without, in the determination of the Committee, materially altering the intent
of the Plan or the Award, such provision shall be stricken as to such
jurisdiction, Person or Award and the remainder of the Plan and any such Award
shall remain in full force and effect.
(h) Other Laws
The Committee may refuse to issue or transfer any Shares or other
consideration under an Award if, acting in its sole discretion, it determines
that the issuance of transfer or such Shares or such other consideration might
violate any applicable law or regulation or entitle the Company to recover the
same under Section 16(b) of the Exchange Act, and any payment tendered to the
Company by a Participant, other holder or beneficiary in connection with the
exercise of such Award shall be promptly refunded to the relevant Participant,
holder or beneficiary. It is intended that the Plan and any grant of an Award
made to a person subject to Section 16 of the Exchange Act meet all of the
requirements of Rule 16b-3. If any provision of the Plan or any such Award would
disqualify the Plan or such Award under, or would otherwise not comply with,
Rule 16b-3, such provision or Award shall be construed or deemed amended to
conform to Rule 16b-3.
(i) No Trust or Fund Created
Neither the Plan nor any Award shall create or be construed to create a
trust or separate fund of any kind or a fiduciary relationship between the
Company or any Affiliate and a Participant or any other Person. To the extent
that any Person acquires a right to receive payments from the Company or any
Affiliate pursuant to an Award, such right shall be no greater than the right of
any unsecured general creditor of the Company or any Affiliate.
(j) No Fractional Shares
No fractional Shares shall be issued or delivered pursuant to the Plan or
any Award, and the Committee shall determine whether cash, other securities, or
other property shall be paid or transferred in lieu of any fractional Shares or
whether such fractional Shares or any rights thereto shall be cancelled,
terminated, or otherwise eliminated.
(k) Headings
Headings are given to the Sections and subsections of the Plan solely as a
convenience to facilitate reference. Such headings shall not be deemed in any
way material or relevant to the construction or interpretation of the Plan or
any provision thereof.
SECTION 10. EFFECTIVE DATE OF THE PLAN
The Plan shall be effective as of November 28, 1994, provided the Plan is
subsequently approved by the stockholders of the Company within 12 months
thereafter.
SECTION 11. TERM OF THE PLAN
No Award shall be granted under the Plan after November 27, 2004. However,
unless otherwise expressly provided in the Plan or in an applicable Award
Agreement, any Award theretofore granted may, and the authority of the Board or
the Committee to amend, alter, adjust, suspend, discontinue, or terminate any
such Award or to waive any conditions or rights under any such Award shall,
extend beyond such date.
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<PAGE> 49
APPENDIX C
FIRST AMENDMENT TO
UNION TEXAS PETROLEUM HOLDINGS, INC.
1992 STOCK OPTION PLAN
WHEREAS, UNION TEXAS PETROLEUM HOLDINGS, INC. (the "Company") has
heretofore adopted the UNION TEXAS PETROLEUM HOLDINGS, INC. 1992 STOCK OPTION
PLAN (the "Plan"); and
WHEREAS, the Company desires to amend the Plan in certain respects;
NOW, THEREFORE, the Plan shall be amended, subject to stockholder approval,
as follows, effective as of January 26, 1995:
1. Subparagraph (c) of Paragraph X of the Plan shall be deleted and the
following shall be substituted therefor:
"In the event that the Committee determines that any dividend or other
distribution (whether in the form of cash, Stock, other securities, or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Stock or other securities of the Company,
issuance of warrants or other rights to purchase Stock or other securities
of the Company, or other similar corporate transaction or event affects the
Stock such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all
of (i) the number and type of shares of Stock (or other securities or
property) with respect to which Options may be granted, (ii) the number and
type of shares of Stock subject to outstanding Options, and (iii) the grant
or exercise price with respect to any Option or, if deemed appropriate,
make provision for a cash payment to the holder of an outstanding Option;
provided, in each case, that with respect to Incentive Stock Options and
Options intended to qualify as performance based compensation under Section
162(m)(4)(C) of the Code, no such adjustment shall be authorized to the
extent that such authority would cause the Plan to violate Section
422(b)(1) of the Code or would cause such Option to fail to so qualify
under Section 162(m) of the Code, as the case may be, or any successor
provisions thereto; and provided, further, that the number of shares of
Stock subject to any Option shall always be a whole number. In addition to
the Committee's authority set forth in Paragraph X(b) and (c) of the Plan,
in order to maintain the Optionees' rights in the event of any Change in
Control, as hereinafter defined, the Committee, as constituted before such
Change in Control, is hereby authorized and directed to provide for the
acceleration of any time periods relating to the exercise or realization of
all Options so that such Option may be exercised or realized in full, and
