SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
PHILLIPS PETROLEUM COMPANY
-----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
or Item 22(a)(2) of Schedule 14A
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:_______________________________________________
2) Form, Schedule or Registration Statement No.:_________________________
3) Filing Party:_________________________________________________________
4) Date Filed:___________________________________________________________
<PAGE>
PHILLIPS PHILLIPS PETROLEUM COMPANY
66 LOGO BARTLESVILLE, OKLAHOMA 74004
March 29, 1996
DEAR PHILLIPS STOCKHOLDER:
You are cordially invited to the Annual Meeting of Phillips
Petroleum Company to be held in the Adams Building, 4th Street and
Keeler Avenue, Bartlesville, Oklahoma, on Monday, May 13, 1996,
commencing at 10 a.m. local time. Your attendance will provide you
with an opportunity to hear management's report on the operations and
meet the directors and representatives of the Company.
The Secretary's formal notice of the meeting and the Proxy Statement
accompany this letter and describe the matters on which action will be
taken.
In addition to the election of 13 directors, you are asked to vote on
one other proposal. Proposal 1 is by the Company to approve the
independent auditors designated by the Board of Directors. OUR BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR PROPOSAL 1.
It is important that your views be represented at the meeting
whether or not you are able to attend. Accordingly, we respectfully
request that you sign, date and promptly return your proxy in the
enclosed postage-paid envelope.
On behalf of the directors and employees of Phillips Petroleum Company,
we express our appreciation to you, the owners of this Company, for your
continued support and interest.
Sincerely,
/s/ W.W. Allen
------------------------------------
W. W. Allen
Chairman and Chief Executive Officer
NOTICE OF 1996 ANNUAL MEETING
MAY 13, 1996
AND PROXY STATEMENT
<PAGE>
(This page left blank intentionally.)
2
<PAGE>
PHILLIPS PETROLEUM COMPANY
BARTLESVILLE, OKLAHOMA 74004
NOTICE OF ANNUAL MEETING TO BE HELD MAY 13, 1996
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders will be held at the Adams
Building, 4th Street and Keeler Avenue, Bartlesville, Oklahoma, on
Monday, May 13, 1996, at 10 a.m. local time, for the purposes of
considering and voting on the following matters as described in the
attached Proxy Statement:
ELECTION OF 13 DIRECTORS (pages 5 through 7);
PROPOSAL OF THE COMPANY:
------------------------
PROPOSAL 1. To approve the designation of Ernst & Young LLP as
independent auditors for 1996 (page 19); and
ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING
(page 19).
Only stockholders of record at the close of business March 15, 1996,
will be entitled to vote at this meeting.
A copy of the Company's Annual Report containing financial data and a
summary of operations for 1995 is being mailed to the Company's
stockholders in advance of or with this Proxy Statement.
By Order of the Board of Directors,
/s/ Dale J. Billam
-------------------------------------
Dale J. Billam
Secretary
Dated March 29, 1996
- -------------------------------------------------------------------------------
IMPORTANT:
PLEASE SIGN, DATE AND PROMPTLY MAIL THE ENCLOSED PROXY IN THE ACCOMPANYING
POSTAGE-PAID ENVELOPE. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE COMPANY'S
RECOMMENDATIONS, IT IS NOT NECESSARY TO SPECIFY YOUR CHOICE BUT YOUR PROXY
MUST BE SIGNED AND RETURNED. IN ANY EVENT, YOUR PROMPT RESPONSE IS REQUESTED
AND YOUR COOPERATION WILL BE APPRECIATED.
- -------------------------------------------------------------------------------
3
<PAGE>
PHILLIPS PETROLEUM COMPANY
BARTLESVILLE, OKLAHOMA 74004
March 29, 1996
PROXY STATEMENT
SOLICITATION
Your proxy is solicited by the Board of Directors and all costs of
solicitation will be borne by the Company. Your proxy will be voted as you
direct and may be revoked by you at any time before it is voted by filing
with the Secretary an instrument revoking it, by executing a later-dated
proxy or by voting in person by ballot at the meeting. This Proxy Statement
and Proxy Card are first being mailed on or about March 29, 1996, to
stockholders of record as of March 15, 1996.
