<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 sec. 240.14a-11(c) or sec. 240.14a-12
Union Texas Petroleum Holdings, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[UNION TEXAS PETROLEUM HOLDINGS, INC. LOGO]
UNION TEXAS PETROLEUM HOLDINGS, INC.
March 24, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Union Texas Petroleum Holdings, Inc. on Thursday, May 7, 1998, 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
1997 and our plans for 1998. 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 7, 1998
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 Thursday, May 7, 1998, at 10:00 a.m., Houston time, for the following
purposes:
1. To elect 12 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, 1998;
3. To approve the amendment of the 1994 Incentive Plan to increase by
4,000,000 the number of authorized shares available under that plan; and
4. 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 10, 1998,
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/ AMY J. WATKINS
AMY J. WATKINS
Secretary
Houston, Texas
March 24, 1998
<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 Thursday, May 7, 1998, 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 24, 1998.
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 or her proxy
at any time prior to its exercise by written notice or by execution of a
subsequent proxy sent to Amy J. Watkins, 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 10, 1998, the record date for
determination of stockholders entitled to notice of and to vote at the meeting,
there were issued and outstanding 85,169,892 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
(42,584,947 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 12 nominees with the largest number of affirmative
votes will be elected as directors. The affirmative vote of a majority of the
shares present in person or by proxy at the meeting and entitled to vote is
required for the approval to amend the 1994 Incentive Plan. Any other matter
that may come before the meeting shall be adopted if the votes cast for such
matter exceed the votes cast against. Under Delaware law and under the Company's
Restated Certificate of Incorporation, each share of Common Stock entitles a
stockholder to one vote.
In certain circumstances, a stockholder will be considered to be present at
the meeting for quorum purposes but will not be deemed to have cast a vote on a
matter. Such circumstances exist when a stockholder is present but abstains from
voting on a matter or when shares are represented at the meeting by a proxy
conferring authority to vote only on certain matters, as in the case of broker
non-votes.
In connection with the approval of the amendment of the 1994 Incentive
Plan, abstentions will be treated as negative votes and, therefore, will affect
the outcome of such votes. In conformity with the Company's Bylaws, shares
abstaining from voting on any other matter or not voted on certain matters
coming before the
<PAGE> 5
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 10, 1998,
regarding the beneficial ownership of the Common Stock, excluding Common Stock
held by the Company, by (i) each person known by the Company to own beneficially
more than 5% of its outstanding shares of Common Stock, (ii) each director of
the Company, (iii) the five executive officers of the Company named in the
Summary Compensation Table and (iv) all executive officers and directors of the
Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE OF
NATURE OF SHARES OF
BENEFICIAL COMMON STOCK
NAME OWNERSHIP(1) OUTSTANDING
---- ------------ -------------
<S> <C> <C>
Petroleum Associates, L.P.(2)............................... 21,833,334 25.6%
KKR Partners II, L.P.(2)....................................
9 West 57th Street
New York, New York 10019
GSB Investment Management, Inc.(3).......................... 4,424,912 5.2%
301 Commerce Street
Fort Worth, Texas 76102
Robert L. Barry, Director (4)............................... 12,000 *
Glenn A. Cox, Director(4)(5)................................ 27,000 *
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 --
Wylie B. Pieper, Director (4)............................... 13,000 *
Stanley P. Porter, Director(4).............................. 20,000 *
George R. Roberts, Director(2).............................. 0 --
Richard R. Shinn, Director(4)............................... 22,000 *
Sellers Stough, Director(4)................................. 21,000 *
John L. Whitmire(4)(6)(7)................................... 227,888 *
Chairman of the Board and Chief Executive Officer
William M. Krips, Senior Vice President(4)(6)............... 205,451 *
Arthur W. Peabody, Jr., Senior Vice President(4)(6)......... 269,590 *
Newton W. Wilson, III, Regional Vice President(4)(6)........ 139,891 *
Larry D. Kalmbach(4)(6)..................................... 91,928 *
Vice President and Chief Financial Officer
All executive officers and directors as a group, including
the above (group equals 23 persons)(4)(6)(8).............. 1,419,473 1.7%
</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. ("Petroleum Associates") 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, 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 and Messrs. Kravis and Roberts are also the members of the
Executive Committee of KKR Associates. None of the aforementioned
individuals beneficially owns any other shares of Common Stock.
(Footnotes continued on following page)
2
<PAGE> 6
Petroleum Associates made its investment in the Company in 1985. The
limited partnership agreement pursuant to which Petroleum Associates was
organized expired on December 31, 1997 in accordance with the terms of the
limited partnership agreement. The terminated Petroleum Associates
partnership continues to be in existence for a winding-up period after such
date. The limited partnership agreement provides that, in connection with
the dissolution and winding up of Petroleum Associates, KKR Associates has
the sole discretion regarding the timing (which may be one or more years
after the expiration of the partnership agreement) and the manner of the
disposition of the Common Stock of the Company owned by Petroleum
Associates, including public or private sales of such Common Stock, the
distribution of such Common Stock to the limited partners of Petroleum
Associates or a combination of the foregoing. If shares of the Company's
Common Stock are distributed to the limited partners of Petroleum
Associates, each limited partner will thereafter have sole discretion with
respect to its Common Stock. In addition, pursuant to the limited
partnership agreement, Petroleum Associates will distribute to KKR
Associates for its own account, concurrently with any sales of shares owned
by Petroleum Associates, cash and/or shares of Common Stock that together
have a fair market value equal to approximately 20% of the profits realized
with respect to the shares sold and distributed. The Company has agreed
that, upon request of the KKR Partnerships, the Company will register under
the Securities Act of 1933, as amended (the "Securities Act") and
applicable state securities laws the sale of the Company's 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.
The KKR Partnerships currently own approximately 25.6% of the issued and
outstanding shares of Common Stock of the Company, excluding shares held by
the Company. As a result, the KKR Partnerships and their general partners
may be able to exercise substantial influence over the Company, through
their representation on the Board and by reason of their significant 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) GSB Investment Management, Inc. is a registered investment advisor that
pursuant to a Schedule 13G dated February 10, 1998 reported such shares.
(4) Includes the following shares issuable upon the exercise of outstanding or
issuable stock options that are exercisable within 60 days after March 10,
1998: (i) 17,000 for each of Messrs. Cox, Porter, Shinn and Stough; (ii)
8,000 for Messrs. Pieper and Barry; (iii) 142,500 for Mr. Whitmire; 172,894
for Mr. Krips; 168,694 for Mr. Peabody; 129,293 for Mr. Wilson; 75,026 for
Mr. Kalmbach; and (iv) 1,049,931 for all executive officers and directors
as a group.
(5) Voting and investment power are shared with Veronica Cox with respect to
10,000 shares, all of which are held in the Glenn A. Cox Trust, UTA.
(6) Shares held by executive officers in the Company's Savings Plan for
Salaried Employees are included in the table.
(7) Voting and investment power are shared with Virginia Whitmire with respect
to 9,700 shares, all of which are held in the Virginia Kempton Whitmire
Revocable Trust dated September 7, 1995.
(8) As of March 10, 1998, the executive officers of the Company include the
five executive officers named in the Summary Compensation Table and the
other officers listed as Executive Officers. See "Executive Officers."
3
<PAGE> 7
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. Pieper and
Ambassador Barry, were previously elected by the stockholders. Mr. Pieper and
Ambassador Barry are standing for election by the stockholders for the first
time. If, at the time of the 1998 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:
Robert L. Barry -- Age 63, Director since December 1997. Ambassador Barry
retired from the United States (U.S.) Foreign Service in 1995 after 34 years of
service. Ambassador Barry held numerous positions of increasing responsibility
during his Foreign Service career, including the U.S. Ambassador to Indonesia
from 1992 to 1995. He is a principal in Phoenix International, an electric power
development company focused on projects in Indonesia and his own international
consulting firm, Robert Barry and Associates, specializes in Indonesia, Eastern
Europe and the independent states of the former Soviet Union. Ambassador Barry
currently heads the mission of the Organization for Security and Cooperation in
Europe where he is responsible for elections, human rights, arms control and
democracy initiatives in Bosnia-Hercegovinia.
Glenn A. Cox -- Age 68, 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 and the Section 16
Committee.
Edward A. Gilhuly -- Age 38, Director since December 1992. Mr. Gilhuly was
an associate of Kohlberg Kravis Roberts & Co. ("KKR") from 1986 until 1995, when
he became a partner. He is also a director of Layne Christensen Company,
Owens-Illinois Group, Inc. and Owens-Illinois, Inc. Member of the Organization
and Compensation Committee.
James H. Greene, Jr. -- Age 47, 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 Bruno's, Inc., Owens-Illinois Group, Inc., Owens-Illinois,
Inc., Randall's Food Markets, Inc. and Safeway Inc.
Henry R. Kravis -- Age 54, Director since July 1985. Mr. Kravis has been a
partner in KKR since its organization in 1976. He is also a director of Amphenol
Corporation, Borden, Inc., Bruno's, Inc., Evenflo & Spalding Holdings
Corporation, The Gillette Company, IDEX Corporation, Inc., Kinder Care Learning
Centers, Inc., KSL Recreation Group, Inc., Newsquest Capital plc.,
Owens-Illinois, Inc., Owens-Illinois Group, Inc., PRIMEDIA Inc., Randall's Food
Markets, Inc., Safeway Inc., Sotheby's Holdings, Inc. and World Color Press,
Inc. Mr. Kravis is a first cousin of Mr. Roberts.
Michael W. Michelson -- Age 46, 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 Amphenol Corporation,
AutoZone, Inc., Owens-Illinois, Inc., Owens-Illinois Group, Inc. and Promus
Hotel Corporation. Member of the Organization and Compensation Committee.
Wylie B. Pieper -- Age 65, Director since May 1997. Mr. Pieper is a retired
Vice Chairman and Chief Operating Officer of Halliburton Company
("Halliburton"). Mr. Pieper served in a number of executive capacities
throughout his 38 year career with Halliburton and its subsidiary, Brown & Root,
Inc. Mr. Pieper serves on the Board of Governors, the George R. Brown School of
Engineering Advisory Board and the Jones
4
<PAGE> 8
Graduate School of Administration Council of Overseers at Rice University. Mr.
Pieper is also a director of Highlands Insurance Group, Inc.
Stanley P. Porter -- Age 79, 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 54, Director since July 1985. Mr. Roberts has been
a partner in KKR since its organization in 1976. He is also a director of
Amphenol Corporation, Borden, Inc., Bruno's, Inc., Evenflo & Spalding Holdings
Corporation, IDEX Corporation, KinderCare Learning Centers, Inc., KSL Recreation
Group, Inc., Owens-Illinois Group, Inc., Owens-Illinois, Inc., PRIMEDIA INC.,
Randall's Food Markets, Inc., Safeway Inc. and World Color Press, Inc. Mr.
Roberts is a first cousin of Mr. Kravis.
Richard R. Shinn -- Age 80, Director since May 1988. Mr. Shinn was
Executive Vice Chairman of the New York Stock Exchange from May 1985 through
December 1990. Mr. Shinn retired as Chairman and Chief Executive Officer of
Metropolitan Life Insurance Company in 1983. Mr. Shinn was a director of Allied
from 1973 until April 1988. Mr. Shinn is also a director of Grey Advertising,
Inc. Member of the Audit Committee, the Organization and Compensation Committee
and the Section 16 Committee.
Sellers Stough -- Age 75, 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 57, Chairman of the Board and Chief Executive
Officer since January 1996. 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 30 year career with Phillips.
The Board has standing audit, organization and compensation and executive
compensation committees that are composed of directors of the Company. The
functions of the Audit Committee include reviewing external financial reporting,
both annual and quarterly reports, and other financial portions of external
reporting of the Company, recommending engagement of the Company's independent
accountants, reviewing and approving the terms of engagement of the independent
accountants, reviewing the independence of such accountants, reviewing with the
independent accountants the plan, scope and results of the auditing engagement,
and reviewing the scope and results of the Company's procedures for internal
auditing and the adequacy of the Company's internal accounting controls.
The functions of the Organization and Compensation Committee (the
"Compensation Committee") include establishing compensation for executive
officers, monitoring compensation arrangements of certain management employees
for consistency with corporate objectives and to enhance shareholder value,
recommending remuneration arrangements for senior management, serving as the
Stock Option Committee under the Company's 1985, 1987 and 1992 Stock Option
Plans and the Company's 1994 Incentive Plan, administering the Incentive
Compensation Plan and Deferred Plan (as defined herein), and making
recommendations with respect to employee benefit plans.
The functions of the Section 16 Committee, established to comply with
amendments to the rules promulgated under Section 16 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as well as Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), include approving grants
of options, stock, stock appreciation rights and other types of awards to and
certain deferrals by officers of the Company that are subject to or intended for
compliance with the Exchange Act or the Code (the "Section 16 Officers").
5
<PAGE> 9
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.
During the year ended December 31, 1997, the Board held a total of fourteen
meetings, the Audit Committee held three meetings, the Compensation Committee
held four meetings and the Section 16 Committee held one meeting and acted once
by written consent. Messrs. Gilhuly, 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. Gilhuly,
Greene, Kravis, Michelson and Roberts are directors affiliated with KKR. See
"Compensation Committee Interlocks and Insider Participation."
Under the 1994 Incentive Plan, as in effect and as proposed to be amended
under Proposal 3 subject to stockholder approval, each person who becomes a
director who is not then an employee of the Company or any subsidiary or is not
affiliated with KKR (an "Eligible 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 an Eligible Director. See "Proposal 3 -- Approval of Proposed
Amendment to the 1994 Incentive Plan." Each incumbent Eligible Director also
receives an option to purchase 3,000 shares of Common Stock effective as of the
date of each annual meeting of stockholders. During 1997, each Eligible
Director, other than Mr. Pieper and Ambassador Barry, who were not directors as
of such date, received an annual grant of an option to purchase 3,000 shares of
Common Stock at $19.75 per share under the 1994 Incentive Plan. Effective May 9,
1997 and December 19, 1997, Mr. Pieper and Ambassador Barry each received an
option to purchase 5,000 shares of Common Stock at $19.75 and $20.6875 per
share, respectively, 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. Except transfers to family
members, family entities or private foundations, no transfer, sale or other
disposition of Common Stock acquired upon option exercise is permitted, except
in an amount necessary to satisfy tax withholding liability, until the Eligible
Director terminates service as an Eligible Director of the Company, unless a
prior extraordinary corporate transaction occurs.
