<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 Section 240.14a-11(c) or
Section 240.14a-12
UNION TEXAS PETROLEUM HOLDINGS, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 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:
- --------------------------------------------------------------------------------
/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[UNION TEXAS PETROLEUM UNION TEXAS PETROLEUM HOLDINGS, INC.
HOLDINGS, INC. LOGO] March 22, 1996
Dear Stockholder:
You are cordially invited to attend the 1996 Annual Meeting of Stockholders
of Union Texas Petroleum Holdings, Inc. on Wednesday, May 8, 1996, 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
1995 and its plans for 1996. 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/ JOHN L. WHITMIRE
JOHN L. WHITMIRE
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 8, 1996
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 8, 1996, 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, 1996; and
3. 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 13, 1996,
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, 1996
<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 8, 1996, 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 to stockholders of this Proxy Statement and the related form of proxy
included herewith was on or about March 22, 1996.
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 $6,000, 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 facsimile, 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 13, 1996, the record date for
determination of stockholders entitled to notice of and to vote at the meeting,
there were issued and outstanding 87,608,900 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
(43,804,451 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. 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. In conformity with the Company's Bylaws, shares abstaining from
voting or not voted on certain matters coming before the meeting, including
broker non-votes, will not be treated as votes cast with respect to those
matters, and therefore will not affect the outcome of any such matter.
The table below sets forth certain information as of March 13, 1996,
regarding the beneficial ownership of the Common Stock, excluding Common Stock
held by the Company, by (i) each person known by the
<PAGE> 5
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>
AMOUNT PERCENTAGE
AND OF
NATURE OF SHARES OF
BENEFICIAL COMMON STOCK
NAME OWNERSHIP(1) OUTSTANDING
---- ------------ ------------
<S> <C> <C>
Petroleum Associates, L.P.(2)....................................} 21,833,334 25%
KKR Partners II, L.P.(2).........................................}
9 West 57th Street
New York, New York 10019
Oppenheimer Group, Inc.(3)....................................... 9,304,323 11%
Oppenheimer Tower, World Financial Center
New York, New York 10281
Loomis, Sayles & Company, L.P.(4)................................ 4,906,927 6%
One Financial Center
Boston, Massachusetts 02111
Glenn A. Cox, Director(5)(6)..................................... 16,000 *
Saul A. Fox, Director(2)......................................... 0 --
Edward A. Gilhuly, Director(2)................................... 0 --
James H. Greene, Jr., Director(2)................................ 0 --
Henry R. Kravis, Director(2)..................................... 0 --
Michael W. Michelson, Director(2)................................ 0 --
Stanley P. Porter, Director(6)................................... 12,000 *
George R. Roberts, Director(2)................................... 0 --
Richard R. Shinn, Director(6).................................... 16,000 *
Sellers Stough, Director(6)...................................... 12,000 *
John L. Whitmire (6)(7).......................................... 27,277 *
Chairman of the Board and Chief Executive Officer
A. Clark Johnson(6).............................................. 191,100 *
Retired Chairman of the Board and Chief Executive Officer
William M. Krips, Senior Vice President(6)(7).................... 141,772 *
Arthur W. Peabody, Jr., Senior Vice President(6)(7).............. 215,991 *
Newton W. Wilson, III, Vice President(6)(7)...................... 116,103 *
Larry D. Kalmbach, Vice President(6)(7).......................... 36,837 *
All executive officers and directors as a group,
including the above (group equals 17 persons)(6)(7)(8)......... 823,675 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 21,833,334
shares owned by such stockholders. KKR Associates is a limited partnership
of which 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 25% of the issued and
outstanding Common Stock of the Company, excluding shares held by the
Company. As a result, the KKR Partnerships and their
(Footnotes continued on following page)
2
<PAGE> 6
general partners will be able to exercise effective 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. See also "Compensation
Committee Interlocks and Insider Participation."
(3) On February 7, 1996, 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
an amendment to its Schedule 13G on February 13, 1996, to report holding
such shares for investment advisory clients.
(5) Voting and investment power are shared with Veronica Cox with respect to
5,000 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 13,
1996: (i) 11,000 for each of Messrs. Cox, Porter, Shinn and Stough; (ii) 0
for Mr. Whitmire; 170,100 for Mr. Johnson; 128,149 for Mr. Krips; 140,219
for Mr. Peabody; 106,453 for Mr. Wilson; 28,576 for Mr. Kalmbach; and (iii)
655,910 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 February 29, 1996. Additional
shares may have accumulated since that date.
(8) As of March 13, 1996, the executive officers of the Company include the five
executive officers named in the Summary Compensation Table (except Mr.