Georgeson & Co. Inc. has been engaged by the Company to solicit proxies for
this Annual Meeting from brokers, banks and other institutional holders, and
individual holders of record. The fee for this service, payable one-half at
the commencement of solicitation and the balance at its completion, is
$16,000, plus the reimbursement of certain out-of-pocket costs. In addition
to solicitation by mail, officers, directors and employees of the Company may
solicit proxies by telephone, facsimile or personal contact.
CONFIDENTIAL VOTING
It is the policy of the Company that all proxies, ballots, and voting
tabulations that identify stockholders be kept confidential, except where
disclosure may be required by applicable law, where stockholders write
comments on their proxy cards, and where disclosure is expressly requested by
a stockholder, and in limited circumstances such as a proxy contest or other
solicitation of proxies based on an opposition proxy statement or any matter
requiring for stockholder approval the vote of more than a majority of the
shares present at any meeting. The Company has engaged Chemical Mellon
Shareholder Services, L.L.C. as tabulators of all proxies and ballots, and
has appointed two persons who are employees of Chemical Mellon Shareholder
Services to be Inspectors of Election.
VOTING SECURITIES AND PRINCIPAL HOLDERS
The Company's only class of voting securities is its $1.25 par value common
stock. For voting purposes, there were 291,498,603 shares outstanding at the
close of business February 29, 1996. The record date for stockholders
entitled to vote at this meeting is March 15, 1996. Each share is entitled to
one vote.
Included in shares outstanding are 29,200,000 shares held by the Compensation
and Benefits Trust ("CBT") formed in December 1995. The CBT is designed to
acquire, hold and distribute shares of the Company's common stock to fund
certain future compensation and benefit obligations of the Company. The CBT
does not increase or alter the amount of benefits or compensation which will
be paid under existing plans, but offers the Company enhanced financial
flexibility in providing the funding requirements of those plans. Shares held
by the CBT do not affect earnings per share or total stockholders' equity
until after they are transferred out of the CBT. All shares are required to
be transferred out of the CBT by January 1, 2021.
The number of shares of the Company's common stock beneficially owned as of
February 29, 1996, by any person or group known to own five percent or more,
and by each of the directors and nominees, and by all directors and officers
of the Company as a group, is shown in the tables "Security Ownership of
Certain Beneficial Owners," and "Security Ownership of Management,"
respectively, on pages 7 through 9 after the information on nominees for
directors.
VOTE REQUIRED FOR ELECTION OF DIRECTORS AND
ADOPTION OF COMPANY AND STOCKHOLDER PROPOSALS
Under the Company's Bylaws, the holders of a majority of the issued and
outstanding shares of the common stock, present in person or represented by
proxy at the Annual Meeting, will constitute the quorum for all purposes
unless otherwise provided by law. Where a quorum is present, the affirmative
vote of a majority of the stock represented at the meeting is required for
the election of the directors, and the adoption of Proposal 1. For purposes
of determining whether the directors have been elected or a proposal has
received a majority vote, abstentions are the equivalent of a negative vote.
Information included in this Proxy Statement is as of the date of
preparation, approximately February 29, 1996, unless otherwise stated.
4
<PAGE>
NOMINEES FOR ELECTION AS DIRECTORS
The number of directors to be elected is 13. The designated proxy holders of
the Company intend, unless otherwise instructed, to vote all proxies for the
election of the following 13 nominees, to hold office for the ensuing year or
until their successors are elected. The term of each present director will
expire concurrently with the election of directors at the 1996 Annual
Meeting. If any nominee is unable or unwilling to serve, the Company, through
the designated proxy holders, reserves discretionary authority to vote for a
substitute. The Company has no reason to believe that any nominee will be
unable or unwilling to serve if elected. The following provides information
about each nominee as of February 29, 1996, including data on the nominees'
business backgrounds for the past five years, and the names of public
companies and other selected entities for which they also serve as directors.