In May 1997, the Board approved the establishment of stock ownership
guidelines for Eligible Directors and executives to further strengthen the tie
between executive officers, directors and the stockholders of the
6
<PAGE> 10
Company. The ownership level for Eligible Directors was set at three times the
annual retainer fee, with the recommendation that the Eligible Directors meet
this ownership guideline within a five year period based on beneficial ownership
of Common Stock. Such guideline and suggested ownership levels are subject to
annual review by the Compensation Committee. As of December 31, 1997, two of the
six Eligible Directors have met the guideline. See "Report of the Organization
and Compensation Committee and the Section 16 Committee of the Board of
Directors on Executive Compensation -- Stock Ownership Philosophy."
To encourage stock ownership opportunities, the Board also approved at its
May 1997 meeting the Union Texas Petroleum Holdings, Inc. Deferred Compensation
Plan, as amended and restated at its February 1998 meeting (the "Deferred Plan")
to give key employees and directors the ability to defer compensation on an
elective basis in the form of restricted shares of Common Stock or in phantom
shares of Common Stock. Other options available for interest accrual on deferred
amounts include a mutual fund program account and an interest account. Directors
may defer up to 100% of their annual retainer fees, in increments of 25%.
Ambassador Barry and Messrs. Gilhuly, Greene, Kravis, Michelson and Whitmire
have elected to participate in the Deferred Plan for 1998. See "Report of the
Organization and Compensation Committee and the Section 16 Committee of the
Board of Directors on Executive Compensation -- Stock Ownership Philosophy
and -- Chief Executive Officer Compensation."
RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
PROPOSAL 2: THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND URGES YOU
TO VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE LLP ("PRICE
WATERHOUSE") AS THE COMPANY'S INDEPENDENT ACCOUNTANTS TO SERVE UNTIL THE NEXT
ANNUAL MEETING OF STOCKHOLDERS. PROXIES WILL BE SO VOTED UNLESS THE STOCKHOLDERS
SPECIFY OTHERWISE IN THEIR PROXIES. PROPOSAL 2 WILL BE ADOPTED IF THE VOTES CAST
IN FAVOR EXCEED THE VOTES CAST OPPOSING THIS PROPOSAL.
The Board and the Audit Committee recommend ratification of the appointment
of Price Waterhouse. Price Waterhouse has audited the financial statements of
the Company since the Company's formation in 1982. Price Waterhouse will have a
representative at the meeting who will have the opportunity to make a statement,
if the representative desires to do so, and will be available to respond to
appropriate questions.
APPROVAL OF PROPOSED AMENDMENT TO THE 1994 INCENTIVE PLAN
PROPOSAL 3: THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND URGES YOU
TO VOTE FOR THE PROPOSED AMENDMENT TO THE 1994 INCENTIVE PLAN, WHICH INCREASES
THE NUMBER OF SHARES OF COMMON STOCK OF THE COMPANY AVAILABLE FOR AWARDS FROM
FOUR MILLION TO EIGHT MILLION. PROXIES WILL BE SO VOTED UNLESS THE STOCKHOLDERS
SPECIFY OTHERWISE IN THEIR PROXIES. PROPOSAL 3 WILL BE ADOPTED BY THE
AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES PRESENT IN PERSON OR BY PROXY AT
THE MEETING AND ENTITLED TO VOTE.
Subject to the approval of the stockholders, the Board on February 4, 1998,
approved an amendment and restatement of the 1994 Incentive Plan (the "Amended
1994 Plan") that would increase by 4,000,000 the number of authorized shares
available from 4,000,000 to 8,000,000 for the grant of various stock and stock
related awards. The 1994 Incentive Plan, which was effective as of November 28,
1994, was submitted and approved by the Company's stockholders at the 1995
Annual Meeting of Stockholders. Under the 1994 Incentive Plan, which authorizes
the award and issuance of up to 4,000,000 shares of Common Stock, the Company
has utilized awards of stock options to employees, officers and non-employee
directors. As of December 31, 1997, 44,425 shares have been issued upon the
exercise of options granted under the 1994 Incentive Plan, 3,709,250 shares are
subject to issuance upon the exercise of outstanding options and 250,475 shares
remain available for award under the 1994 Incentive Plan. Any shares related to
an award that are forfeited, terminated or canceled without the delivery of
shares of Common Stock or of other consideration, will be available for future
awards to the extent permissible under securities laws. If approved by the
stockholders, the number of newly authorized shares for which options or awards
could be granted under the Amended 1994 Incentive Plan will represent
approximately 4.7% of the currently outstanding shares of the Company's Common
Stock. The Board recommends the approval of the amendment to the 1994
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<PAGE> 11
Incentive Plan. The Board believes the Company's success and long-term progress
are dependent upon attracting and retaining directors, executive personnel and
employees of the Company and its subsidiaries. The Amended 1994 Plan gives the
Compensation Committee and the Section 16 Committee maximum flexibility to use
various forms of incentive awards as part of the Company's overall compensation
program.
The Amended 1994 Plan is intended to encourage employees of the Company,
its subsidiaries and affiliated entities, and non-employee directors of the
Company to acquire or increase their equity interest in the Company.
Additionally, the Amended 1994 Plan is intended to provide a means whereby
employees may develop a sense of proprietorship and personal involvement in the
development and financial success of the Company and to encourage them to remain
with and devote their best efforts to the business of the Company, thereby
advancing the interests of the Company and its stockholders. The Amended 1994
Plan is also contemplated to enhance the ability of the Company, its
subsidiaries and affiliated entities to attract and retain the services of
individuals who can contribute to the program, growth and profitability of the
Company. The amendment will permit the continuation of stock option grants,
thereby providing long-term incentives to the non-employee directors, officers,
and employees of the Company who have the potential to direct and manage the
business of the Company successfully in the future. Failure to approve the
amendment to the 1994 Incentive Plan will result in no future award of shares of
Common Stock under the 1994 Incentive Plan following the grant of the remaining
250,475 available shares, which are sufficient shares to permit the issuance of
18,000 shares of Common Stock to the Eligible Directors as described below
following this 1998 Annual Meeting of Stockholders.
The full text of the Amended 1994 Plan is set forth in Appendix A to this
Proxy Statement. Since the 1994 Incentive Plan was originally approved, the
Board has approved certain amendments to update certain provisions related to
Section 16 of the Exchange Act, as a result of changes in the rules and
regulations thereunder since 1994, and the performance goals applicable to
awards under its incentive compensation program, as well as to permit
transferability of options (other than incentive stock options ("ISOs")) by
officers and non-employee directors to family member, family entities or private
foundations. The essential features of the Amended 1994 Plan are summarized
below, but such summary is qualified in its entirety by reference to the full
text of the Amended 1994 Plan. All capitalized terms not defined herein shall
have the meaning as defined in the Amended 1994 Plan.
TYPES OF AWARDS
The Amended 1994 Plan would permit the granting of any or all of the
following types of awards ("Awards"): (i) stock options, including ISOs; (ii)
stock appreciation rights ("SARs"), in tandem with stock options or
freestanding; (iii) restricted stock; (iv) performance awards; (v) stock
compensation awards; (vi) bonus shares; (vii) deferred shares; and (viii) other
stock-based or cash awards.
ELIGIBILITY FOR PARTICIPATION
In addition to officers and employees of the Company or any affiliate of
the Company, each non-employee director (each director who is not then an
employee of the Company or any subsidiary or affiliated with KKR, "Eligible
Director") of the Company will be eligible to receive certain Awards under the
Amended 1994 Plan. As of the date of this Proxy Statement, the Company had
approximately 1,300 employees and six Eligible Directors.
ADMINISTRATION
The Amended 1994 Plan, in general, will be administered by the Compensation
Committee, which is composed of directors appointed by the Board who are not
also employees of the Company or an affiliate, but with respect to Section 16
Officers, it will be administered by the Section 16 Committee. The term
"Committee" shall mean the Compensation Committee or the Section 16 Committee,
whichever is applicable. The Committee will select the participants who will
receive Awards, determine the type and terms of Awards to be granted, and
interpret and administer the Amended 1994 Plan.
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<PAGE> 12
AMENDMENT AND TERMINATION
The Board may terminate or amend the Amended 1994 Plan without stockholder
approval, except that stockholder approval is required for any amendment that
would increase the number of shares available for grant or otherwise cause the
Amended 1994 Plan to cease to satisfy the requirements of Rule 16b-3 of the
Exchange Act.
TERM OF THE PLAN
The Amended 1994 Plan will terminate on November 27, 2004, the same date as
in the 1994 Incentive Plan, after which time no additional Awards may be made
under the Amended 1994 Plan.
SHARES SUBJECT TO THE PLAN
Subject to adjustment as described more fully below, 8,000,000 shares of
Common Stock may be awarded under the Amended 1994 Plan; provided, however, that
no more than 2,400,000 shares available for Awards shall be issued as restricted
stock. The maximum aggregate number of shares available for Awards of options
and SARs to any person during the term of the Amended 1994 Plan is 500,000
shares per year, of which tandem Awards will be deemed to be one Award.
STOCK OPTIONS
Stock options granted under the 1994 Plan will be subject to the terms and
conditions determined by the Committee, except that: (i) no options may be
granted after the termination of the Amended 1994 Plan; (ii) the option exercise
price cannot be less than 100% of the fair market value of a share of Common
Stock at the time the option is granted; and (iii) no option may be exercised
more than ten years after it is granted. ISOs may be granted provided they meet
the requirements of the Code.
The Committee will determine the form in which payment of the exercise
price may be made, including cash, shares of Common Stock, other securities or
other property, or any combination thereof, having a fair market value on the
exercise date equal to the relevant exercise price.
STOCK APPRECIATION RIGHTS
An SAR may be granted in tandem with another Award, in addition to another
Award, or freestanding and unrelated to another Award. The grant price of an SAR
shall not be less than 100% of the fair market value of a share of Common Stock
at the time the SAR is granted. The Committee may impose such conditions or
restrictions on the exercise of any SAR as it shall deem appropriate.
RESTRICTED STOCK
The Committee shall determine the employees to whom Restricted Stock will
be granted, the number of shares of Restricted Stock to be granted to each
participant, the duration of the restriction period, the conditions under which
the Restricted Stock may be forfeited to the Company and other terms and
conditions of Awards of Restricted Stock. Restricted Stock may not be disposed
of by the participant until the restrictions specified in the Award expire. The
participant will have, with respect to Restricted Stock, the right to vote the
shares and, unless otherwise determined by the Compensation Committee, the right
to receive any cash dividends. Except as otherwise determined by the
Compensation Committee, upon termination of a participant's employment for any
reason during the restriction period, all Restricted Stock will be forfeited by
the participant. A tandem cash unit can be granted with each share of Restricted
Stock in an amount calculated to provide a cash payout that will enable the
participant to pay taxes on Restricted Stock without having to sell such Common
Stock.
PERFORMANCE AWARDS
Performance Awards, which shall consist of a right payable in cash, shares
of Common Stock, other securities or other property, may be granted upon the
achievement of performance goals. Performance goals
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<PAGE> 13
will include, but are not limited to, the attainment of target levels of
business criteria. The Compensation Committee shall determine the performance
goals to be achieved during any performance period, the length of any
performance period, the amount of any Performance Award and the amount of any
payment or transfer to be made pursuant to any Performance Award. The Committee
may establish performance criteria associated with grants of Performance Awards,
if such Awards are intended to qualify for a tax deduction for certain
compensation paid in excess of $1 million, as discussed below in this Proposal
under the heading "Federal Income Tax Consequences -- Tax Consequences to the
Company or Subsidiary." Performance Awards may be paid in accordance with
procedures established by the Committee.
STOCK COMPENSATION
The Committee shall have the authority to pay all or a portion of any
amounts payable under (i) an Award, other than Cash Awards granted as a
short-term annual incentive or in tandem with Restricted Stock, or (ii) if
requested by an employee, any other compensation program of the Company, in
shares of Common Stock. The number and type of shares to be distributed in lieu
of cash compensation, as well as the terms and conditions of any such stock
compensation, shall be determined by the Committee.
BONUS SHARES
The Committee may deliver shares of Common Stock to any eligible employee
as additional compensation for the employee's services to the Company.
DEFERRED SHARES
An Award of Deferred Shares constitutes an agreement by the Company to
deliver shares of Common Stock to the participant in the future in consideration
of the fulfillment of such conditions, including the performance of services, as
the Committee may specify. Prior to the delivery of the Deferred Shares, the
participant has no right to transfer any rights under his or her Award and no
rights as a stockholder with respect to the shares covered by the Award, except
as to phantom dividends, that the Committee may elect to credit in a bookkeeping
account.
OTHER STOCK-BASED OR CASH AWARDS
In its discretion, the Committee may grant other forms of Awards based on,
payable in, or otherwise related in whole or in part to Common Stock or grant
cash Awards. Subject to the terms of the Amended 1994 Plan, the Committee shall
determine the terms and conditions of any such other stock-based or cash awards.
ELIGIBLE DIRECTOR STOCK OPTIONS
Each Eligible Director shall receive on the day of each Annual Meeting of
Stockholders options to purchase 3,000 shares of Common Stock, unless the
Eligible Director is entitled to a grant on such date pursuant to the following
sentence. In addition, each Eligible Director who is elected or appointed to the
Board for the first time on or after the date of the 1998 Annual Meeting shall
receive on such date an initial award of options to purchase 5,000 shares of
Common Stock. The Committee and Board shall have no discretion with respect to
Eligible Director stock options. Each such option shall be fully vested and
exercisable and have a term of ten years and must be exercised within six months
of termination of service on the Board for any reason other than death,
disability or retirement (after at least five years of continuous Board
service), in which event such option must be exercised within two years of death
or disability and within three years of retirement. The price per share to be
paid by the holder of such an option shall equal the fair market value per share
of Common Stock on the date the option is granted. The purchase price of the
shares to which such option is exercised shall be paid only in cash. Except
transfers to family members, family entities or private foundations, no
transfer, sale or other disposition of Common Stock acquired upon option
exercise is permitted, except in an amount necessary to satisfy tax withholding
liability, until the Eligible Director terminates service as an Eligible
Director, unless a prior extraordinary corporate transaction occurs.