Johnson) and Mr. Whitmire and Mr. Knight, although the 17-persons group
includes Mr. Johnson. 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. All of the nominees, except Mr. Whitmire,
were previously elected by the stockholders; Mr. Whitmire is standing for
election by the stockholders for the first time. If, at the time of the 1996
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 66, Director since January 1993. Mr. Cox is a retired
President and Chief Operating Officer of Phillips Petroleum Company
("Phillips"), a position he held from 1985 until December 1991. Phillips 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 also
a director of BOK Financial Corp., Bank of Oklahoma, The Williams Companies and
Helmerich & Payne, Inc. Member of the Audit Committee.
Saul A. Fox -- Age 42, 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 and Layne, Inc.
3
<PAGE> 7
Edward A. Gilhuly -- Age 36, Director since December 1992. Mr. Gilhuly was
an associate of KKR from 1986 until 1995, when he became a partner. He is also a
director of Owens-Illinois, Inc., Red Lion Properties, Inc., Layne, Inc., Red
Lion Hotels, Inc. and Owens-Illinois Group, Inc. Member of the Organization and
Compensation Committee.
James H. Greene, Jr. -- Age 45, Director since December 1992. Mr. Greene
was an associate of KKR from 1986 until 1993, when he became a partner. He is
also a director of Owens-Illinois, Inc., Bruno's Inc., Safeway Inc., The Stop &
Shop Companies, Inc., Owens-Illinois Group, Inc. and The Vons Companies Inc.
Henry R. Kravis -- Age 52, 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., Borden, Inc.,
Bruno's, Inc., Duracell International, Inc., IDEX Corporation, The Stop & Shop
Companies, Inc., AutoZone, Inc., K-III Communications Corp., American Re
Corporation, Flagstar Companies, Inc., Flagstar Corporation and World Color
Press, Inc. Mr. Kravis is a first cousin of Mr. Roberts.
Michael W. Michelson -- Age 44, 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., Red Lion
Properties, Inc. and Red Lion Hotels, Inc. Member of the Organization and
Compensation Committee.
Stanley P. Porter -- Age 77, Director since July 1985. Mr. Porter is a
retired Vice Chairman of Arthur Young & Company. Mr. Porter was a director of
AlliedSignal 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 52, 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., Bruno's, Inc., Duracell International, Inc., IDEX
Corporation, Owens-Illinois Group, Inc., The Stop & Shop Companies, 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 78, 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 and the Organization and Compensation
Committee.
Sellers Stough -- Age 73, 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 from November 1989 through December 1990. Mr.
Stough was a director of Amax, Inc. from 1982 until 1987. Member of the Audit
Committee.
John L. Whitmire -- Age 55, Chairman of the Board and Chief Executive
Officer since January 1996 when he succeeded A. Clark Johnson upon his
retirement from the Company. Mr. Whitmire has responsibility for the overall
management of the Company. Mr. Whitmire served as Executive Vice
President-Exploration and Production and as a director of Phillips from January
1994 to January 1996 when he retired. Prior thereto, Mr. Whitmire served in a
number of executive capacities throughout his over 30-year career with Phillips.
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
4
<PAGE> 8
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 1994 Incentive Plan, administering the Incentive
Compensation Plan (as defined herein) 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 a nominee for
election to the Board can do so in accordance with the Company's Bylaws by
providing timely written notice to the Secretary of the Company at 1330 Post Oak
Blvd., Houston, Texas 77056, providing 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 name
and address of the stockholder that is giving the notice and the beneficial
owner, if any, on whose behalf the nomination is made and the number of shares
that are owned beneficially by such stockholder and, if any, such beneficial
owner.
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 Succession Committee was responsible for studying and
making recommendations to the full Board regarding the selection of a Chairman
of the Board and Chief Executive Officer to succeed A. Clark Johnson, who became
65 in December 1995. Consistent with the recommendation of the Succession
Committee, the Board selected Mr. Whitmire, who took office on January 9, 1996.
The Succession Committee, whose members were Messrs. Cox, Gilhuly, Michelson and
Shinn, was thereafter terminated.
During the year ended December 31, 1995, the Board held a total of eight
meetings, the Audit Committee held four meetings, the Compensation Committee
held two meetings, and the Succession Committee held six meetings. Messrs. Fox,
Greene, Kravis and Roberts attended less than 75% of the Board meetings.
DIRECTOR COMPENSATION
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. Messrs. Fox,
Gilhuly, Greene, Kravis, Michelson and Roberts are directors affiliated with
KKR. See "Compensation Committee Interlocks and Insider Participation."