W. W. ALLEN, 59, is Chairman of the Board of Directors and Chief
Executive Officer of the Company, a position he assumed in May
1994. He previously was President and Chief Operating Officer,
PICTURE beginning in December 1991; Senior Vice President responsible for
worldwide exploration and production beginning in July 1989; and
Vice President of International Exploration and Production
beginning January 1988. He is a director of the Bank of Oklahoma,
N.A. Mr. Allen became a director in December 1989.
NORMAN R. AUGUSTINE, 60, is President, Chief Executive Officer
and Director of Lockheed Martin Corporation, positions he assumed
in March 1995 and January 1996. He previously served as Chairman
PICTURE of the Board of Directors and Chief Executive Officer of Martin
Marietta Corporation from April 1988 until March 1995. He is a
director of The Procter & Gamble Company. Mr. Augustine became a
director in January 1989.
GEORGE B. BEITZEL, 67, is a director of various corporations. He
previously served as Senior Vice President and Director of
International Business Machines Corporation, from July 1955 to
March 1987. He is a director of Bankers Trust New York
Corporation and its subsidiary, Bankers Trust Company; Caliber
PICTURE Systems, Inc., formerly Roadway Services, Inc.; Computer Task
Group, Inc.; Datalogix International, Inc.; FlightSafety
International, Inc.; Phillips Gas Company, a subsidiary of the
Company with a series of preferred stock registered under the
Securities Exchange Act of 1934 and listed on the New York Stock
Exchange; Rohm and Haas Company; TIG Holdings; and Xillix
Technologies Corp. Mr. Beitzel became a director in July 1980.
DAVID L. BOREN, 54, is President of the University of Oklahoma, a
position he assumed in November 1994. He previously served as a
United States Senator from the State of Oklahoma from November
PICTURE 1979 until November 1994 and is a former Governor of Oklahoma. He
is a director of AMR Corporation and Texas Instruments
Corporation. Mr. Boren became a director in December 1994.
C. L. BOWERMAN, 56, is an Executive Vice President responsible
for planning and corporate relations and services, a position he
assumed in January 1995. He previously was Executive Vice
President responsible for corporate strategic planning, corporate
information technology and research and development, beginning in
PICTURE April 1992; Executive Vice President responsible for corporate
engineering, corporate strategic planning and research and
development beginning December 1991; and Senior Vice President
responsible for refining, marketing, supply and transportation
beginning in October 1988. Mr. Bowerman became a director in
December 1989.
5
<PAGE>
ROBERT E. CHAPPELL, JR., 59, is self employed as an investment
and management consultant. He previously was the Senior Executive
Vice President and Chief Investment Officer of Metropolitan Life
Insurance Company, a position he held from October 1989 through
PICTURE December 1992. He previously served Metropolitan Life Insurance
Company as Executive Vice President from October 1986 to October
1989. He is also a director of First Colony Corporation and Igloo
Products Corporation. Mr. Chappell became a director in December
1990.
LAWRENCE S. EAGLEBURGER, 65, is Senior Foreign Policy Advisor for
Baker, Donelson, Bearman & Caldwell, a Washington, D.C. law firm,
a position he assumed in January 1993. He previously served as
Secretary of State from December 1992 through January 1993,
PICTURE Acting Secretary of State from August 1992 to December 1992, and
Deputy Secretary of State from February 1989 to August 1992. He
is a director of COMSAT Corporation; Corning Incorporated;
Dresser Industries, Inc.; Jefferson Bankshares, Inc.; Stimsonite
Corporation; Universal Corporation; and Virginia Fibre Corp. Mr.
Eagleburger became a director in February 1993.