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<PAGE> 14
TRANSFERABILITY OF AWARDS
The Committee may, in its discretion, provide that an Award (other than an
Incentive Stock Option) may be transferred by the participant to a family member
(as provided in the Amended 1994 Plan) or to certain exempt organizations. At
present, it is contemplated that such consent, if exercised, would be limited to
the transfer of nonqualified stock options by officers and Eligible Directors
only.
CHANGE IN CONTROL
In the event of a "Change in Control," as defined in the Amended 1994 Plan,
the Committee shall accelerate the exercise or vesting date of all Awards and
may take any one or more of the following actions in connection with any Awards:
(i) provide for the purchase, in cash, of such Award; (ii) make adjustments to
such Award, including the exercise period; or (iii) subject to certain
provisions, cause any outstanding Award to be assumed, or a new right
substituted therefor, by the acquiring or surviving corporation, or, with notice
to the participant, cause the exercise period for any such Award to terminate on
a fixed date following such Change in Control.
A Change in Control is deemed to occur under the Amended 1994 Plan (i) if
any person or persons or entity or entities (other than the KKR Partnerships)
acquires 75% or more of the assets of the Company or a successor of the Company
or such successor's parent corporation (based upon the then current fair market
value thereof) or 50% or more of the Company's then outstanding voting stock or
a successor's or such successor's parent corporation's then outstanding voting
securities, and, if there shall be more than one class of voting, securities
thereof, then of the combined voting power held by all classes of voting
securities of the Company, a successor corporation or its parent corporation
(whether such acquisition of stock or assets occurs pursuant to a single
transaction or several related transactions or series of transactions), (ii)
upon the approval by the Company's stockholders of a plan of liquidation or
dissolution of the Company or a successor of the Company or such successor's
parent corporation, or (iii) upon the approval by the Company's stockholders of
a merger or consolidation and such transaction was determined to be a Change in
Control, which transaction and determination was approved by a majority of the
Board in actions taken prior to and with respect to such transaction.
ADJUSTMENTS
In the event the Committee determines that any dividend or other
distribution, recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of shares of Common Stock or other similar corporate
transaction or event affects the Common Stock so that an adjustment is
determined by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended under the Amended
1994 Plan, then the Committee shall adjust any or all of the Awards.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain of the federal income tax
consequences of certain transactions under the Amended 1994 Plan based on
federal income tax laws and regulations in effect on January 1, 1998. This
summary is not intended to be exhaustive and does not describe state or local
tax consequences. Additional or different federal income tax consequences to the
participant or the Company may result depending upon any considerations not
described below.
TAX CONSEQUENCES TO PARTICIPANTS
Non-Qualified Option Rights. In general: (i) no income will be recognized
by an optionee at the time a Non-Qualified Stock Option ("NQO") is granted; (ii)
at the time of exercise of an NQO, ordinary income will be recognized by the
optionee in an amount equal to the difference between the option price paid for
the shares and the fair market value of the shares if they are nonrestricted on
the date of exercise; and (iii) at the time of sale of shares acquired pursuant
to the exercise of an NQO, any appreciation (or depreciation) in the
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<PAGE> 15
value of the shares after the date of exercise will be treated as either
short-term, mid-term or long-term capital gain (or loss), depending on how long
the shares have been held.
Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an ISO, although the excess of the fair
market value on the date of exercise over the option price is included in
alternative minimum taxable income for alternative minimum tax purposes. If
shares of Common Stock are issued to an optionee pursuant to the exercise of an
ISO and no disqualifying disposition of the shares is made by the optionee
within two years after the date of grant or within one year after the transfer
of the shares to the optionee, then upon the sale of the shares any amount
realized in excess of the option price will be taxed to the optionee as
long-term or mid-term capital gain and any loss sustained will be a long-term or
mid-term capital loss.
If shares of Common Stock acquired upon the exercise of an ISO are disposed
of prior to the expiration of either holding period described above, the
optionee generally will recognize ordinary income in the year of disposition in
an amount equal to any excess of the fair market value of the shares at the time
of exercise (or, if less, the amount realized on the disposition of the shares
in a sale or exchange) over the option price paid for the shares. Any further
gain (or loss) realized by the optionee generally will be taxed as short-term,
mid-term or long-term capital gain (or loss), depending on the holding period.
The excess of the fair market value of shares acquired upon exercise of an
Incentive Stock Option over the exercise price paid for such shares would be an
adjustment to alternative minimum taxable income for the optionee's taxable year
in which such exercise occurs (unless the shares are disposed of in the same
taxable year).
Stock Appreciation Rights. No income will be recognized by a participant in
connection with the grant of an SAR. When the SAR is exercised, the participant
normally will be required to include as taxable ordinary income in the year of
exercise an amount equal to the amount of any cash, and the fair market value of
any nonrestricted shares of Common Stock, received pursuant to the exercise.
Restricted Stock. A recipient of Restricted Stock generally will be subject
to tax at ordinary income rates on the fair market value of the Restricted Stock
reduced by any amount paid by the recipient at such time as the shares are no
longer subject to a risk of forfeiture or restrictions on transfer for purposes
of Section 83 of the Code. However, a recipient who so elects under Section
83(b) of the Code within 30 days of the date of transfer of shares will have
taxable ordinary income on the date of transfer of the shares equal to the
excess of the fair market value of the shares (determined without regard to the
risk of forfeiture or restrictions on transfer) over any purchase price paid for
the shares. If a Section 83(b) election has not been made, any dividends
received with respect to Restricted Stock that is subject at that time to a risk
of forfeiture or restrictions on transfer generally will be treated as
compensation that is taxable as ordinary income to the recipient.
Performance Awards. No income generally will be recognized upon the grant
of Performance Awards. Upon payment in respect of earned Performance Awards, the
recipient generally will be required to include as taxable ordinary income in
the year of receipt an amount equal to the amount of cash received and the fair
market value of any nonrestricted shares of Common Stock received less any
amount paid for such Award at the time of payment or transfer pursuant to the
achievement of the performance goals.
Stock Compensation. When a participant receives shares of Common Stock in
lieu of cash compensation, the fair market value of the shares of Common Stock
will be ordinary income to the participant. Any gain or loss realized by a
participant on disposition of the Common Stock so acquired generally will be
capital gain or loss to such participant, long-term, mid-term or short-term
depending on the holding period. The participant's basis in the shares of Common
Stock for determining gain or loss on the disposition will generally be the fair
market value of such Common Stock on the date the shares are issued.
Bonus Shares and Deferred Shares. No income generally will be recognized
upon the grant of Deferred Shares. The recipient of Bonus Shares or of
unrestricted shares upon the lapse of the restrictions on Deferred Shares
generally will be subject to tax at ordinary income rates on the fair market
value of nonrestricted shares
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<PAGE> 16
of Common Stock on the date that such shares are transferred to him or her,
reduced by any amount paid by him or her, and the capital gain or loss holding
period for such shares will also commence on that date.
Other Stock-Based or Cash Awards. Generally, Other Stock-Based Awards will
be subject to tax in the same manner as described above for a similar award. A
Cash Award would be subject to tax at ordinary income tax rates when paid.
Special Rules Applicable to Officers and Directors. Where the sale of stock
that is received as the result of a grant of an Award could subject an officer
or director to suit under Section 16(b) of the Exchange Act, the tax
consequences to the officer or director may differ from the tax consequences
described above. In these circumstances, the principal difference usually will
be to postpone the taxation (and valuation) of the stock received so long as the
sale of the stock received could subject the officer or director to suit under
Section 16(b) of the Exchange Act, but not longer than six months.
TRANSFER OF NONQUALIFIED STOCK OPTIONS
An optionee who transfers a nonqualified stock option to a permitted
transferee will not recognize income at the time of the transfer. Instead, the
optionee will generally recognize ordinary compensation income at such time that
the transferee exercises the nonqualified stock option in an amount equal to the
excess of the fair market value of the shares on the date of exercise over the
amount paid for such nonqualified stock option by the optionee. In the event the
transferee exercises the nonqualified stock option after the death of the
optionee, any such ordinary income will be recognized by the estate of the
optionee.
WITHHOLDING TAXES
In general, a participant will be required to pay to the Company the
applicable withholding taxes with respect to the compensation income realized or
make other arrangements satisfactory to the Company for the payment of such
taxes.
TAX CONSEQUENCES TO THE COMPANY OR SUBSIDIARY
To the extent that a participant recognizes ordinary income in the
circumstances described above, the Company or subsidiary for which the
participant performs services will be entitled to a corresponding deduction for
federal income tax purposes provided that, among other things, (i) the income
meets the test of reasonableness, is an ordinary and necessary business expense
and is not an "excess parachute payment" within the meaning of Section 280G of
the Code, (ii) the applicable reporting requirements of the Internal Revenue
Service with respect to the compensation are timely satisfied by the Company or
subsidiary, and (iii) the $1 million limitation of Section 162(m) of the Code is
not exceeded.
Awards made under the Amended 1994 Plan at a time when all Committee
members are not "outside" directors within the meaning of Section 162(m) will
not meet the "performance-based exemption" under Section 162(m) of the Code. The
business criteria performance goals applicable to Performance Awards intended to
qualify for the exemption from the $1 million limitation of Section 162(m) of
the Code will be based upon the attainment of a such target levels of either net
income, cash flows, reserve additions or revisions, economic value added from
reserves, total capitalization, total stockholder return, assets, exploration
successes, production volumes, finding and development costs, costs reductions
and savings, reportable incidents in safety or environmental matters, return on
sales, profit margin, earnings per share, or strategic or personal objectives
tied to the foregoing, operational studies, implementing policies and plans,
negotiating transactions and sales, developing long-term business goals,
managerial responsibilities and assessments as may be specified by the
Committee. The maximum amount of compensation that may be paid under Performance
Awards to any one individual with respect to any one year will be $1,500,000
under an annual bonus Performance Award and $1,500,000 under a long-term Award
with a performance period longer than one fiscal year.
To qualify stock options and SARs as "performance-based compensation" for
Section 162(m) of the Code, the Amended 1994 Plan limits the total number of
stock options and underlying SARs that may be
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<PAGE> 17
awarded to any one person during any calendar year to 500,000 shares, of which
tandem Awards will be deemed to be one Award.
The $1 million limitation of Section 162(m) of the Code applies only with
respect to compensation paid to "covered employees," i.e., the Company's Chief
Executive Officer and the four highest compensated executive officers of the
Company or those individuals deemed to be executive officers of the Company
(other than the Chief Executive Officer) and who are officers on the last day of
the year in question. Any future Award under the Amended 1994 Plan expressly
intended by the Committee to qualify as "performance based compensation" will
not be paid unless it so qualifies; Awards that either are not intended to
qualify or which cannot qualify as performance based will be paid without regard
to the limitation on deductibility under Section 162 of the Code.
AMENDED PLAN BENEFITS
Other than stock option grants to Eligible Directors, it is not possible to
determine at this time the numbers of shares of Common Stock covered by options
or any awards that may be granted in the future under the Amended 1994 Plan to
any participant, because specific awards are made at the discretion of the
Committee. If Proposal 3 to approve the Amended 1994 Plan is not adopted, only
250,475 future stock options remain to be granted under the 1994 Incentive Plan.
The following table sets forth, as to the executive officers of the Company
named in the Summary Compensation Table, all current executive officers as a
group, all current Eligible Directors who are not executive officers as a group
and all other employees as a group and the number of shares covered by
outstanding options granted under the 1994 Incentive Plan as of December 31,
1997, that will be amended if this Proposal 3 is approved. Such options were
granted with four-year vesting periods at exercise prices that were the fair
market value of the Common Stock at the time of grant and range from $18.0625 to
$23.03125 per share. On March 10, 1998, the average trading price of the Common
Stock was $20.5625.
1994 INCENTIVE PLAN
<TABLE>
<CAPTION>
NUMBER OF
NAME POSITION OPTIONS(1)
---- -------- ----------
<S> <C> <C>
John L. Whitmire......................... Chairman of the Board and Chief 520,000
Executive Officer
William M. Krips......................... Senior Vice President 139,200
Arthur W. Peabody, Jr.................... Senior Vice President 139,200
Newton W. Wilson, III.................... Regional Vice President 104,200
Larry D. Kalmbach........................ Vice President and Chief Financial 100,200
Officer
Executive Group (12 persons)(2).................................................. 1,381,100
Non-Executive Director Group(3).................................................. 66,000
Non-Executive Officer Employee Group(4).......................................... 2,257,200
</TABLE>
- ---------------
(1) For information on options granted in 1997 under the 1994 Incentive Plan,
see "Election of Directors -- Director Compensation" and Option/SAR Grants
in 1997 Table.
(2) Current executive officers include the five individuals named in the
Summary Compensation Table and the other officers listed as Executive
Officers. See "Executive Officers." In 1997, 539,000 options were granted
at an exercise price of $23.03125.
(3) Any director who is not then an employee of the Company or any subsidiary
or affiliated with KKR, which is currently six directors, is eligible for
participation in the 1994 Incentive Plan.
(4) In 1997, 1,074,200 options were granted at an exercise price of $23.03125.
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<PAGE> 18
OTHER MATTERS
It is not anticipated that there will be presented to the meeting any
business other than election of directors, the ratification of the appointment
of independent accountants and approval of the amendment to the 1994 Incentive
Plan. If any other matters requiring the vote of the stockholders arise,
including the question of adjourning the meeting and other matters not known
reasonably in advance by the Company, the persons appointed as proxies in the
accompanying proxy will vote on such matters according to their best judgment.
Regardless of the number of shares owned by you, it is important that they
be represented at the meeting, and you are respectfully requested to sign, date
and return the accompanying proxy at your earliest convenience.
EXECUTIVE OFFICERS
Set forth below are the current executive officers of the Company elected
by the Board of Directors.
John L. Whitmire -- Age 57, Chairman of the Board and Chief Executive
Officer since January 1996. Information about Mr. Whitmire is included on pages
4 through 6 with the information on nominees for the Board.
William M. Krips -- Age 58, 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 the Regional Business Units and Technical Services. 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
Management Board of Unimar Company, a partnership that is half owned by the
Company, and a director of ENSTAR Corporation ("ENSTAR") and of VICO 7.5, Inc.,
ENSTAR Indonesia, Inc., Virginia International Company and Virginia Indonesia
Company, which entities are subsidiaries of ENSTAR.