Under the shareholder-approved 1994 Incentive Plan, each person who becomes
a director who is not then an employee of the Company or any subsidiary or is
not affiliated with KKR (a "Non-employee Director") for the first time is
granted an option to purchase 5,000 shares of Common Stock effective as of the
date the individual becomes a Non-employee Director. Each incumbent Non-employee
Director also receives an option to purchase 3,000 shares of Common Stock
effective as of the date of each annual meeting of
5
<PAGE> 9
stockholders. During 1995, each Non-employee Director received an initial grant
of an option to purchase 5,000 shares of Common Stock at $18.625 per share and
an annual grant of an option to purchase 3,000 shares of Common Stock at
$22.4375 per share under the 1994 Incentive Plan. Each such option is fully
vested and exercisable and has a term of ten years, but must be exercised within
six months of termination of service on the Board for any reason other than
death or 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 is equal to the fair market value per share
of Common Stock on the date the option is granted. 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.
A. Clark Johnson, who had served as the Chairman of the Board and Chief
Executive Officer of the Company, retired effective December 31, 1995.
Acknowledging Mr. Johnson's over 27 years of service with the Company, including
over 10 years as the Chairman of the Board, the Company contributed $250,000 to
Haverford College to establish a scholarship endowment in honor of Mr. Johnson.
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.
OTHER MATTERS
It is not anticipated that there will be presented to the meeting any
business other than election of directors and the ratification of the
appointment of independent accountants. 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.
EXECUTIVE OFFICERS
Set forth below are the current executive officers of the Company elected
by the Board of Directors.
John L. Whitmire -- Age 55, Chairman of the Board and Chief Executive
Officer since January 1996. Information about Mr. Whitmire is included on pages
3 through 5 with the information on nominees for the Board.
William M. Krips -- Age 56, 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,
6
<PAGE> 10
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 52, 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 44, 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, Risk
Management 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 50, 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 45, 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 in addition to 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.
7
<PAGE> 11
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 1993 to 1995.
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)
------------------ ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
A. Clark Johnson(4)................ 1995 $575,000 $518,400 0 $ 235,870
Chairman of the Board and 1994 $533,333 $409,100 74,800 $ 42,667
Chief Executive Officer 1993 $500,000 $200,900 65,000 $ 58,667
William M. Krips................... 1995 $305,000 $193,000 39,100 $ 24,400
Senior Vice President 1994 $290,000 $160,000 39,100 $ 23,200
1993 $280,000 $ 85,100 34,000 $ 32,683
Arthur W. Peabody, Jr.............. 1995 $296,250 $193,000 39,100 $ 23,700
Senior Vice President 1994 $281,250 $160,000 39,100 $ 22,500
1993 $270,000 $ 85,100 34,000 $ 31,687
Newton W. Wilson, III.............. 1995 $285,000 $170,000 31,600 $ 22,800
General Counsel, Vice 1994 $270,000 $135,000 31,600 $ 21,600
President --Administration 1993 $260,000 $ 73,700 27,500 $ 29,921
and Secretary
Larry D. Kalmbach.................. 1995 $255,833 $150,000 31,600 $ 20,467
Vice President and 1994 $205,000 $105,000 20,700 $ 16,400
Chief Financial Officer 1993 $196,667 $ 46,500 18,000 $ 21,776
</TABLE>
- ---------------
(1) Includes compensation under the Company's Incentive Compensation Plan for
Executive Officers and Key Salaried Employees (the "Incentive Compensation
Plan"), which prior program is now under the 1994 Incentive Plan and
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 on Executive Compensation." Awards are paid currently in a lump
sum or deferred for a period determined by the Compensation Committee. No
incentive compensation accrued in 1995, 1994 or 1993 was deferred by any of
the executive officers to later years.
(2) Each option granted included an equal number of stock appreciation rights
("SARs").
(3) Information in this column includes amounts contributed by the Company under
the Company's Savings Plan for Salaried Employees (the "Savings Plan") and
Supplemental Non-Qualified Savings Plan for Executive Employees (the
"Supplemental Savings Plan"). The Company's matching contributions to the
Savings Plan for 1995 were in the respective amounts of: none for Mr.
Johnson, $9,240 for Mr. Krips, $9,240 for Mr. Peabody, $8,323 for Mr.
Wilson, and $9,240 for Mr. Kalmbach. The Company's matching contributions
to the Supplemental Savings Plan for 1995 were in the respective amounts
of: $46,000 for Mr. Johnson, $15,160 for Mr. Krips, $14,460 for Mr.
Peabody, $14,477 for Mr. Wilson, and $11,227 for Mr. Kalmbach.
(Footnotes continued on following page)
8
<PAGE> 12
(4) Mr. Johnson retired at age 65 from the Board and as an officer of the
Company on December 31, 1995. Effective January 9, 1996, John L. Whitmire
succeeded Mr. Johnson as Chairman of the Board and Chief Executive Officer.
In connection with his retirement, Mr. Johnson was paid a cash amount of
$55,288 in lieu of accrued vacation. In recognition of his 27 years of
service to the Company, he also received a personal gift and related tax
payment adjustment valued in the aggregate amount of $36,782, which amount,
together with the accrued vacation payment, is included under "All Other
Compensation." Consistent with past practices for senior management, the
Company also provides Mr. Johnson with appropriate office space,
secretarial support and certain club membership dues for three years after
his retirement. The Company estimates the cost of these arrangements to be
under $100,000, which amount is included in "All Other Compensation."