JAMES B. EDWARDS, 68, is President of the Medical University of
South Carolina, a position he has held since November 1982. He is
a former U.S. Secretary of Energy and Governor of South Carolina.
PICTURE He is a director of GS Industries, Inc.; General Engineering
Laboratories, Inc.; Imo Industries Inc.; National Data
Corporation; SCANA Corporation; and WMX Technologies, Inc. Mr.
Edwards became a director in January 1983.
LARRY D. HORNER, 61, is Chairman of Pacific USA Holdings
Corporation, a position he assumed in August 1994. He previously
was a Managing Director of Arnhold and S. Bleichroeder, Inc.,
from April 1991 through July 1994. He previously was a partner in
PICTURE KPMG Peat Marwick, and is a former Chairman and Chief Executive
of that firm from October 1984 to December 1990. He is a director
of American General Corporation; Atlantis Plastics, Inc.; First
Eagle Fund International; and Laidlaw Holdings, Inc. Mr. Horner
became a director in May 1991.
J. J. MULVA, 49, is President and Chief Operating Officer of the
Company, a position he assumed in May 1994. Previously he was an
Executive Vice President of the Company and its Chief Financial
Officer from January 1994 through April 1994; Senior Vice
President and Chief Financial Officer beginning in May 1993; Vice
PICTURE President and Chief Financial Officer beginning in March 1993;
Vice President, Treasurer and Chief Financial Officer beginning
in March 1990; and Vice President and Treasurer beginning in
September 1988. He is Chairman of the Board of Directors of
Phillips Gas Company. Mr. Mulva became a director in January
1994.
RANDALL L. TOBIAS, 53, is Chairman of the Board of Directors and
Chief Executive Officer of Eli Lilly and Company, a position he
PICTURE assumed in June 1993. He previously was Vice Chairman of the
Board of Directors of AT&T from September 1986 to June 1993. He
is a director of Kimberly-Clark Corporation and Knight-Ridder,
Inc. Mr. Tobias became a director in July 1992.
6
<PAGE>
VICTORIA J. TSCHINKEL, 48, is a Senior Consultant to Landers &
Parsons, a Tallahassee, Florida, law firm, a position she assumed
PICTURE in 1987. She previously served as Secretary of the Florida
Department of Environmental Regulation from 1981 to 1987.
Mrs. Tschinkel became a director in July 1993.
KATHRYN C. TURNER, 48, is Chairperson and Chief Executive Officer
of Standard Technology, Inc., an engineering and manufacturing
PICTURE firm she founded in 1985. She is a director of Carpenter
Technology Corporation. Ms. Turner became a director in January
1995.
In January 1996, Mr. J. L. Whitmire, a director and Executive Vice President,
retired from the Board and the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
NAME AND ADDRESS OF ------------------------------- PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER Direct Indirect CLASS
- -------------- -------------------- ------------- ------------ ----------
<S> <C> <C> <C>
Common Vanguard Fiduciary Trust Company 52,304,173 (1) -- 17.94%
P. O. Box 2900
Valley Forge, Pennsylvania 19482
Common The Capital Group Companies, Inc. 19,900,830 (2) -- 6.83%
333 South Hope Street
Los Angeles, California 90071
</TABLE>
(1) As of March 5, 1996, Vanguard as Trustee held 52,304,173 shares under the
Company's Thrift Plan, Long-Term Stock Savings Plan ("LTSSP"), and
Retirement Savings Plan (together the "Plans") with shared voting power.
Vanguard and the Plans have disclaimed beneficial ownership of the shares
held by Vanguard as Trustee of the Plans. Vanguard votes shares held by the
Plans which represent the allocated interests of participants in the manner
directed by individual participants. Employee participants in the Thrift
Plan and LTSSP are appointed by the Company as fiduciaries entitled to
direct the Trustee as to how to vote allocated shares which are not
directed in these plans and unallocated shares held by the LTSSP. Such
shares are allocated pro rata among employee participants accepting their
fiduciary appointment and are voted by the Trustee as directed by the
employee fiduciaries. The Trustee votes non-directed shares of the
Retirement Savings Plan at its discretion. The Trustee will vote other
shares held by the Plans at its discretion only if required to do so by the
Employee Retirement Income Security Act of 1974 ("ERISA").