Arthur W. Peabody, Jr. -- Age 54, 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 Exploration, Acquisitions, Enhanced
Production Ventures, Information Technology and Portfolio Management. Mr.
Peabody is also a member of the Unimar Company Management Board, and a director
of ENSTAR, ENSTAR Indonesia, Inc., VICO 7.5, 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 46, 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, Risk Management, Corporate Planning,
Purchasing, Administration 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
VICO 7.5, Inc., Virginia International Company and Virginia Indonesia Company,
which entities are subsidiaries of ENSTAR.
Alan R. Crain, Jr. -- Age 46, Vice President and General Counsel since May
1996, after having served as Assistant General Counsel from September 1988 until
he assumed his current position. Mr. Crain has responsibility for Law,
Commercial Negotiations, Government Affairs and Security. Mr. Crain joined the
Company in March 1988.
Richard A. Cunningham -- Age 46, Regional Vice President since May 1996,
after having served as General Manager Worldwide Business Development from
September 1991 until he assumed his current position. Mr. Cunningham has
responsibility for the Asia Pacific regional business unit. Mr. Cunningham
15
<PAGE> 19
joined the Company in 1981 and, prior to assuming his current position, held
various positions in negotiations and business development as well as serving as
President VICO Indonesia.
James E. Knight -- Age 52, Regional Vice President since May 1996, after
having served as Vice President, Technical Services from December 1991 until he
assumed his current position. Mr. Knight has responsibility for the Europe,
Middle East, Africa and Central Asia regional business unit. Mr. Knight joined
the Company in 1980 and, prior to assuming his current position, held various
positions in management in gas processing, engineering and international
operations.
Michael N. Markowitz -- Age 50, Vice President and Treasurer since July
1985, after having served as Treasurer from August 1983 until he assumed his
current position. Mr. Markowitz has responsibility for Treasury and Tax. Mr.
Markowitz joined the Company in 1972 and, prior to assuming his current
position, held various positions of increasing responsibility in tax and
treasury.
Donald M. McMullan -- Age 48, Vice President and Controller since June
1993, after having served as Assistant Treasurer and Director Finance from July
1988 until he assumed his current position. Mr. McMullan has responsibility for
Accounting and Corporate Planning. Mr. McMullan joined the Company in 1980 and,
prior to assuming his current position, held various management positions in
finance, treasury and acquisitions.
Roger W. Pierce -- Age 48, Vice President Exploration since May 1996, after
having served as General Manager Exploration Operations from December 1994 until
he assumed his current position. Mr. Pierce has responsibility for worldwide
Exploration. Mr. Pierce joined the Company in 1976 and, prior to assuming his
current position, held various positions in domestic and international
exploration operations.
Newton W. Wilson, III -- Age 47, Regional Vice President since May 1996,
after having served as General Counsel, Vice President -- Administration and
Secretary from January 1993 until he assumed his current position. Mr. Wilson
has responsibility for the Americas regional business unit. Mr. Wilson joined
the Company in October 1985 as Vice President, General Counsel and Secretary.
John M. Zimmerman -- Age 50, Vice President -- Investor Relations since May
1996, and Vice President -- Planning and Investor Relations from April 1990
until he assumed his current position. Mr. Zimmerman joined the Company in April
1983.
Certain of 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.
16
<PAGE> 20
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 1995 to 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
------------------------------------- UNDERLYING
NAME AND OTHER ANNUAL OPTIONS/SARS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) GRANTED(3) COMPENSATION(4)
------------------ ---- -------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
John L. Whitmire.......... 1997 $600,000 $600,000 -- 175,000 $48,000
Chairman of the Board and 1996 $586,957 $565,500 $577,873(5) 345,000 $28,000
Chief Executive Officer
William M. Krips.......... 1997 $324,000 $198,500 -- 61,000 $25,920
Senior Vice President 1996 $314,667 $205,300 -- 39,100 $25,173
1995 $305,000 $193,000 -- 39,100 $24,400
Arthur W. Peabody, Jr..... 1997 $320,500 $198,500 -- 61,000 $25,640
Senior Vice President 1996 $310,000 $205,300 -- 39,100 $24,800
1995 $296,250 $193,000 -- 39,100 $23,700
Newton W. Wilson, III..... 1997 $304,000 $197,100 -- 41,000 $24,320
Regional Vice President 1996 $294,667 $170,000 -- 31,600 $23,574
1995 $285,000 $170,000 -- 31,600 $22,800
Larry D. Kalmbach......... 1997 $272,000 $169,300 -- 37,000 $21,760
Vice President and 1996 $267,000 $154,900 -- 31,600 $21,360
Chief Financial Officer 1995 $255,833 $150,000 -- 31,600 $16,400
</TABLE>
- ---------------
(1) Includes compensation under the Company's Incentive Compensation Plan (the
"Incentive Compensation Plan"), which program is under the 1994 Incentive
Plan and provides cash awards for executive officers and employees of the
Company. For a description of the Incentive Compensation Plan, see "Report
of the Organization and Compensation Committee and the Section 16 Committee
of the Board of Directors on Executive Compensation." Awards are paid
currently in a lump sum or may be deferred pursuant to the Deferred Plan. No
incentive compensation accrued in 1997, 1996 or 1995 was deferred by any of
the executive officers to later years, except for the Chief Executive
Officer who deferred 100% of his 1997 award into restricted shares of Common
Stock under the Deferred Plan.
(2) During each of the three years ended December 31, 1995, 1996 and 1997,
perquisites for each individual named in the Summary Compensation Table,
other than Mr. Whitmire in 1996, 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.
(3) Each option granted included an equal number of stock appreciation rights
("SARs").
(4) 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 1997 were in the respective amounts of: $9,500.00 for Mr.
Whitmire, $9,500.00 for Mr. Krips, $9,500.00 for Mr. Peabody, $8,486.64 for
Mr. Wilson, and $9,500.00 for Mr. Kalmbach. The Company's matching
contributions to the Supplemental Savings Plan for 1997 were in the
respective
(Footnotes continued on following page)
17
<PAGE> 21
amounts of: $38,500.00 for Mr. Whitmire, $16,420.00 for Mr. Krips,
$16,140.01 for Mr. Peabody, $15,833.36 for Mr. Wilson, and $12,259.97 for
Mr. Kalmbach.
(5) Includes certain amounts in connection with Mr. Whitmire's employment in
January 1996, including the purchase of Mr. Whitmire's home in Bartlesville,
Oklahoma at its appraised value of $388,000 and special payment of $170,000
related to relocation to Houston, Texas by the Company.
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 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------
PERCENT GRANT
REPRESENTS
NUMBER OF OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO ALL GRANT DATE
OPTIONS/SARS EMPLOYEES IN EXERCISE EXPIRATION PRESENT
GRANTED(1) 1997 PRICE(2) DATE VALUE(3)
------------ -------------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
John L. Whitmire................ 175,000 10.8% $23.0312 10/22/2007 1,304,662.73
William M. Krips................ 61,000 3.8% $23.0312 10/22/2007 454,768.15
Arthur W. Peabody, Jr........... 61,000 3.8% $23.0312 10/22/2007 454,768.15
Newton W. Wilson, III........... 41,000 2.5% $23.0312 10/22/2007 305,663.84
Larry D. Kalmbach............... 37,000 2.3% $23.0312 10/22/2007 275,842.98
</TABLE>
- ---------------
(1) A total of 1,613,200 options were granted on October 23, 1997. Options were
received by all U.S.-based employees, with 539,000 options (57,103 of which
were ISOs being granted to the executive officers and 1,074,200 options
being granted to 513 other employees. The options become exercisable for 25%
of the shares after the expiration of one year from the date of grant, 50%
after the expiration of two years, 75% after the expiration of three years
and in full after the expiration of four years. Options are granted for a
term of ten years, subject to termination between 90 days to three years
following termination of employment. Each option vests in full upon death,
disability, normal retirement, voluntary resignation for the purpose of
accepting employment with Virginia Indonesia Company, involuntary
termination of an executive officer, or a change in control (generally
defined as 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 subject to certain provisions in the 1994
Incentive Plan. In addition, each option to executive officers is
accompanied by an equivalent number of SARs. The SARs allow the optionee,
subject to certain restrictions, to surrender his option in return for a
payment in cash or shares of Common Stock or a combination thereof equal in
value to the excess of the fair market value of the shares of Common Stock
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. Options are not transferable, except transfers (other than
ISOs) by officers to family members, family entities or private foundations.
See "Report of the Organization and Compensation Committee and the Section
16 Committee of the Board of Directors on Executive Compensation" and
Appendix A.
(Footnotes continued on following page)
18
<PAGE> 22
(2) The options other than ISOs contain an "early payment provision" whereby the
Board, the Compensation Committee or the Section 16 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 1997, 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
25.45%, calculated using monthly stock prices for the three years prior to
the grant date, (ii) an interest rate of 6.0%, (iii) a dividend yield of
1.03% and (iv) an option exercise term of 5.5 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.
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 1997 and unexercised options and SARs held as of the end
of 1997, which include grants made under the Company's 1985 and 1992 Stock
Option Plans and the 1994 Incentive Plan.
AGGREGATED OPTION/SAR EXERCISES IN 1997
AND OPTION/SAR VALUES AT DECEMBER 31, 1997
<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 1997 FISCAL YEAR-END 1997 FISCAL YEAR-END(2)
OPTIONS/SARS VALUE --------------------------- ---------------------------
NAME EXERCISED REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John L. Whitmire........ 0 $ 0 142,500 377,500 $158,203 $158,203
William M. Krips........ 31,330 $262,388.75 172,894 126,450 $502,257 $ 71,174
Arthur W. Peabody,
Jr.................... 23,800 $229,075.00 192,494 126,450 $684,519 $ 71,174
Newton W. Wilson, III... 19,330 $166,117.21 138,958 93,900 $426,438 $ 57,522
Larry D. Kalmbach....... 0 $ 0 75,026 85,275 $163,409 $ 52,157
</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 31, 1997, which was $20.71875 based
on the average of the high and low sales price on December 31, 1997 on the
New York Stock Exchange, multiplied by the number of shares underlying the
unexercised options or SARs.
19
<PAGE> 23
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
1997.
<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........... 57,400 114,800 172,200 229,600 287,000 244,400 401,800 459,200
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
1,200,000........... 98,400 196,800 295,200 393,600 492,000 590,400 688,800 787,200
1,300,000........... 106,600 213,200 319,800 426,400 533,000 639,600 746,200 852,800
1,400,000........... 114,800 229,600 344,400 459,200 574,000 688,800 803,600 918,400
1,500,000........... 123,000 246,000 369,000 492,000 615,000 738,000 861,000 984,000
</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. An employee who was employed by the
Company on or after April 29, 1990, may elect to receive a lump sum payment at
retirement in lieu of a pension.
The Code places certain maximum limitations on the amount of benefits that
may be payable under tax-qualified plans, such as the Pension Plan. Any excess
over such maximum limitation calculated in accordance with the provisions of the
Pension Plan will be paid separately by the Company through one or more unfunded
excess benefit plans. Such excess benefit plans also provide benefits to certain
employees in excess of those provided under the Pension Plan, based upon
deferred compensation, severance pay and certain additional service that is not
taken into account under the Pension Plan and to the extent the formula in
effect for the Pension Plan prior to 1989 would produce a larger benefit than
the current formula. Such additional benefits are calculated and included in the
table above, with the exception of benefits related to the formula in effect
prior to 1989 and a special supplemental benefit to Mr. Whitmire. 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, 1997, the following individuals had the number of years of
credited service indicated: Mr. Whitmire, 1; Mr. Krips, 33; Mr. Peabody, 16; Mr.
Wilson, 12; and Mr. Kalmbach, 23. Mr. Whitmire is also entitled to receive a
special supplemental benefit to ensure that he receives compensation for any
loss of total pension benefit as a result of his retirement from his previous
employer. See "Report of the Organization
20
<PAGE> 24
and Compensation Committee and the Section 16 Committee of the Board of
Directors -- Chief Executive Officer Compensation."
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, 1999, 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 or her 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 or her 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.
After a review of a July 31, 1997 report from Towers Perrin, an independent
consultant, and recommendations made by Towers Perrin based on such report, the
Board approved amendments to the Executive Severance Plan at its September 1997
meeting. Such report contained a summary of typical industry change of control
agreements based on a survey of over one hundred companies and of energy
industry peer group (including companies in the Dow Jones Secondary Oil Index)
change of control agreements. Such amendments include, among other matters, an
expansion of the number of persons eligible for the plan including officers and
certain key employees, an increase in the amount of benefits in the event of a
change of control after September 5, 1997, an increase in the number of years of
credited service for pension and excess benefit plans, the addition of a savings
plan match, an excise tax gross-up in the event of a change of control and the
"golden parachute" provision of the Code applies and outplacement services.
A participant in the Executive Severance Plan who is involuntarily
terminated other than for gross cause during the Protected Period is now
entitled to receive his or her 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, or 36 months
in the event a change of control occurs after September 5, 1997. 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 the months of payments credited toward calculation of benefits
payable under the excess benefit plans. Under the Executive Severance Plan,
Messrs. Whitmire, Krips and Peabody are entitled to 36 months of benefits, and
Messrs. Wilson and Kalmbach are entitled to 24 months of benefits, except in the
event of a change of control, Messrs. Wilson and Kalmbach are 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 receive a payment equal to 24% of
his or her base salary, which is equivalent to three years of a Company match
under the Company's Savings Plan at 8% a year, the continuation of certain basic
life and medical insurance coverage and outplacement services. In the event any
payments made under the Executive Severance Plan result in the imposition of
excise tax under the "golden parachute" provision of the Code, such payments are
grossed up so that the participant receives the net amount he or she is
otherwise entitled to under the plan. An employee who either becomes entitled to
salary and benefit continuation pursuant to the Executive Severance Plan after a
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 or she is entitled to receive or which
remain to be paid as of the change of control. Assuming that Messrs. Whitmire,
Krips, Peabody, Wilson and Kalmbach were entitled to receive payments as
21
<PAGE> 25
of December 31, 1997, such payments would total $3,204,000, $1,535,760,
$1,535,760, $1,395,360 and $1,248,480, respectively.
The Company may generally terminate the Executive Severance Plan, but no
termination of the Plan is permitted prior to the later of March 31, 1999, 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.