During each of the three years ended December 31, 1993, 1994 and 1995,
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 1994 Incentive Plan to the executive
officers named in the Summary Compensation Table:
OPTION/SAR GRANTS IN 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------
PERCENT
GRANT
REPRESENTS
OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO
UNDERLYING ALL GRANT DATE
OPTIONS/SARS EMPLOYEES IN EXERCISE EXPIRATION PRESENT
GRANTED(1) 1995 PRICE(2) DATE VALUE(3)
------------ ------------ -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
A. Clark Johnson.............. 0 0% n/a n/a 0
William M. Krips.............. 39,100 4.36% $18.0625 10/25/2005 $330,522.07
Arthur W. Peabody, Jr......... 39,100 4.36% $18.0625 10/25/2005 $330,522.07
Newton W. Wilson, III......... 31,600 3.52% $18.0625 10/25/2005 $267,122.70
Larry D. Kalmbach............. 31,600 3.52% $18.0625 10/25/2005 $267,122.70
</TABLE>
- ---------------
(1) A total of 896,200 options were granted on October 26, 1995. Options were
received by all U.S.-based employees of the Company, with 167,100 options
(28,718 of which were Incentive Stock Options ("ISOs")) being granted to
the executive officers (the five officers named above (except Mr. Johnson)
plus Mr. Knight) and 729,100 options being granted to 528 other employees.
See "Report of the Organization and Compensation Committee of the Board of
Directors on Executive Compensation." 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 liquidation or dissolution of the Company or acquisition of 50%
or more of the Company's voting stock or 75% or more of the Company's
assets, other than such a transaction with the KKR Partnerships, but not a
merger or consolidation unless the Board determines by a majority vote that
such transaction is a change in control). 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
(Footnotes continued on following page)
9
<PAGE> 13
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 represented
by the option 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 1995, 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 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 28.55%, calculated using monthly stock prices for the three
years prior to the grant date, (ii) an interest rate of 6.2%, (iii) a
dividend yield of .97% 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 1995 and unexercised options and SARs held as of the end
of 1995, which include grants made under the Company's 1985 and 1992 Stock
Option Plans and the 1994 Incentive Plan.
AGGREGATED OPTION/SAR EXERCISES IN 1995
AND OPTION/SAR VALUES AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY
SECURITIES OPTIONS/SARS HELD AT OPTIONS/SARS HELD AT
UNDERLYING 1995 FISCAL YEAR-END 1995 FISCAL YEAR-END(2)
OPTIONS/SARS VALUE --------------------------- ---------------------------
NAME EXERCISED REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ------------ -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
A. Clark Johnson........ 33,357 $ 203,440.69 170,100 0 $ 46,100 $ 0
William M. Krips........ 0 $ 0 128,149 102,425 $ 399,890 $58,464
Arthur W. Peabody,Jr.... 7,600 $ 84,550.00 140,219 102,425 $ 511,569 $58,464
Newton W. Wilson, III... 0 $ 0 106,453 82,800 $ 380,524 $47,256
Larry D. Kalmbach....... 0 $ 0 28,576 63,125 $ 53,148 $40,352
</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 29, 1995, which was $19.0625 based
on the average of the high and low price on December 29, 1995, multiplied
by the number of shares underlying the unexercised options or SARs.
10
<PAGE> 14
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
1995.
<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
1,000,000........ 82,000 164,000 246,000 328,000 410,000 492,000 574,000 656,000
1,100,000........ 90,200 180,400 270,600 360,800 451,000 541,200 631,400 721,600
</TABLE>
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
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 Internal Revenue Code of 1986, as amended (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, 1995, the following individuals had the number of years of
credited service indicated: Mr. Johnson, 27; Mr. Krips, 31; Mr. Peabody, 14; Mr.
Wilson, 10; and Mr. Kalmbach, 21. 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 received an early
payment of supplemental retirement benefits in 1992 in the amount of $2,910,287,
which included such excess benefit. In connection with his retirement, Mr.
Johnson received a lump sum payment in the amount of $1,069,242 in January 1996
in lieu of a pension.
11
<PAGE> 15
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 in the
plan) 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 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. Krips and Peabody are entitled to 36 months of
benefits, and Messrs. Wilson and Kalmbach are entitled to 24 months of benefits.
Although Mr. Johnson was entitled to 36 months of benefits, he ceased to be a
participant in the Executive Severance Plan upon his retirement on December 31,
1995. Mr. Whitmire, his successor, is a participant entitled to 36 months of
benefits. See "Description of Certain Employment Agreements and Changes of
Employment Arrangements." 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. Krips, Peabody, Wilson and Kalmbach
were entitled to receive payments as of December 31, 1995, such payments would
total $1,186,623, $1,186,623, $742,967 and $666,108, respectively. Since Mr.