Vanguard is also the Trustee and record holder of the 29,200,000
shares in the Company's Compensation and Benefits Trust ("CBT"), without
any voting power. Vanguard has disclaimed beneficial ownership of such
shares. As Trustee of the CBT, Vanguard will vote shares in the CBT only
in accordance with the pro rata directions of eligible domestic
employees and the trustees of certain international Company stock plans.
Trust agreements for the Plans and CBT each provide that all voting
directions of individual employees received by the Trustee will be held
in confidence and not be disclosed to any person, including the Company.
(2) Capital Guardian Trust Company and Capital Research and Management Company,
investment management companies and operating subsidiaries of The Capital
Group Companies, Inc., exercise as of December 29, 1995, sole voting power
with respect to 1,830 shares and sole dispositive power with respect to
19,900,830 shares. These shares are held for various of its institutional
investor clients. The Capital Group of Companies, Inc. has advised that the
shares are held solely for investment purposes and not for the purpose or
effect of changing or influencing control. No one of the Capital Group's
operating subsidiaries owns more than 5 percent of the Company's shares.
Capital Trust Company, Capital Research and Management Company and The
Capital Group Companies, Inc. have specifically disclaimed any beneficial
ownership of these shares.
7
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
PHILLIPS PETROLEUM COMPANY
SECURITIES
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
------------------------------
TITLE OF CLASS NAME OF BENEFICIAL OWNER DIRECT (1) INDIRECT PERCENT OF CLASS
- -------------- ------------------------ ---------- -------- ----------------
DIRECTORS AND NOMINEES (2)
--------------------------
<S> <C> <C> <C> <C>
Common W. W. Allen 248,087 -- less than 1%
Common Norman R. Augustine 8,200 -- less than 1%
Common George B. Beitzel 68,425 -- less than 1%
Common David L. Boren 2,100 -- less than 1%
Common C. L. Bowerman 164,844 654 less than 1%
Common Robert E. Chappell, Jr. 6,500 -- less than 1%
Common Lawrence S. Eagleburger 4,254 -- less than 1%
Common James B. Edwards 11,477 -- less than 1%
Common Larry D. Horner 5,500 -- less than 1%
Common J. J. Mulva 180,258 -- less than 1%
Common Randall L. Tobias 6,000 -- less than 1%
Common Victoria J. Tschinkel 4,143 -- less than 1%
Common Kathryn C. Turner 2,100 -- less than 1%
EXECUTIVE OFFICERS
------------------
Common K. Am 50,795 -- less than 1%
Common R. G. Ceconi 76,411 -- less than 1%
Common K. L. Hedrick 72,848 -- less than 1%
Common J. L. Howe 112,335 -- less than 1%
Common J. C. Mihm 131,038 636 less than 1%
Common T. C. Morris 109,824 -- less than 1%
Common M. J. Panatier 44,668 -- less than 1%
Common B. J. Price 51,825 -- less than 1%
Common J. B. Whitworth 144,294 -- less than 1%
--------- ----- -----------
All directors, nominees and executive officers
as a group (22 in group) 1,505,926 1,290 less than 1%
</TABLE>
(1) Direct ownership includes shares which may be acquired under options
within 60 days of the record date.
(2) The shares stated as being beneficially owned by each nominee do not
include shares beneficially owned by the other companies on whose boards
of directors the nominees, directors or officers serve. (The list of
nominees for directors on pages 5 through 7 contains the names of the
other companies for which the nominees serve as directors.) Each nominee
disclaims beneficial ownership of all such shares.