DESCRIPTION OF CERTAIN EMPLOYMENT AGREEMENTS AND CHANGES OF EMPLOYMENT
ARRANGEMENTS
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, except Mr.
Whitmire, 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, which was executed in connection with the 1985 Stock Acquisition, in part
as an inducement for employees to continue employment with the Company. Such
letter agreements have not been formally amended since the original date of the
agreements to reflect changes made in benefits resulting from promotions and
increased or changed job responsibilities.
Currently, each of Messrs. Whitmire, 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, 1985 and 1992
Stock Option Plans (other than Mr. Whitmire), 1994 Incentive Plan, Deferred
Plan, Pension Plan, Savings Plan, Supplemental Savings Plan and supplemental
executive retirement plans. See "Executive Compensation and Other
Information -- Executive Severance Plan" and "Report of the Organization and
Compensation Committee and the Section 16 Committee of the Board of Directors on
Executive Compensation."
22
<PAGE> 26
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 Index for the period of five years ended December 31, 1997.
VALUE OF INVESTMENT ($)
<TABLE>
<CAPTION>
DOW JONES
MEASUREMENT PERIOD SECONDARY
(FISCAL YEAR COVERED) UNION TEXAS S&P 500 OIL
<S> <C> <C> <C>
1992 100.0 100.0 100.0
1993 109.6 110.1 113.0
1994 112.8 111.5 112.2
1995 106.4 153.5 128.8
1996 124.2 188.7 158.7
1997 116.6 251.6 170.1
</TABLE>
Assumes $100 invested December 31, 1992, in the Company's Common Stock, S&P 500
Stock Index and Dow Jones Secondary Oil Industry Index (dividends reinvested).
The Stock Price Performance Graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or under the Exchange Act,
except to the extent that the Company specifically incorporates this graph by
reference, and shall not otherwise be deemed filed under such Acts.
There can be no assurance that the Company's stock performance will
continue into the future with the same or similar trends depicted in the graph
above. The Company will not make or endorse any predictions as to future stock
performance.
23
<PAGE> 27
REPORT OF THE ORGANIZATION AND COMPENSATION COMMITTEE
AND THE SECTION 16 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 and the Section 16 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 25.6% of the Company's Common Stock. The
Section 16 Committee currently consists of two members, both of whom are
non-employee directors as defined under the Exchange Act and approves grants of
options, stock, stock appreciation rights and other types of awards to Section
16 Officers. Set forth below is a report collectively submitted by the
Compensation Committee and the Section 16 Committee (collectively the
"Committees" and individually a "Committee") addressing the Company's executive
compensation program for 1997.
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 Committee approved a new compensation program for
1997, which places more emphasis on variable performance-based pay that is tied
directly to the results of the Company. The new program strengthens, and the
Company's proposed amendment to the 1994 Incentive Plan is intended to continue,
the alignment between compensation and stockholder wealth creation. See
"Proposal 3 -- Approval of Proposed Amendment to the 1994 Incentive Plan."
The program is composed of four elements: a base salary, an annual bonus,
long-term incentives in the form of stock options, and a comprehensive benefits
program. The goal of the new program for all employees, including executive
officers, is to establish base salaries at the market median, target bonus
opportunities at the 65th percentile and grant stock options to all employees.
All employees participate in the Company's annual incentive compensation
program, which is based entirely on the Company meeting predetermined financial
and strategic goals as approved by the Compensation Committee. Individual
personal objectives for executive officers and other key employees have been
eliminated. Specific award opportunities vary depending on the Company's
performance level and the employee's salary grade. If the Company meets or
exceeds its goals, then the expectation is that each employee's total direct
compensation (i.e., salary, bonus and annualized long-term incentives) will be
well above the market median (50th percentile).
The Committees annually review the Company's executive compensation program
on the basis of information provided by the Company, 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
1997 for the executive officers of the Company were reviewed at the January
meeting of the Compensation Committee. In setting such base salaries, the
Compensation Committee reviewed compensation data for comparable companies,
including a comparison of market compensation data from a December 1996
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
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recognized private and published compensation surveys of energy and other
industry companies of comparable size to the Company for fiscal year 1996, but
did not necessarily include data from proxy statements published in 1996 for
fiscal year 1995 for the companies included in the Dow Jones Secondary Oil
Industry published index.
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 for 1997 was to establish the
executives' salary at the market median (50th percentile) and bonus
opportunities at the 65th percentile in an effort to be competitive with
compensation provided to executives at comparable companies. 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 1997 salary plan for the
Company's executive officers, following which the Compensation Committee
approved the proposed plan at the January 1997 meeting. Three executive
officers, including one of the executive officers named in the Summary
Compensation Table, received salary increases 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 comparable companies.
ANNUAL INCENTIVES
The objective of the Company's annual incentive bonus, a
pay-for-performance program under the 1994 Incentive Plan, is to motivate and
reward individuals based on contributions to business results. The Compensation
Committee administers the Company's incentive program, 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.
The annual bonus in 1997 was tied directly to the results of the Company
and was based upon achievement of performance-oriented goals, 65% of which were
financial measures and 35% of which were strategic objectives. These goals and
their weightings were approved by the Compensation Committee at its January 1997
meeting. In addition, a target bonus was approved for each employee based on
salary grade. The target is adjusted based on the Company's achievement of these
goals. Annual bonus target as a percentage of salary ranged from 40% to 50% for
each of the executive officers named in the Summary Compensation Table, except
for the Chief Executive Officer. See "Chief Executive Officer Compensation"
below. If the Company exceeds its goals, such executive officers may receive a
maximum of up to 80% to 100% of their salary as their bonus and, conversely,
such officers may receive a reduced bonus or no bonus payment if the Company
does not attain the goals. Each employee's award, including for executive
officers, can be adjusted up or down by as much as 25% depending on individual
performance to allow the Company discretion in rewarding individual performance.
For 1997, the financial measures considered in the incentive compensation
program included net income, net cash flow, reserve replacement, total
shareholder return and economic value added from reserves. The total shareholder
return measure compared the Company's return relative to the return of the
companies in the Dow Jones Secondary Oil Industry published index. Financial
results were measured against predetermined target performance levels approved
by the Compensation Committee. The remaining portion of the awards was based on
the achievement of certain strategic objectives, which were performance-oriented
goals that directly supported the Company's overall business objectives, which
included the development of a risk
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balanced exploration portfolio, the initiation of a significant industry
project, the development of enhanced production ventures, the acquisition of
producing or developing reserves and the control of cash operating costs and
expenses. The accomplishment of such measures and objectives, as well as other
significant growth initiatives achieved during the year, was evaluated by the
Chief Executive Officer. The results of this evaluation were reflected in a
recommended award for each employee, including executive officers.
All employees, including the executive officers, received a bonus on the
basis of percentage award levels previously approved by the Compensation
Committee at its January 1997 meeting. In certain cases, an award to an
employee, including an officer, was adjusted upward or downward by senior
management, as much as 25% in either direction, to allow senior management
discretion in rewarding performance. These adjustments were subject to approval
by the Chief Executive Officer, and with respect to adjustments to awards for
officers, approval by the Compensation Committee. The Chief Executive Officer
reviewed all of the calculated awards for certain key salaried employees,
including officers, adjusted such awards as he deemed appropriate and reviewed
with the Compensation Committee at the February 1998 meeting a list of
recommended awards for all officers of the Company. Bonuses as a percentage of
salary ranged from 61% to 65% for each of the officers named in the Summary
Compensation Table, excluding the Chief Executive Officer. See "Chief Executive
Officer Compensation" below. Such awards were above target because the Company
on a weighted completion basis exceeded its financial measures and strategic
objectives in 1997. The awards resulted in total cash compensation (base salary
plus bonus) for executive officers generally reflective of the 65th percentile
of comparable companies.
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 Committees 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. 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. See "Election of Directors -- Director Compensation."
On October 23, 1997, the Committees granted a total of 1,613,200 stock
options pursuant to the 1994 Incentive Plan, which plan was previously approved
by the 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 1997 Table. The option exercise price is
equal to the fair market value of the stock on October 23, 1997, the date of the
grants. The 1997 option grants vest at a rate of 25% per year beginning one year
after the grant date.
Consistent with the Company's objective that each employee's total direct
compensation be well above the market median, the Committees' overall stock
option grant guidelines for employees, including officers were generally to
position grants at the 75th percentile of the competitors. At its October 1997
meeting, the Committees reviewed a September 1997 update of the Consultant Study
and analyzed the executive compensation program. The results of the updated
study indicated that the officers total direct compensation levels were
generally competitive with the 65th percentile of the market. A history of stock
options granted to officers from 1985 to such October 1997 meeting was also
provided. The number of shares subject to option grants varied based on job
grade classification. In recognition of the success of the Company in
implementing the Company's growth strategies, the 1997 stock option grants were
at the market 75th percentile, except for the Chief Executive Officer. See
"Chief Executive Officer Compensation" below.
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Consistent with the Company's philosophy that compensation should be
significantly aligned to stockholder value, the Committees have proposed the
Amended 1994 Plan for stockholder approval. See "Proposal 3 -- Approval of
Proposed Amendment to 1994 Incentive Plan." A copy of the plan document is
provided as Appendix A to this Proxy Statement. The proposed amendment increases
the number of shares of Common Stock available for award from four million to a
total of eight million. If the Amended 1994 Plan is approved by the
stockholders, grants of stock options or other awards will allow the Committees
to continue to use stock options under such plan as a long-term incentive to
motivate, attract and retain high-quality executive talent.
STOCK OWNERSHIP PHILOSOPHY
To further strengthen the tie between directors, key executive officers and
the long-term interests of stockholders, the Compensation Committee at its May
1997 meeting approved a program designed to build stock ownership among the
directors and key executive officers. The various aspects of the program are
discussed below.
First, stock ownership guidelines were established for officers and
Eligible Directors. See "Election of Directors -- Director Compensation."
Guidelines for the Chief Executive Officer were set at three times his annual
salary, and for other officers at two or one times their annual salary,
depending on position, with the expectation that the executives would attain
their respective ownership levels within a five year period. The guidelines and
each officer's individual ownership level in relationship with the guidelines
are reviewed with the Compensation Committee annually. As of December 31, 1997,
each of the executive officers in the Summary Compensation Table, except the
Chief Executive Officer and Chief Financial Officer, have met the applicable
guidelines; however, as of the date of this report, the Chief Executive Officer
has met the guidelines with the deferral of his 1997 incentive bonus into
restricted shares of the Company's Common Stock pursuant to the Deferred Plan.
See "Chief Executive Officer Compensation" below.
Second, the Committees approved the adoption of a non-qualified deferred
compensation plan (the "Deferred Plan") to provide the opportunity for directors
to defer up to 100% of their annual retainer fee in increments of 25% (see
"Election of Directors -- Director Compensation"), officers and certain key
employees to defer up to 50% of their base salaries in increments of 10% and key
employees, including officers, to defer up to 100% of their annual incentive
awards in increments of 25%. In addition, to provide more opportunities to build
personal stock ownership, officers, key employees and directors are eligible to
defer a portion or all of their annual incentive award and annual retainer fee,
respectively, into restricted shares of the Company's Common Stock. Restrictions
on the shares of stock received lapse at a rate no more quickly than 25% per
year from the award date. In addition to the restricted share option election,
participants in the Deferred Plan are allowed to select one of the following
interest accrual options: Company phantom stock account, mutual funds program
account or an interest account. A trust was established to secure these deferred
compensation amounts. Any assets placed in the trust will remain subject to the
general unsecured creditors of the Company. Currently, Mr. Whitmire has elected
to participate in the Deferred Plan for 1998.
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 ten 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
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<PAGE> 31
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 1997 were $214,985.07, and 1997 contributions of $214,985.07 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 currently will match a maximum of $10,000 of gifts by employees and
directors 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 1997
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. Stock options granted under the 1992 Stock Option
Plan and the 1994 Incentive Plan are intended to qualify for exemption from the
cap. To the extent a committee has discretion in its decision making that is not
permissible under the Code, certain awards such as annual incentive bonuses will
not meet the requirement of deductibility under the Code. The Committees intend
to continue 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
Mr. Whitmire participates in the same compensation program as do the other
executives of the Company. 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. Whitmire's annual base salary remained at $600,000 for 1997 and
his annual cash bonus target under the Company's incentive compensation program
was 70% of his base salary. On October 23, 1997, Mr. Whitmire was granted
options to purchase 175,000 shares of Common Stock at $23.03125 per share under
the 1994 Incentive Plan. Such grant was above the 75th percentile of the market
to reflect his significant contribution to the Company over the past year in
advancing the various growth strategies of the Company. Mr. Whitmire currently
owns 85,388 shares of Company Common Stock and has been granted a total of
520,000 stock options. See "Voting Securities and Certain Beneficial Owners" and
"Executive Compensation and Other Information -- Option/SAR Exercises and
Holdings." Mr. Whitmire also will receive a special supplemental benefit to
ensure that he receives compensation for any loss of total pension benefit as a
result of his early retirement from his former employer to become the Chief
Executive Officer of the Company.
Mr. Whitmire's discretionary annual incentive bonus for 1997 was $600,000,
which was 100% of his base salary and approximated 50% of his combined bonus and
salary compensation for 1997. His annual incentive compensation was based on the
achievement of financial and strategic objectives by the Company, as described
above. The Compensation Committee evaluated the attainment of the Company's
financial and strategic objectives and approved Mr. Whitmire's 1997 bonus. His
award was above target because the Company exceeded on a weighted completion
basis its financial measures and strategic objectives in 1997. The Committee
also approved an upward adjustment to his award to reward Mr. Whitmire's
performance over the past year. Mr. Whitmire elected to defer all of his 1997
incentive bonus into restricted shares of Common
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Stock pursuant to the Deferred Plan. Also, Mr. Whitmire participated in the
Supplemental Savings Plan as reflected in the Summary Compensation Table. Mr.
Whitmire's compensation in excess of $1 million for 1997 did not qualify for
deductibility under the provisions of Section 162(m) of the Code. Since the
Compensation Committee applied discretion to its decision making for 1997 awards
that is not permissible under the Code, its annual incentive bonus to Mr.
Whitmire 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. Although the excess
amount was not deductible, it was not material.
The report of the Committees 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
Section 16 Committee:
Glenn A. Cox
Richard R. Shinn
February 26, 1998
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 25.6% 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 1997, KKR was paid $748,943 for such financial advisory
services pursuant to this Consulting Agreement. See "Voting Securities and
Certain Beneficial Owners."