Johnson attained age 65 and retired in December 1995, he was not entitled to
receive payments after December 31, 1995.
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. Prior to his retirement, Mr. Johnson was the only employee with a
"golden parachute" tax gross-up right.
DESCRIPTION OF CERTAIN EMPLOYMENT AGREEMENTS AND CHANGES OF EMPLOYMENT
ARRANGEMENTS
In connection with Mr. Whitmire's appointment in January 1996 as Chairman
of the Board and Chief Executive Officer following Mr. Johnson's retirement at
age 65 in December 1995, the Company offered Mr. Whitmire employment to hold
such offices pursuant to the Company's Bylaws. See "Executive Officers."
12
<PAGE> 16
His arrangement provides for an annual base salary of $600,000 for 1996 and
eligibility for an annual cash bonus award under the Company's Incentive
Compensation Plan of 65% of his base salary. On January 9, 1996, Mr. Whitmire
was granted an option to purchase 225,000 shares of Common Stock at $19.3125 per
share under the 1994 Incentive Plan. Mr. Whitmire has been designated as a
participant under the Company's Executive Severance Plan (see "Executive
Severance Plan"). During February 1996, the Company purchased Mr. Whitmire's
home in Bartlesville, Oklahoma, at its appraised value of $388,000 and paid him
a $170,000 special relocation payment to reimburse him for the loss on the sale
of his residence in order for him to move to Houston, Texas, to commence
employment with the Company. Pursuant to the Company's relocation program, Mr.
Whitmire was reimbursed for all of his moving expenses. The Compensation
Committee will also review and confirm that Mr. Whitmire receives compensation
for any loss of total pension benefit as a result of his retirement from
Phillips. Mr. Whitmire will also be entitled to a payment of employer matching
contributions at the end of 1996 determined as if Mr. Whitmire had been a
participant in the Company's Supplemental Savings Plan throughout 1996. On
January 31, 1996, Mr. Whitmire, through his personal contribution to the
Company's Savings Plan, acquired 27,302 shares of Common Stock in the Savings
Plan at an average price per share of $18.25.
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, who retired in December 1995, had an annual incentive
compensation (bonus), as determined by the Compensation Committee, and was
covered by the Company's Executive Severance Plan (with 36 months of benefits),
1985 and 1992 Stock Option Plans, 1994 Incentive Plan, Pension Plan, 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. Under his letter agreement
with the Company, Mr. Johnson had a tax gross-up right applicable to the extent
the "golden parachute" tax under the Code was 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 confirmed that
Mr. Johnson's compensation and benefits would not be diminished as a result of
the succession process approved by the Board. See "Report of the Organization
and Compensation Committee of the Board of Directors on Executive Compensation."
Consistent with past practices for senior management, the Company will
provide Mr. Johnson with office space, secretarial support and certain club
membership dues for a period of three years after Mr. Johnson's retirement at an
estimated cost to the Company of under $100,000. Also, in recognition of his
services to the Company, the Company contributed $250,000 to Haverford College
to establish a scholarship endowment in honor of Mr. Johnson.
Letter agreements similar to Mr. Johnson's were entered into with the
executive officers named in the Summary Compensation Table, although such letter
agreements did not provide for tax gross-up rights or for participation in the
life insurance program. Currently, each of Messrs. Krips, Peabody, Wilson and
Kalmbach has an annual incentive compensation (bonus), as determined by the
Compensation Committee, and each is covered by the Executive Severance Plan
(with 36, 36, 24 and 24 months of benefits, respectively), 1985 and 1992 Stock
Option Plans, 1994 Incentive Plan, Pension Plan, Savings Plan, Supplemental
Savings Plan and supplemental executive retirement plans. Such letter agreements
have not been formally amended since the original date of the agreements to
reflect changes in benefits resulting from promotions and increased job
responsibilities.
13
<PAGE> 17
STOCK PRICE PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return (change in year-end stock price plus
reinvested dividends) on the Company's Common Stock against the cumulative total
return of the Standard & Poor's 500 Stock Index and the Dow Jones Secondary Oil
Industry published index for the period of five years ended December 31, 1995.
VALUE OF INVESTMENT ($)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD DOW JONES
(FISCAL YEAR COVERED) UNION TEXAS S&P 500 SECONDARY OIL
<S> <C> <C> <C>
1990 100 100 100
1991 135.4 130.5 98.3
1992 126.7 140.4 98.9
1993 138.9 154.6 109.7
1994 142.9 156.6 106.3
1995 134.9 215.5 120.1
</TABLE>
Assumes $100 invested December 31, 1990, in the Company's Common Stock, S&P 500
Stock Index and published industry index (dividends reinvested).