has sole discretion, as to any Option, either at the time such Option is
made hereunder or any time thereafter, to take any one or more of the
following actions: (i) provide for the purchase of any such Option, either
automatically or upon the Optionee's request, for an amount of cash equal
to the amount that could have been attained upon the exercise of such
Option or realization of the Optionee's rights had such Option been
currently exercisable or payable; (ii) make such adjustment to any such
Option then outstanding as the Committee deems appropriate to reflect such
Change in Control; or (iii) if equitable and in the best interests of the
Company and its shareholders, cause any such Option then outstanding to be
assumed, or new rights substituted therefor, by the acquiring or surviving
corporation after such Change in Control. The Committee may, in its
discretion, include such further provisions and limitations in any Option
Agreement as it may deem equitable and in the best interests of the
Company. A "Change in Control" shall be deemed to occur (1) if any person
or persons or entity or entities (other than Petroleum Associates, L.P.,
KKR Partners II, L.P. and any entity controlling, controlled by or under
common control with any such entities, separately or in the aggregate
("KKR")) acquires 75% or more of the assets of the Company or a successor
of the Company or such successor's parent corporation (based upon the then
current fair market value thereof) or 50% or more of the Company's then
outstanding voting stock or a successor's or such successor's parent
corporation's then outstanding voting
C-1
<PAGE> 50
securities, and, if there shall be more than one class of voting securities
thereof, then of the combined voting power held by all classes of voting
securities of the Company, a successor corporation or its parent
corporation (whether such acquisition of stock or assets occurs pursuant to
a single transaction or several related transactions or series of
transactions), (2) upon the approval by the Company's stockholders of a
plan of liquidation or dissolution of the Company or a successor of the
Company or such successor's parent corporation, or (3) upon the approval by
the Company's stockholders of a merger or consolidation and such
transaction was determined to be a Change in Control, which transaction and
determination was approved by a majority of the Company's Board of
Directors in actions taken prior to, and with respect to such transaction."
2. As amended hereby, the Plan is specifically ratified and reaffirmed.
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<PAGE> 51
Preliminary
- -------------------------------------------------------------------------------
P
UNION TEXAS PETROLEUM HOLDINGS, INC.
R PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR ANNUAL MEETING MAY 10, 1995
O
The undersigned hereby constitutes and appoints A. Clark Johnson, Larry
X D. Kalmbach and Newton W. Wilson, III, and each of them, his true and
lawful agents and proxies with full power of substitution in each, to
Y represent the undersigned at the Annual Meeting of Stockholders of UNION
TEXAS PETROLEUM HOLDINGS, INC. to be held at the office of the Company,
1330 Post Oak Blvd., Houston, Texas on Wednesday, May 10, 1995, and at
any adjournments thereof, on all matters coming before said meeting.
Election of Directors. Nominees:
Glenn A. Cox, Saul A. Fox, Edward A. Gilhuly,
James H. Greene, Jr., A. Clark Johnson, Henry R.
Kravis, Michael W. Michelson, Stanley P. Porter,
George R. Roberts, Richard R. Shinn, Sellers Stough.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE
BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO
VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE
PROXY COMMITTEE CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS
CARD.
THIS CARD ALSO PROVIDES VOTING INSTRUCTIONS FOR SHARES HELD FOR THE
BENEFIT OF COMPANY EMPLOYEES IN THE UNION TEXAS PETROLEUM SAVINGS
PLAN FOR SALARIED EMPLOYEES.
* * * * * * * * * * * *
* SEE REVERSE SIDE *
* * * * * * * * * * * *
- -------------------------------------------------------------------------------
<PAGE> 52
- -------------------------------------------------------------------------------
[X] PLEASE MARK YOUR 2855
VOTES AS IN THIS
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION OF
DIRECTORS AND FOR PROPOSALS 2, 3, 4 and 5.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3, 4 AND 5.
FOR WITHHELD
1. Election of [ ] [ ]
Directors.
(See reverse)
For, except vote withheld from the
following nominee(s):
_____________________________________
FOR AGAINST ABSTAIN
2. Approval of [ ] [ ] [ ]
independent
accountants
FOR AGAINST ABSTAIN
3. Amendments [ ] [ ] [ ]
to Restated
Certificate of
Incorporation
relating to
preferred stock
FOR AGAINST ABSTAIN
4. Approval of 1994 [ ] [ ] [ ]
Incentive Plan
FOR AGAINST ABSTAIN
5. Approval of [ ] [ ] [ ]
amendment to
Stock Option Plan
[ ] Please mark this box if
you will personally be
attending the meeting.
Note: Please sign exactly as your name appears on this
card. Joint owners should each sign personally. Corpora-
tion proxies should be signed by an authorized officer.
Executors, administrators, trustees, etc. should so indi-
cate when signing.
________________________________________________________
________________________________________________________
SIGNATURE(S) DATE
- --------------------------------------------------------------------------------