STOCKHOLDER PROPOSALS
To be considered for inclusion in the Company's Proxy Statement relating to
the 1999 Annual Meeting of Stockholders, a stockholder proposal must be received
in proper form at the Company's principal executive office no later than
November 24, 1998, 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, including
one that is not the subject of a proposal timely submitted for inclusion in the
Company's proxy statement.
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, 1997, 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 -- INVESTOR RELATIONS, UNION TEXAS PETROLEUM HOLDINGS,
INC., 1330 POST OAK BLVD., HOUSTON, TEXAS 77056. Upon the payment of the
Company's
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<PAGE> 33
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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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,
1997, its officers, directors and greater-than-10% beneficial owners complied
with all applicable Section 16(a) filing requirements.
By Order of the Board of Directors
/s/ AMY J. WATKINS
AMY J. WATKINS
Secretary
Houston, Texas
March 24, 1998
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APPENDIX A
UNION TEXAS PETROLEUM HOLDINGS, INC.
1994 INCENTIVE PLAN
(AS AMENDED AND RESTATED)
SECTION 1. Purpose of the Plan.
The Union Texas Petroleum Holdings, Inc. 1994 Incentive Plan (the "Plan")
is intended to promote the interests of Union Texas Petroleum Holdings, Inc., a
Delaware corporation (the "Company"), by encouraging employees of the Company,
its subsidiaries and affiliated entities, and non-employee directors of the
Company to acquire or increase their equity interest in the Company and to
provide a means whereby employees may develop a sense of proprietorship and
personal involvement in the development and financial success of the Company,
and to encourage them to remain with and devote their best efforts to the
business of the Company thereby advancing the interests of the Company and its
shareholders. The Plan is also contemplated to enhance the ability of the
Company, its subsidiaries and affiliated entities to attract and retain the
services of individuals who are essential for the program, growth and
profitability of the Company.
SECTION 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth
below:
"Affiliate" shall mean (i) any entity that, directly or through one or
more intermediaries, is controlled by the Company and (ii) any entity in
which the Company has a significant equity interest, as determined by the
Committee.
"Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Performance Award, Stock Compensation Award, Deferred Shares, Bonus
Shares, Other Stock-Based or Cash Award.
"Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Bonus Shares" shall mean an award of Shares granted pursuant to
Section 6(e) of the Plan.
"Cash Award" shall mean an award payable in cash granted pursuant to
Section 6(g) of the Plan.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations thereunder.
"Committee" shall mean the Organization and Compensation Committee of
the Board.
"Covered Employees" shall have the meaning specified in Section
162(m)(3) of the Code.
"Deferred Shares" shall mean an Award of the right to receive Shares
issued at the end of a Restricted Period which is granted pursuant to
Section 6(f) of the Plan.
"Disability" shall mean (i) with respect to an Employee, becoming
permanently disabled under the standards of the Company's or Affiliate's
long-term disability program as determined by the Committee or (ii) with
respect to an Eligible Director, inability to perform duties and services
as a director of the Company by reason of a medically determinable physical
or mental impairment supported by medical evidence which in the opinion of
the Committee can be expected to result in death or which can be expected
to last for a continuous period of not less than twelve (12) months.
"Eligible Director" shall mean a director of the Company who is not
(i) an Employee or (ii) a general partner, limited partner or employee of
Kohlberg Kravis Roberts & Co.
"Employee" shall mean any employee of the Company or of any Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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"Fair Market Value" shall mean the fair market value of the property
or other item being valued, as determined by the Committee. With respect to
Shares, if the Shares are traded on a national stock exchange, the fair
market value of a Share on a particular date shall be equal to the average
of the reported high and low sales prices of the Share on such exchange on
that date, or if no prices are reported on that date, on the last preceding
date on which such prices of the Share are so reported. If the Shares are
publicly traded but are not traded on a national stock exchange at the time
a determination of its fair market value is required to be made hereunder,
its fair market value shall be deemed to be equal to the average between
the closing bid and asked price of the Share on the most recent date the
Shares were publicly traded. In the event the Shares are not publicly
traded at the time a determination of its fair market value is required to
be made hereunder, the determination of fair market value shall be made in
good faith by the Committee.
"Incentive Stock Option" or "ISO" shall mean an option granted under
Section 6(a) of the Plan that is intended to qualify as an "incentive stock
option" under Section 422 of the Code or any successor provision thereto.
"Non-Qualified Stock Option" or "NQO" shall mean an option granted
under Sections 6(a) or 6(h) of the Plan that is not intended to be an
Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
"Other Stock-Based Award" shall mean any right granted under Section
6(g) of the Plan.
"Participant" shall mean any individual granted an Award under the
Plan. Any other provisions hereof to the contrary notwithstanding, no
Eligible Director may receive benefits under this Plan except for
Non-Qualified Stock Options as provided in Section 6(h).
"Performance Award" shall mean any right granted under Section 6(d) of
the Plan.
"Person" shall mean individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or
political subdivision thereof or other entity.
"Restricted Period" shall mean the period established by the Committee
with respect to an Award during which the Award either remains subject to
forfeiture or is not exercisable by the Participant.
"Restricted Stock" shall mean any Share, prior to the lapse of
restrictions thereon, granted under Section 6(c) of the Plan.
"Retirement" shall mean (i) with respect to an Employee, retirement as
determined by the Committee, and (ii) with respect to an Eligible Director,
termination of service as a director or honorary director, after at least
five (5) years of continuous service.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the SEC under the
Exchange Act, or any successor rule or regulation thereto as in effect from
time to time.
"SEC" shall mean the Securities and Exchange Commission, or any
successor thereto.
"Section 16 Committee" shall mean a committee consisting of two or
more members of the Board, each of whom satisfy the requirements of the
definition of a "non-employee director" under Rule 16b-3.
"Shares" or "Common Shares" or "Common Stock" shall mean the common
stock of the Company, $0.05 par value, and such other securities or
property as may become the subject of Awards or become subject to Awards
pursuant to an adjustment made under Section 4(c) of the Plan.
"Stock Appreciation Right" or "Right" shall mean any right to receive
the appreciation of Shares granted under Section 6(b) of the Plan.
"Stock Compensation" shall mean any right granted under Section 6(e)
of the Plan.
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"Substitute Award" shall mean Awards granted in assumption of, or in
substitution for, outstanding awards previously granted by (i) a company
acquired by the Company or one or more of its Affiliates, or (ii) a company
with which the Company or one or more of its Affiliates combines.
SECTION 3. Administration.
The Plan shall be administered by the Committee, which Committee shall
consist of at least two members. A majority of the Committee shall constitute a
quorum, and the acts of the members of the Committee who are present at any
meeting thereof at which a quorum is present, or acts unanimously approved by
the members of the Committee in writing, shall be the acts of the Committee.
Subject to the terms of the Plan and applicable law, and in addition to other
express powers and authorizations conferred on the Committee by the Plan, the
Committee shall have full power and authority to: (i) designate Participants;
(ii) determine the type or types of Awards to be granted to an eligible
Employee; (iii) determine the number of Shares to be covered by, or with respect
to which payments, rights, or other matters are to be calculated in connection
with, Awards; (iv) determine the terms and conditions of any Award; (v)
determine whether, to what extent, and under what circumstances Awards may be
settled or exercised in cash, Shares, other securities, other Awards or other
property, or canceled, forfeited, or suspended and the method or methods by
which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi)
determine whether, to what extent, and under what circumstances cash, Shares,
other securities, other Awards, other property, and other amounts payable with
respect to an Award shall be deferred either automatically or at the election of
the holder thereof or of the Committee; (vii) interpret and administer the Plan
and any instrument or agreement relating to, or Award made under, the Plan;
(viii) establish, amend, suspend, or waive such rules and regulations and
appoint such agents as it shall deem appropriate for the proper administration
of the Plan; and (ix) make any other determination and take any other action
that the Committee deems necessary or desirable for the administration of the
Plan. Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive, and binding upon all
Persons, including the Company, any Affiliate, any Participant, any holder or
beneficiary of any Award, any stockholder and any Employee. The provisions of
this Section 3 with respect to decisions made by, and authority of, the
Committee shall be subject to the controlling provisions of Section 6(h).
Notwithstanding the foregoing, the Section 16 Committee shall have full power
and authority to take any of the actions described in clauses (i) through (ix)
above and any other action necessary or desirable to ensure compliance with the
requirements of, and to provide the exemption of transactions under the Plan
pursuant to, Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder, and further, to ensure compliance with the requirements
of Section 162(m) of the Code and the rules and regulations promulgated
thereunder, to the extent Awards are intended to qualify thereunder. References
in the Plan to the "Committee" shall mean the "Section 16 Committee" when it is
necessary or desirable that such action be taken by the Section 16 Committee and
not by the Committee to satisfy such objectives.
SECTION 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in Section 4(c),
the number of Shares with respect to which Awards may be granted under the Plan
shall be 8,000,000. If, after the effective date of the Plan, any Shares covered
by an Award granted under the Plan, or to which such an Award relates, are
forfeited, or if an Award otherwise terminates or is canceled without the
delivery of Shares or of other consideration, then the Shares covered by such
Award, or to which such Award relates, or the number of Shares otherwise counted
against the aggregate number of Shares with respect to which Awards may be
granted, to the extent of any such forfeiture, termination or cancellation,
shall again be, or shall become, to the extent permissible under Rule 16b-3,
Shares with respect to which Awards may be granted. In the event that any Option
or other Award granted hereunder is exercised through the delivery of Shares,
the number of Shares available for Awards (other than an Incentive Stock Option)
under the Plan shall be increased by the number of Shares surrendered, to the
extent permissible under Rule 16b-3. Notwithstanding the foregoing, no more than
2,400,000 Shares available for Awards shall be issued as Restricted Stock.
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(b) Sources of Shares Deliverable Under Awards. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
(c) Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such
that an adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee shall, in such manner as
it may deem equitable, adjust any or all of (i) the number and type of Shares
(or other securities or property) with respect to which Awards may be granted,
(ii) the number and type of Shares (or other securities or property) subject to
outstanding Awards, and (iii) the grant or exercise price with respect to any
Award or, if deemed appropriate, make provision for a cash payment to the holder
of an outstanding Award; provided, in each case, that with respect to Awards of
Incentive Stock Options and Awards intended to qualify as performance based
compensation under Section 162(m)(4)(C) of the Code, no such adjustment shall be
authorized to the extent that such authority would cause the Plan to violate
Section 422(b)(1) of the Code or would cause such Award to fail to so qualify
under Section 162(m) of the Code, as the case may be, or any successor
provisions thereto; and provided, further, that the number of Shares subject to
any Award denominated in Shares shall always be a whole number.
SECTION 5. Eligibility.
Eligible Directors shall be granted Awards only pursuant to Section 6(h) of
the Plan. All Employees shall be eligible to be designated a Participant for
Awards under the Plan, other than Awards granted pursuant to Section 6(h) to
Eligible Directors. However, no Employee under this Plan may receive in any
calendar year Stock Options and/or Rights that, in the aggregate, are with
respect to more than 500,000 Shares (tandem Awards shall be deemed to be one
Award for this purpose).
SECTION 6. Awards.
(a) Options. Subject to the provisions of the Plan, the Committee shall
have authority to determine the Employees to whom Options shall be granted, the
number of Shares to be covered by each Option, the purchase price therefor and
the conditions and limitations applicable to the exercise of the option
including the following terms and conditions and such additional terms and
conditions, as the Committee shall determine are not inconsistent with the
provisions of the Plan.
(i) Exercise Price. The purchase price per Share purchasable under an
Option shall be determined by the Committee at the time each Option is
granted; provided, however, that the purchase price per Share shall not be
less than 100% of the Fair Market Value on the date of grant, except in the
case of Options that are Substitute Awards.
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, and
the method or methods by which, and the form or forms (which may include,
without limitation, cash, Shares, outstanding Awards, Shares that would
otherwise be acquired upon exercise of the Option, other securities or
other property, or any combination thereof, having a Fair Market Value on
the exercise date equal to the relevant exercise price) in which payment of
the exercise price with respect thereto may be made or deemed to have been
made. Pursuant to Section 7(b) of the Plan, the Committee may, at its
discretion, accelerate the time at which Options may be exercised and
otherwise modify the time or methods of exercise of the Options.
(iii) Incentive Stock Options. The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the provisions of
Section 422 of the Code, or any successor provision, and any regulations
promulgated thereunder. Incentive Stock Options may be granted only to
employees of the Company and its "subsidiaries" within the meaning of
Section 424(f) of the Code.
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(b) Stock Appreciation Rights. Subject to the provisions of the Plan, the
Committee shall have authority to determine the Employees to whom Stock
Appreciation Rights shall be granted, the number of Shares to be covered by each
Stock Appreciation Right Award, the grant price thereof and the conditions and
limitations applicable to the exercise thereof. A Stock Appreciation Right may
be granted in tandem with another Award, in addition to another Award, or
freestanding and unrelated to another Award. A Stock Appreciation Right granted
in tandem with or in addition to another Award may be granted either at the same
time as such other Award or at a later time.
(i) Grant Price. The grant price of a Stock Appreciation Right shall
be determined by the Committee; provided, however, that the grant price
shall not be less than 100% of the Fair Market Value on the date of grant
or on the date of original grant of any related Award, except in the case
of Stock Appreciation Rights that are Substitute Awards.
(ii) Other Terms and Conditions. Subject to the terms of the Plan and
any applicable Award Agreement, the Committee shall determine, at or after
the grant of a Stock Appreciation Right, the term, methods of exercise,
methods of settlement, and any other terms and conditions of any Stock
Appreciation Right. Any such determination by the Committee may be changed
by the Committee from time to time and may govern the exercise of Stock
Appreciation Rights granted or exercised prior to such determination as
well as Stock Appreciation Rights granted or exercised thereafter. The
Committee may impose such conditions or restrictions on the exercise of any
Stock Appreciation Right as it shall deem appropriate.
(c) Restricted Stock. Subject to the provisions of the Plan, the Committee
shall have authority to determine the Employees to whom Restricted Stock shall
be granted, the number of Shares of Restricted Stock to be granted to each such
Participant, the duration of the Restricted Period during which, and the
conditions under which, the Restricted Stock may be forfeited to the Company,
and the other terms and conditions of such Awards.