Source: TrackData.
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 of 1933, as amended (the
"Securities Act") or under the Securities Exchange Act of 1934, as amended (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.
14
<PAGE> 18
REPORT OF THE ORGANIZATION AND COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
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 25% 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 1995.
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 1994 Incentive Plan is intended to continue the alignment between
executives' compensation and stockholder wealth creation. 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
1995 for the Chief Executive Officer and other executive officers of the Company
were reviewed at the January 1995 meeting of the Compensation Committee. In
setting base salaries for fiscal 1995, the Compensation Committee reviewed
compensation data for comparable companies, including a comparison of market
compensation data from a January 1995 comprehensive study that included detailed
market data regarding base salaries, annual incentives and long-term incentives,
prepared by Towers Perrin, an independent consultant (the "Consultant Study"),
and analyzed the Company's executive compensation program. The Consultant Study
included data collected from nationally recognized private and published
compensation surveys of energy and other industry companies of comparable size
to the Company for fiscal year 1994, but did not necessarily include data from
proxy statements published in 1994 for fiscal year 1993 for the companies
included in the Dow Jones Secondary Oil Industry published index. The Company's
survey data also compared current Company officer salaries with annual 1994
market data salaries that were updated to project June 1995 data utilizing a 4%
annual adjustment factor and target annual incentive award opportunities.
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 more detail about
actual current compensation practices and levels to the Compensation Committee
than information 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 the Company's
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<PAGE> 19
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 1995 salary
plan for the Company's executives and other key management personnel (excluding
the Chief Executive Officer), following which the Compensation Committee
modified the proposed 1995 plan and then approved it as modified.
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, the Compensation Committee recognized the importance of
individual achievements and, accordingly, reviewed individual significant
accomplishments for 1994 for each executive officer who received a salary
increase as well as the timing of such increases. Such accomplishments included
financial and operational successes in supervising the Company's programs,
reserve acquisition results, and operating expenses and 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. In addition, the Compensation Committee promoted Mr. Kalmbach to Vice
President and Chief Financial Officer with an increased salary, grade level and
annual incentive compensation target award as well as made an increased grade
level adjustment for James Knight, Vice President -- Technical Services, based
on the responsibilities of their respective jobs and market data provided from
Towers Perrin for each of the two executive officers. 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 generally consistent with the
market median (50th percentile) of competitors.
ANNUAL INCENTIVES
The objectives of the Company's annual Incentive Compensation Plan, a
program under the 1994 Incentive 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 1995 are set for each executive position and range from
40% 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, 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 1995, the
corporate financial measures considered in the Incentive Compensation Plan
included growth in the Company's net income and cash flow and reserve additions,
revisions or acquisitions. Financial results are measured against targets
established at the beginning
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of the fiscal year by the Compensation Committee. In 1995, these financial
results were subject to adjustment of the net income and cash flow targets based
on changes from the Company's 1995 business plan related to new venture
exploration wells as well as a review of capital budget revisions from the
business plan. Also, the Compensation Committee determined that a minimum 75%
achievement of the total financial objectives would be required for 1995 before
the Company would be obligated to pay awards. Accordingly, each 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. To permit adjustments for
unforeseen events or to allow senior management discretion in rewarding
performance, basic calculated annual incentive awards under 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 1995, for the 80% portion of the incentive award tied to financial
objectives, the financial results of the Company were above target levels. 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, monitoring expenses for operational efficiency,
implementing specific operational policies and plans, negotiating strategic
business acquisitions and alliances, developing long-term business goals and
developing succession plans, each of which relates directly to such officer's
managerial responsibilities. The 1995 personal objectives were recommended by
management and approved by the Compensation Committee at the January 1995
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. The 1995 awards to executive officers
were above target objectives because the Company exceeded its financial target
objectives in 1995. Based on the Consultant Study provided to the Compensation
Committee, the Company's 1995 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 directors, key executive officers and
employees with the long-term interests of the stockholders of the Company. The
1994 Incentive Plan provides authority for the Compensation Committee to use a
range of long-term incentive awards in various forms as part of the Company's
overall compensation program. 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. See "Election of
Directors -- Director Compensation."
On October 26, 1995, the Compensation Committee granted a total of 896,200
stock options pursuant to the 1994 Incentive Plan, which plan was approved by
the stockholders at the 1995 Annual Meeting of Stockholders. 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 1995
Table. The option exercise price is equal to the fair market value of the stock
on October 26, 1995, the date of the grants. The 1995 option grants vest at a
rate of 25% per year beginning one year after the grant date. In considering the
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<PAGE> 21
stock option grants, the Compensation Committee reviewed a comprehensive
compensation study updated to project December 1995 data utilizing an annual
adjustment factor of 4%, prepared by Towers Perrin in October 1995, 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 information on the Company's
officers' overall compensation position relative to base salaries, annual
bonuses and long-term incentive values at the market median, the 65th percentile
and the 75th percentile. Towers Perrin's overall assessment, as indicated in the
updated Consultant Study, placed the Company's officers' total direct
compensation consistent with the market 65th percentile. The updated Consultant
Study also included an 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 with annual revenues of $500
million to $1 billion. The updated Consultant Study did not necessarily include
all of the companies in the Dow Jones Secondary Oil Industry published index,
which was referenced in the Company's proxy statement for last year.
The Compensation Committee's overall stock option grant guidelines for key
management 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 Compensation Committee was provided a history of stock
options granted to officers from 1985 to such October 1995 meeting. The 1995
stock option grants to officers were made at equivalent levels as the prior
year's awards. The 1995 stock option grants were at the market 65th percentile.
The Compensation Committee also considered the aggregate number of options being
awarded and previously granted in determining the size of individual grants for
1995, which grants in 1994 were above 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 1994 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. 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.
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 six 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 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 1995 were $200,660, and 1995
contributions of $200,660
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<PAGE> 22
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 and the Company's Matching Gifts Program, under which program
the Company will match a maximum of $5,000 of gifts to eligible institutions per
participant per year. 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.
Section 162(m) of the Code limits the tax deduction that the Company may
take with respect to the compensation of certain executive officers, unless the
compensation is "performance based" as defined in the Code. The Company's 1995
executive compensation, other than with respect to the Chief Executive Officer,
was within the provisions for the $1 million deductibility cap set forth in
Section 162(m) of the Code. However, beginning with the Company's 1996 Annual
Meeting of Stockholders, two of the present members of the Compensation
Committee may, under present circumstances, no longer qualify as "outside"
directors under Section 162(m) of the Code, a prerequisite for compensation to
be "performance based" (and thus exempt from the cap) under Section 162(m).
Stock options granted under the 1992 Stock Option Plan and the 1994 Incentive
Plan prior to the Company's 1996 Annual Meeting of Stockholders are intended to
qualify for exemption from the cap under transition rules. The Compensation
Committee intends to monitor developments under the tax law and consider actions
that may be taken in the future that would enable any compensation in excess of
$1 million paid to its executives who are "covered persons" under the provisions
of Section 162(m), which generally includes the Chief Executive Officer and the
four other most highly compensated executive officers of the Company who are
officers on the last day of the tax year, to be deductible. However, awards that
are not intended to qualify under Section 162(m) will be paid without regard to
the limitation on deductibility thereunder.
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
retired effective as of December 31, 1995 and who 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 January 1995 Compensation Committee meeting in the absence of
Mr. Johnson. To assist in such review, the Compensation Committee was provided
marketplace data for 1994 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 based
on published and private sources of market data compensation information for
selected oil and gas companies based on revenues averaging from $500 million to
$1 billion. In addition, Towers Perrin provided 1993 compensation information as
reported in the 1994 proxy statements for the companies in the Dow Jones
Secondary Oil Industry published index shown in the Company's Stock Price
Performance Graph ("Proxy Peer Group"), as well as for selected exploration and
production companies, certain of which Towers Perrin believes are comparable
overall to the Company (based on their revenues). All market and proxy data was
updated to project June 1995 information utilizing a 4% annual adjustment
factor. The Towers Perrin analysis indicated that the Chief Executive Officer's
total direct compensation fell at the market median (50th percentile) of market
rates for the Proxy Peer Group and the published and private survey market data.
In addition to comparing Mr. Johnson's compensation to the range of
compensation indicated from the market and proxy survey data, the Compensation
Committee recognized that Mr. Johnson's leadership has contributed substantially
to the Company's success over the years and reviewed his job performance, the
historical, financial, operating and stock price performance of the Company and
the Company's successful
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<PAGE> 23
acquisition of reserves. In view of the Compensation Committee's objectives and
the information described above, the Compensation Committee approved a one-time
payment in December 1995 of $25,000 to effectively treat Mr. Johnson's base
salary for 1995 as $575,000 and retained his target percentage for his annual
incentive award at 65%. His annual incentive bonus for 1995, 90% paid in
December 1995 and the remainder paid in January 1996, was $518,400, which was
equal to approximately 90% of his salary compensation, and approximately 47% of
his combined bonus and salary compensation for 1995. 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 objectives for Mr. Johnson in
January 1995, 80% of which included financial measures directly related to
growth in the Company's net income and cash flow and reserve additions,
revisions or acquisitions. The financial results of the Company were above
target levels in 1995. The remaining portion of the incentive target award was
based on personal objectives, which objectives were substantially met by Mr.