(i) Dividends. Unless otherwise determined by the Committee,
Restricted Stock Awards shall provide for the payment of dividends during
the Restricted Period. Any Restricted Stock Award may require that any or
all dividends or other distributions paid on the Restricted Stock during
the Restricted Period be automatically sequestered and held in a
bookkeeping cash account (with or without interest) or reinvested on an
immediate or deferred basis in additional shares of Common Stock, which
credit or shares may be subject to the same restrictions as the underlying
Award or such other restrictions as the Committee may determine. Dividends
paid on Restricted Stock may be paid directly to the Participant, may be
subject to risk of forfeiture and/or transfer restrictions during any
period established by the Committee, all as determined by the Committee in
its discretion.
(ii) Registration. Any Restricted Stock may be evidenced in such
manner as the Committee shall deem appropriate, including, without
limitation, book-entry registration or issuance of a stock certificate or
certificates. In the event any stock certificate is issued in respect of
Restricted Stock granted under the Plan, such certificate shall be
registered in the name of the Participant and shall bear an appropriate
legend referring to the terms, conditions, and restrictions applicable to
such Restricted Stock.
(iii) Forfeiture and Restrictions Lapse. Except as otherwise
determined by the Committee or the terms of the Award that granted the
Restricted Stock, upon termination of a Participant's employment (as
determined under criteria established by the Committee, including, without
limitation, in the Committee's discretion, goals described under Section
6(d)(i)) for any reason during the applicable Restricted Period, all
Restricted Stock shall be forfeited by the Participant and re-acquired by
the Company. The Committee may, when it finds that a waiver would be in the
best interests of the Company and not cause such Award, if it is intended
to qualify as performance based compensation under Section 162(m) of the
Code, to fail to so qualify under Section 162(m) of the Code, waive in
whole or in part any or all remaining restrictions with respect to such
Participant's Restricted Stock. Unrestricted Shares, evidenced in such
manner as the Committee shall deem appropriate, shall be issued to the
holder of Restricted Stock promptly after the applicable restrictions have
lapsed or otherwise been satisfied.
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(iv) Transfer Restrictions. During the Restricted Period, Restricted
Stock will be subject to the limitations on transfer as provided in Section
6(i)(iii).
(d) Performance Awards. The Committee shall have authority to determine the
Employees who shall receive a Performance Award, which shall (A) consist of a
right, denominated or payable in cash, Shares, Deferred Shares, other securities
or other property (including, without limitation, Restricted Stock, or any
combination thereof), and (B) confer on the holder thereof rights valued as
determined by the Committee and payable to, or exercisable by, such holder, in
whole or in part, upon the achievement of such performance goals during such
performance periods as the Committee shall establish.
(i) Terms and Conditions. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the performance
goals to be achieved during any performance period, the length of any
performance period, the amount of any Performance Award and the amount of
any payment or transfer to be made pursuant to any Performance Award.
Without limiting the generality of the foregoing, it is intended that the
Committee may establish performance goals applicable to Performance Awards
granted to Participants who, in the judgment of the Committee, may be
Covered Employees in such a manner as shall permit payments with respect
thereto to qualify as "performance-based compensation" as described in
Section 162(m)(4)(C) of the Code. It is specifically provided that the
material terms of such performance goals for Participants who, in the
judgment of the Committee, may be Covered Employees, shall, until changed
by the Committee with the approval of the stockholders, if such stockholder
approval is required by the Code, be as follows: (x) the business criteria
on which the performance goals shall be based shall be the attainment of
such target levels of either net income, cash flows, reserve additions or
revisions, economic value added from reserves, total capitalization, total
shareholder return, assets, exploration successes, production volumes,
finding and development costs, costs reductions and savings, reportable
incidents in safety or environmental matters, return on sales, profit
margin, earnings per share or strategic or personal objectives tied to the
foregoing, operational studies, implementing policies and plans,
negotiating transactions and sales, developing long-term business goals,
managerial responsibilities and assessments as may be specified by the
Committee; and (y) the maximum amount of compensation that may be paid to
any one Participant with respect to any one year shall be $1.5 million
under an annual performance bonus Award and $1.5 million under a long-term
Award with a performance period longer than one fiscal year.
(ii) Payment of Performance Awards. Performance Awards may be paid in
a lump sum or in installments following the close of the performance period
or, in accordance with procedures established by the Committee, on a
deferred basis.
(e) Stock Compensation and Bonus Shares.
(i) Stock Compensation. The Committee shall have the authority, in its
discretion, to pay in Shares all, or such portion as it shall determine, of
amounts payable (x) under any Award of the Plan, other than Performance
Awards payable in cash as a short term annual incentive or Cash Awards
granted in tandem with Restricted Stock or (y) if requested by an Employee,
under any compensation program of the Company. The number and type of
Shares to be distributed in lieu of the cash compensation to which an
Employee would otherwise be entitled, as well as the terms and conditions
of any such bonus awards, shall be determined by the Committee.
(ii) Bonus Shares. The Committee may also grant Bonus Shares to
eligible Employees. Each Bonus Share shall constitute a transfer of Common
Shares to the Participant, without other payment therefor, as additional
compensation for the Participant's services to the Company.
(f) Deferred Shares. The Committee may also grant Awards of Deferred Shares
to eligible Employees upon such terms and conditions as the Committee may
determine.
(i) Terms and Conditions. Each Deferred Share award shall constitute
an agreement by the Company to issue or transfer a specified number of
Shares to the Participant in the future, subject to the fulfillment during
the Restricted Period of such conditions, including performance objectives
or, as
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described in Section 6(d)(i), performance goals, if any, as the Committee
may specify at the date of grant. During the Restricted Period, the
Participant shall not have any right to transfer any rights under the
subject Award, shall not have any rights of ownership in the Deferred
Shares and shall not have any right to vote such shares.
(ii) Dividends. Any Deferred Share award may provide that any or all
dividends or other distributions paid on Shares during the Restricted
Period be credited in a cash bookkeeping account (without interest) or that
equivalent additional Deferred Shares be awarded, which account or shares
may be subject to the same restrictions as the underlying Award or such
other restrictions as the Committee may determine.
(g) Other Stock-Based and Cash Awards.
(i) Other Stock Based Awards. The Committee is hereby authorized to
grant to eligible Employees an "Other Stock-Based Award," which shall
consist of a right (i) which is not an Award or right described in Section
6(a), (b), (c), (d), (e) or (f) above and (ii) which is denominated or
payable in, valued in whole or in part by reference to, or otherwise based
on or related to, Shares (including, without limitation, securities
convertible into Shares) as are deemed by the Committee to be consistent
with the purposes of the Plan; provided, that any such rights must comply,
to the extent deemed desirable by the Committee, with Rule 16b-3 and
applicable law. Subject to the terms of the Plan and any applicable Award
Agreement, the Committee shall determine the terms and conditions of any
such Other Stock-Based Award.
(ii) Cash Awards. Subject to the provisions of the Plan, the Committee
shall have authority to determine the Employees to whom Cash Awards shall
be granted, the amount, and the terms or conditions, if any, as additional
compensation for the Employee's services to the Company or its Affiliates.
A Cash Award may be granted (simultaneously or subsequently) in tandem with
another Award and may entitle a Participant to receive a specified amount
of cash from the Company upon such other Award becoming taxable to the
Participant, which cash amount may be based on a formula relating to the
anticipated taxable income associated with such other Award and the payment
of the Cash Award or other terms determined by the Committee.
(h) Awards to Eligible Directors.
(i) Initial Granting of Options. Subject to stockholder approval of
the Plan pursuant to Section 10, and to the limitation of the number of
shares of Stock set forth in Section 4(a), each Eligible Director who is
elected or appointed to the Board for the first time on or after the
effective date of this Plan amendment shall receive, as of the date of his
or her election or appointment and without the exercise of the discretion
of any person or persons, a Non-Qualified Stock Option exercisable for
5,000 shares of Stock (subject to adjustment in the same manner as provided
in Section 7 hereof with respect to shares of Stock subject to Options then
outstanding). Any nominee Eligible Director may make an irrevocable
election in advance of election not to receive an option pursuant to this
Section 6(h)(i).
(ii) Annual Granting of Options. Subject to stockholder approval of
the Plan pursuant to Section 10, and to the limitation of the number of
shares of Stock set forth in Section 4(a), as of the date of the annual
meeting of the stockholders of the Company in each year that the Plan is in
effect as provided in Section 11 hereof (commencing with the 1998 annual
meeting of stockholders), each Eligible Director who is in office
immediately after such meeting and who is not then entitled to receive an
Option pursuant to the preceding provisions of this Section 6(h) shall
receive, without the exercise of the discretion of any person or persons, a
Non-Qualified Stock Option exercisable for 3,000 shares of Stock (subject
to adjustment in the same manner as provided in Section 7 hereof with
respect to shares of Stock subject to Options then outstanding). Any
Eligible Director may make an irrevocable election in advance not to
receive an option pursuant to this Section 6(h)(ii).
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(iii) Other Terms and Conditions. The following provisions are
applicable to Options granted pursuant to Sections 6(h)(i) and (ii):
A. Options shall be exercisable on the day following the date of
grant.
B. The purchase price of a Share covered under an Option granted
under this Section 6(h) shall be the Fair Market Value of a Share on the
date of grant.
C. The Option may be exercised in full at one time or in part from
time to time by giving written notice, signed by the optionee exercising
the Option, to the Company, stating the number of Shares with respect to
which the Option is being exercised, accompanied by payment in full for
such Shares, which payment may be in whole or in part in Shares of the
Company already owned by said optionee, valued at Fair Market Value;
provided, however, that (i) no Option shall be exercisable after ten
(10) years from the date on which it was granted, and (ii) there shall
be no such exercise at any one time for fewer than one hundred (100)
Shares or for all of the remaining Shares then purchasable by the
optionee exercising the Option, if fewer than one hundred (100) Shares.
D. Each Option shall expire ten (10) years from the date of grant
thereof, but shall be subject to earlier termination as follows.
Options, to the extent exercisable as of the date an Eligible Director
optionee ceases to serve as a director of the Company, must be exercised
within six months of such date unless such event results from death,
Disability or Retirement, in which case Options may be exercised by the
optionee, the optionee's legal representative, heir or devisee, as the
case may be, within two (2) years from the date of death or Disability
and within three (3) years from the date of Retirement; provided,
however, that no such event shall extend the normal expiration date of
such Options.
E. Upon exercise of the Option, subject to paragraph F below,
delivery of a certificate for fully paid and nonassessable Shares shall
be made either at the corporate office of the Company in Houston, Texas
to the optionee exercising the Option at such time during ordinary
business hours after fifteen (15) days but not more than thirty (30)
days from the date of receipt of the notice by the Company as shall be
designated in such notice, or at such time, place and manner as may be
agreed upon by the Company and the optionee exercising the Option.
F. Until the earlier to occur of the following events (i) the
Eligible Director no longer serves as a director of the Company for any
reason, (ii) a Change in Control, (iii) the approval by the Company's
stockholders of a merger or consolidation or (iv) a tender offer for the
Common Stock of the Company ("Termination of Restriction"), except as
provided below, the Shares received by the Eligible Director upon the
exercise of an Option granted pursuant to Section 6(h)(i) and (ii) shall
not be subject to disposition by the Eligible Director, by sale,
transfer, alienation, anticipation, pledge, encumbrance, assignment or
any other means whether such disposition be voluntary or involuntary or
by operation of law by judgment, levy, attachment, garnishment or any
other legal or equitable proceeds (including bankruptcy), and any
attempted disposition thereof, shall be null and void and of no effect;
provided, however, that nothing in this Section 6(h)(iii)F shall prevent
transfer by will, the applicable laws of descent and distribution or
pursuant to a qualified domestic relations order or the disposition of
Shares in an amount necessary to pay applicable taxes that become
payable as a result of the exercise of the Option. The certificates
evidencing the Shares may bear a legend restricting or incorporating the
restrictions, and the Company may cause the certificates to be delivered
upon issuance to the Secretary of the Company or such other depositary
as may be designated by the Company as a depositary for safe-keeping
until Termination of Restriction. Upon Termination of Restriction, the
Company will cause a new certificate or certificates to be issued
without legend in the name of such former director.
G. Notwithstanding the foregoing, an Option or the Shares received
by the Eligible Director upon the exercise of an Option may be
transferred (in whole or in part) by the Eligible Director to (i) the
spouse, children or grandchildren of the Eligible Director ("Immediate
Director Family Members"), (ii) a trust or trust for the exclusive
benefit of the Immediate Director Family
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Members and, if applicable, the Eligible Director, (iii) a partnership,
limited liability company or other entity in which such Immediate
Director Family Members and, if applicable, the Eligible Director are
the only partners, members or stockholders, (iv) an organization
described under Section 501(c)(3) of the Code and which is a private
foundation within Section 509(a) of the Code or any trust the only
beneficiary (other than an Immediate Family Member and if applicable,
the Eligible Director) of which is an organization described under
Section 501(c)(3) of the Code and which organization is a private
foundation within Section 509(a) of the Code, or (v) to other persons or
entities as approved by the Board. Following transfer, any such Option
or Shares shall continue to be subject to the same terms and conditions
as were applicable to the Option or Shares immediately prior to
transfer.
(iv) Notwithstanding anything in the Plan to the contrary, an Eligible
Director shall be ineligible to receive a grant provided for in Section
6(h) if as of the date of such grant the director (i) is an employee of the
Company or any Affiliate or (ii) has been an employee of the Company or any
Affiliate for any part of the calendar year preceding the calendar year in
which such a grant is to be made.
(v) In the event that the number of Shares available for grants under
the Plan is insufficient to make all grants provided for in this Section
6(h) hereby made on the applicable date, then all Eligible Directors who
are entitled to a grant on such date shall share ratably in the number of
Shares then available for grant under the Plan, and shall have no right to
receive a grant with respect to the deficiencies in the number of available
Shares and the grants under this Section 6(h) shall terminate.
(vi) Except as expressly provided in this Section 6(h) grants made
pursuant to this Section 6(h) shall be subject to the terms and conditions
of the Plan; however, if there is a conflict between the terms and
conditions of the Plan and this Section 6(h) then the terms and conditions
of this Section 6(h) shall control. The Committee may not exercise any
discretion with respect to this Section 6(h) which would be inconsistent
with the intent expressed in Section 6(h)(vii).