Johnson in 1995. These personal objectives included pursuing appropriate
acquisition opportunities, monitoring expenses for operational efficiency,
maintaining compliance with safety and environmental requirements, ensuring
implementation of the Company's employee development and succession programs,
ensuring a study of and recommending improvements for the Company's records
management, ensuring the development and implementation of the Company's new
venture exploration program and organization, developing overall strategies for
Virginia Indonesia Company, the Company's affiliate, ensuring an effective
Company investor relations program with expanded coverage and information and
assisting the Succession Committee and providing for an orderly transfer to the
new incumbent. The Compensation Committee evaluated the attainment of Mr.
Johnson's objectives and approved Mr. Johnson's 1995 bonus in accordance with
the terms of the Incentive Compensation Plan. His 1995 award was above target
objectives because the Company exceeded its financial target objectives in 1995.
Also, Mr. Johnson participated in the Supplemental Savings Plan as reflected in
the Summary Compensation Table. Mr. Johnson's compensation in excess of $1
million for 1995 did not qualify for deductibility under the provisions of
Section 162(m) of the Code. Since the Compensation Committee applies a level of
discretion to its decision making that is not permissible under the Code, its
annual incentive bonus to Mr. Johnson did not and was not intended to meet the
requirements for deductibility under the Code. The Compensation Committee
believes the payment of the annual incentive bonus was in the best interests of
the Company to retain the qualified Chief Executive Officer until his
retirement. Although the excess amount was not deductible, it was not material.
See "Executive Compensation and Other Information -- Description of Certain
Employment Agreements and Changes of Employment Arrangements."
Acknowledging Mr. Johnson's over 27 years of service with the Company, the
Company contributed $250,000 to Haverford College to establish a scholarship
endowment in honor of Mr. Johnson and gave him a personal gift with a related
tax payment adjustment valued in the aggregate amount of $36,782. Consistent
with past practices for senior management, the Company also provides Mr. Johnson
post-retirement business support for a period of three years. Due to his
expected retirement, no stock options were granted to Mr. Johnson at the October
1995 Compensation Committee meeting. In January 1996, John L. Whitmire assumed
the positions of Chairman of the Board and Chief Executive Officer. See
"Executive Compensation and Other Information -- Description of Certain
Employment Agreements and Changes of Employment Arrangements."
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 25, 1996
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<PAGE> 24
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 25% of the Company's outstanding
Common Stock. In connection with the 1985 Stock Acquisition, the Company agreed
to pay each of KKR and Allied a fee for financial advisory services of $250,000
per year, increasing at a compounded rate of 10% per annum. The Company is
obligated to continue to pay this annual advisory service fee to KKR until KKR
or its affiliates own less than 20% of the number of shares of Common Stock
outstanding. During 1995, KKR was paid $618,961 for such financial advisory
services pursuant to this Consulting Agreement.
The Company has agreed that, upon request of the KKR Partnerships, the
Company will register under 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. In May 1995, the KKR Partnerships sold 11,500,000
shares of Common Stock of the Company in a secondary public offering, which was
registered by the Company under the Securities Act pursuant to the Company's
agreement with the KKR Partnerships described above. In connection with the
registration, the Company paid approximately $1,300,000 in expenses on behalf of
the KKR Partnerships.
STOCKHOLDER PROPOSALS
To be considered for inclusion in the Company's Proxy Statement relating to
the 1997 Annual Meeting of Stockholders, a stockholder proposal must be received
in proper form at the Company's principal executive office no later than
November 22, 1996, and must otherwise comply with the requirements of Rule 14a-8
under the Exchange Act. See "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 AN
ADDITIONAL COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1995, INCLUDING FINANCIAL STATEMENTS 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.
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<PAGE> 25
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,
1995, all Section 16(a) filing requirements applicable 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, 1996
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PROXY
UNION TEXAS PETROLEUM HOLDINGS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR ANNUAL MEETING MAY 8, 1996
The undersigned hereby constitutes and appoints John L. Whitmire, Larry 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 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 8, 1996, and at any adjournments thereof, on
all matters identified herein and, in their judgment and discretion, on all
other matters coming before said meeting, all as described in the Notice and
Proxy Statement.
Election of Directors. Nominees:
Glenn A. Cox, Saul A Fox, Edward A. Gilhuly, James H. Green, Jr.,
Henry R. Kravis, Michael W. Michelson, Stanley P. Porter, George R.
Roberts, Richard R. Shinn, Sellers Stough, John L. Whitmire.
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 REPRESENTS 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> 27
[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 PROPOSAL 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
1. Election of Directors. (see reverse)
FOR [ ] WITHHELD [ ]
For, except vote withheld from the
following nominees:
__________________________________
2. Approval of independent accountants.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
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.
Corporation proxies should be signed
by an authorized officer. Executors,
administrators, trustees, etc.
should so indicate when signing.
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SIGNATURE(S) DATE