(vii) It is intended that the Plan meet the requirements of Rule 16b-3
and that any Eligible Director who is eligible to receive a grant or to
whom a grant is made pursuant to this Section 6 will not for such reason
cease to be a "non-employee director" within the meaning of Rule 16b-3 with
respect to the Plan and other stock related plans of the Company.
(viii) All Options under this Section 6(h) shall be evidenced by Award
Agreements.
(i) General.
(i) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in
tandem with, or in substitution for any other Award granted under the Plan
or any award granted under any other plan of the Company or any Affiliate.
Awards granted in addition to or in tandem with other Awards or awards
granted under any other plan of the Company or any Affiliate may be granted
either at the same time as or at a different time from the grant of such
other Awards or awards.
(ii) Forms of Payment by Company Under Awards. Subject to the terms of
the Plan and of any applicable Award Agreement, payments or transfers to be
made by the Company or an Affiliate upon the grant, exercise or payment of
an Award may be made in such form or forms as the Committee shall
determine, including, without limitation, cash, Shares, other securities,
other Awards or other property, or any combination thereof, and may be made
in a single payment or transfer, in installments, or on a deferred basis,
in each case in accordance with rules and procedures established by the
Committee. Such rules and procedures may include, without limitation,
provisions for the payment or crediting of reasonable interest on
installment or deferred payments.
(iii) Limits on Transfer of Awards.
(A) Except as provided in (C) below, each Award, and each right
under any Award, shall be exercisable only by the Participant during the
Participant's lifetime, or, if permissible under applicable law, by the
Participant's guardian or legal representative or by a transferee
receiving such
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Award pursuant to a qualified domestic relations order (a "QDRO") as
determined by the Committee.
(B) Except as provided in (C) below, no Award and no right under
any such Award may be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Participant otherwise than by
will or by the laws of descent and distribution (or, in the case of
Restricted Stock, to the Company) or pursuant to a QDRO and any such
purported assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate.
(C) The Committee may, in its discretion, adopt rules or guidelines
under which any Award (other than an Option intended to constitute an
Incentive Stock Option so long as transferability of an Incentive Stock
Option is prohibited by the Code) previously granted or to be granted to
a Participant may be transferred (in whole or in part pursuant to such
form as approved by the Company) by the Participant to (i) the spouse,
children or grandchildren of the Participant ("Immediate Family
Members"), (ii) a trust or trusts for the exclusive benefit of the
Immediate Family Members and, if applicable, the Participant, (iii) a
partnership, limited liability company or other entity in which such
Immediate Family Members and, if applicable, the Participant are the
only partners, members or stockholders, (iv) an organization described
under Section 501(c)(3) of the Code and which is a private foundation
within Section 509(a) of the Code or any trust the only beneficiary
(other than an Immediate Family Member and, if applicable, the
Participant) of which is an organization described under Section
501(c)(3) of the Code and which organization is a private foundation
within Section 509(a) of the Code, or (v) to other persons or entities
as approved by the Board or the Committee in its discretion. Following
transfer, any such Awards shall continue to be subject to the same terms
and conditions as were applicable to the Award immediately prior to
transfer; provided, however, that no transferred Award shall be
exercisable or payable, as the case may be, unless arrangements
satisfactory to the Company have been made to satisfy any tax
withholding obligations the Company may have with respect to the Award.
(iv) Term of Awards. The term of each Award (other than pursuant to
Section 6(h)) shall be for such period as may be determined by the
Committee; provided, that in no event shall the term of any Incentive Stock
Option Award exceed a period of ten years from the date of its grant.
(v) Share Certificates. All certificates for Shares or other
securities of the Company or any Affiliate delivered under the Plan
pursuant to any Award or the exercise thereof shall be subject to such stop
transfer orders and other restrictions as the Committee may deem advisable
under the Plan or the rules, regulations, and other requirements of the
SEC, any stock exchange upon which such Shares or other securities are then
listed, and any applicable Federal or state laws, and the Committee may
cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(vi) Consideration for Grants. Awards may be granted for no cash
consideration or for such consideration as the Committee determines
including, without limitation, such minimal cash consideration as may be
required by applicable law.
(vii) Delivery of Shares or other Securities and Payment by
Participant of Consideration. No Shares or other securities shall be
delivered pursuant to any Award until payment in full of any amount
required to be paid pursuant to the Plan or the applicable Award Agreement,
including satisfying all tax withholding obligations of the Company, is
received by the Company. Such payment may be made by such method or methods
and in such form or forms as the Committee shall determine, including,
without limitation, cash, Shares, other securities, other Awards or other
property, withholding of Shares, cashless exercise with simultaneous sale,
or any combination thereof; provided, that the combined value, as
determined by the Committee, of all cash and cash equivalents and the Fair
Market Value of any such Shares or other property so tendered to the
Company, as of the date of such tender, is at least equal to the full
amount required to be paid pursuant to the Plan or the applicable Award
Agreement to the Company.
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SECTION 7. Amendment and Termination.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan without the consent of any shareholder,
Participant, other holder or beneficiary of an Award, or other Person; provided,
however, that notwithstanding any other provision of the Plan or any Award
Agreement, without the approval of the stockholders of the Company no such
amendment, alteration, suspension, discontinuation, or termination shall be made
that would:
(i) increase the total number of Shares available for Awards under the
Plan, except as provided in Section 4(c) of the Plan;
(ii) permit Incentive Stock Options to be granted with per Share
grant, exercise or purchase prices of less than the Fair Market Value of a
Share on the date of grant thereof; or
(iii) result in this Plan no longer satisfying the requirements of
Rule 16b-3.
(b) Amendments to Awards. The Committee may waive any conditions or rights
under, amend any terms of, or alter any Award theretofore granted (other than
Awards granted pursuant to Section 6(h)), provided no change in any Award, other
than pursuant to Section 7(c), shall reduce the benefit to Participant without
the consent of such Participant. Notwithstanding the foregoing, with respect to
any Award intended to qualify as performance-based compensation under Section
162(m) of the Code, no adjustment shall be authorized to the extent such
adjustment would cause the Award to fail to so qualify.
(c) Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make adjustments in
the terms and conditions of, and the criteria included in, Awards in recognition
of unusual or nonrecurring events (including, without limitation, the events
described in Section 4(c) of the Plan) affecting the Company, any Affiliate, or
the financial statements of the Company or any Affiliate, or of changes in
applicable laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan. Notwithstanding the foregoing, with respect to any Award
intended to qualify as performance-based compensation under Section 162(m) of
the Code, no adjustment shall be authorized to the extent such adjustment would
cause the Award to fail to so qualify.
SECTION 8. Change in Control.
(a) In addition to the Committee's authority set forth in Section 7(c) of
the Plan, in order to maintain the Participants' rights in the event of any
Change in Control, as hereinafter defined, the Committee, as constituted before
such Change in Control, is hereby authorized and directed to provide for the
acceleration of any time periods relating to the exercise or realization of all
Awards so that such Award may be exercised or realized in full, and has sole
discretion, as to any Award, either at the time such Award is made hereunder or
any time thereafter, to take any one or more of the following actions: (i)
provide for the purchase of any such Award, either automatically or upon the
Participant's request, for an amount of cash equal to the amount that could have
been attained upon the exercise of such Award or realization of the
Participant's rights had such Award been currently exercisable or payable; (ii)
make such adjustment to any such Award then outstanding as the Committee deems
appropriate to reflect such Change in Control; or (iii) if equitable and in the
best interests of the Company and its stockholders, cause (x) any such Award
then outstanding to be assumed, or new rights substituted therefor, by the
acquiring or surviving corporation after such Change in Control or (y) the
exercise period for any such Award then outstanding to terminate on a fixed date
following such Change in Control provided the Participant receives written
notice of such event and the fixed date at least twenty days prior to the
effective date of such Change in Control. The Committee may, in its discretion,
include such further provisions and limitations in any Award Agreement as it may
deem equitable and in the best interests of the Company and its stockholders.
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<PAGE> 45
(b) A "Change in Control" shall be deemed to occur (i) if any person or
persons or entity or entities (other than Petroleum Associates, L.P., KKR
Partners II, L.P. and any entity controlling, controlled by or under common
control with any such entities, separately or in the aggregate ("KKR")) acquires
75% or more of the assets of the Company or a successor of the Company or such
successor's parent corporation (based upon the then current fair market value
thereof) or 50% or more of the Company's then outstanding voting stock or a
successor's or such successor's parent corporation's then outstanding voting
securities, and, if there shall be more than one class of voting securities
thereof, then of the combined voting power held by all classes of voting
securities of the Company, a successor corporation or its parent corporation
(whether such acquisition of stock or assets occurs pursuant to a single
transaction or several related transactions or series of transactions), (ii)
upon the approval by the Company's stockholders of a plan of liquidation or
dissolution of the Company or a successor of the Company or such successor's
parent corporation, or (iii) upon the approval by the Company's stockholders of
a merger or consolidation and such transaction was determined to be a Change in
Control, which transaction and determination was approved by a majority of the
Company's Board of Directors in actions taken prior to, and with respect to such
transaction.
SECTION 9. General Provisions.
(a) No Rights to Awards. No Employee, Participant or other Person shall
have any claim to be granted any Award, and there is no obligation for
uniformity of treatment of Employees, Participants, or holders or beneficiaries
of Awards. The terms and conditions of Awards need not be the same with respect
to each recipient.
(b) Delegation. Subject to the terms of the Plan and applicable law, the
Committee may delegate to one or more officers or managers of the Company or any
Affiliate, or to a committee of such officers or managers, the authority,
subject to such terms and limitations as the Committee shall determine, to grant
Awards to, or to cancel, modify or waive rights with respect to, or to alter,
discontinue, suspend, or terminate Awards held by, Employees who are not
officers or directors of the Company for purposes of Section 16 of the Exchange
Act, or any successor Section thereto, or who are otherwise not subject to such
Section.
(c) Withholding. The Company or any Affiliate is hereby authorized to
withhold from any Award, from any payment due or transfer made under any Award
or under the Plan or from any compensation or other amount owing to a
Participant the amount (in cash, Shares, other securities, Shares that would
otherwise be issued pursuant to such Award (including automatic withholding),
other Awards or other property) of any applicable taxes payable in respect of an
Award, its exercise, the lapse of restrictions thereon, or any payment or
transfer under an Award or under the Plan and to take such other action as may
be necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes. Any Participant who is subject to Rule 16b-3 may direct
the Company to withhold Shares from an Award or tender Shares to satisfy his tax
withholding liability.
(d) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other compensation arrangements (subject to shareholder approval of such
other arrangement, if such approval is required), and such arrangements may be
either generally applicable or applicable only in specific cases.
(e) No Right to Employment. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of the Company or
any Affiliate. Further, the Company or an Affiliate may at any time dismiss a
Participant from employment, free from any liability or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(f) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Delaware and applicable Federal law.
(g) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as
to any Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
A-12
<PAGE> 46
amended to conform to the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the Award, such provision shall be stricken
as to such jurisdiction, Person or Award and the remainder of the Plan and any
such Award shall remain in full force and effect.
(h) Other Laws. The Committee may refuse to issue or transfer any Shares or
other consideration under an Award if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder or beneficiary. It is intended that the Plan and
any grant of an Award made to a person subject to Section 16 of the Exchange Act
meet all of the requirements of Rule 16b-3. If any provision of the Plan or any
such Award would disqualify the Plan or such Award under, or would otherwise not
comply with, Rule 16b-3, such provision or Award shall be construed or deemed
amended to conform to Rule 16b-3.
(i) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
(j) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash, other securities, or other property shall be paid or transferred in lieu
of any fractional Shares or whether such fractional Shares or any rights thereto
shall be canceled, terminated, or otherwise eliminated.
(k) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 10. Effective Date of the Plan.
This Plan amendment and restatement shall be effective as of February 4,
1998, provided it is subsequently approved by the stockholders of the Company
within 12 months thereafter.
SECTION 11. Term of the Plan.
No Award shall be granted under the Plan after November 27, 2004. However,
unless otherwise expressly provided in the Plan or in an applicable Award
Agreement, any Award theretofore granted may, and the authority of the Board or
the Committee to amend, alter, adjust, suspend, discontinue, or terminate any
such Award or to waive any conditions or rights under any such Award shall,
extend beyond such date.
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<PAGE> 47
UNION TEXAS PETROLEUM HOLDINGS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR ANNUAL MEETING MAY 7, 1998
The undersigned hereby constitutes and appoints John L. Whitmire, Larry D.
P Kalmbach and Amy J. Watkins, and each of them, his or her true and lawful
agents and proxies with full power of substitution in each, to represent
R the undersigned at the Annual Meeting of Stockholders of UNION TEXAS
PETROLEUM HOLDINGS, INC. to be held at the office of the Company, 1330
O Post Oak Blvd., Houston, Texas on Thursday, May 7, 1998, and at any
adjournments thereof, on all matters coming before said meeting.
X
Election of Directors. Nominees:
Y
Robert L. Barry, Glenn A. Cox, Edward A. Gilhuly, James H. Greene, Jr.,
Henry R. Kravis, Michael W. Michelson, Wylie B. Pieper, 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> 48
|
- --- PLEASE MARK YOUR | 2855
X 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,
FOR PROPOSAL 2 AND FOR PROPOSAL 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
1. Election of Directors.
(see reverse)
FOR WITHHELD
[ ] [ ]
For, except vote withheld from the following nominee(s):
- ----------------------------------------------
2. Ratification of appointment of independent accountants.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of amendment to 1994 Incentive Plan.
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SIGNATURE(S) DATE
FOLD AND DETACH HERE
UNION TEXAS PETROLEUM HOLDINGS, INC.
March 24, 1998
To our Stockholders:
Our 1998 Annual Meeting of Stockholders is scheduled to be held at 10:00 a.m. on
May 7, 1998 at the Company's offices in Houston. In addition to voting on the
matters contained in the enclosed Notice and Proxy Statement, I will report on
the Company's 1997 results and on our strategy to enhance stockholder value as
we go forward in 1998 and beyond.
To ensure your vote is counted, please promptly return your completed proxy
card. On behalf of the Board of Directors and all of the employees of Union
Texas, we thank you for taking the time to vote your shares and hope you will
be able to attend the meeting.
Sincerely,
/S/ JOHN L. WHITMIRE
John L. Whitmire
Chairman of the Board and
Chief Executive Officer