8
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
PHILLIPS GAS COMPANY
SECURITIES (1)
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
---------------------------
TITLE OF CLASS NAME OF BENEFICIAL OWNER DIRECT INDIRECT PERCENT OF CLASS
- -------------- ------------------------ ------ -------- ----------------
DIRECTORS AND NOMINEES
----------------------
<S> <C> <C> <C> <C>
Series A Preferred W. W. Allen -- 500 (2) less than 1%
Series A Preferred George B. Beitzel 1,000 -- less than 1%
Series A Preferred J. J. Mulva 475 1,070 (2) less than 1%
EXECUTIVE OFFICERS
------------------
Series A Preferred R. G.Ceconi -- 1,000 (2) less than 1%
Series A Preferred K. L. Hedrick 1,000 -- less than 1%
Series A Preferred J. C. Mihm -- 19 (2) less than 1%
Series A Preferred M. J. Panatier 1,600 -- less than 1%
Series A Preferred B. J. Price 500 -- less than 1%
Series A Preferred J. B. Whitworth -- 300 (2) less than 1%
----- ----- -----------
All directors, nominees and executive officers
as a group (9 in group) 4,575 2,889 less than 1%
</TABLE>
(1) Table shows only those directors, nominees and executive officers who own
shares.
(2) Messrs. Allen, Ceconi, Mihm, Mulva and Whitworth have disclaimed
beneficial ownership of all such shares.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Members of the Compensation Committee are Norman R. Augustine, George B.
Beitzel, Larry D. Horner, Randall L. Tobias and Victoria J. Tschinkel. The
Company had no interlocking relationship during the last fiscal year.
GENERAL INFORMATION
RELATING TO THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS
The business and affairs of the Company are managed under the direction of
the Board of Directors. To assist it in carrying out its duties, the Board
has delegated certain authority to five Committees. The Board of Directors
held eight meetings in 1995. Attendance by the current directors at meetings
of the Board and of the Committees on which they served averaged over
92 percent in calendar year 1995.
COMMITTEES OF THE BOARD
The Audit Committee, the Compensation Committee, the Committee on Directors'
Affairs, the Executive Committee and the Public Policy Committee are the
standing committees of the Board of Directors. Membership is as follows:
COMPEN- DIRECTORS' PUBLIC
AUDIT SATION AFFAIRS EXECUTIVE POLICY
- ------------------------------------------------------------------
Chappell* Horner* Beitzel* Allen* Eagleburger*
Boren Augustine Augustine Beitzel Boren
Horner Beitzel Edwards Chappell Edwards
Tobias Tobias Eagleburger Tschinkel
Turner Tschinkel Horner Turner
Mulva
- -----------
* Chairman
9
<PAGE>
THE AUDIT COMMITTEE recommends to the Board the independent auditors to be
engaged by the Company, reviews the scope of their engagement, including the
remuneration to be paid, and reviews on a continuing basis the independence
of the auditors. The Committee reviews with the independent auditors, the
Controller, the General Auditor, the General Counsel, the Chief Financial
Officer and other appropriate Company personnel: (1) the Company's general
policies and procedures with respect to audits and accounting and financial
controls; (2) the general accounting and reporting principles and practices
applied in preparing the Company's financial statements and conducting
financial audits; (3) the interim and year-end financial statements and any
certification, report or opinion which the independent auditors propose to
render in connection with such statements; (4) the extent to which the
Company has implemented changes suggested by the internal audit staff, the
independent auditors or the Committee; and (5) the adequacy of the Company's
accounting practices and internal control structure. The Committee may direct
the General Counsel, the independent auditors and the internal audit staff to
inquire into and report to it on any matter having to do with the Company's
business affairs. The Committee also monitors compliance with the Company's Code
of Business Ethics, Conduct and Responsibility and oversees the activities of
the Corporate Compliance and Ethics Committee. The Audit Committee held six
meetings in 1995.
THE COMPENSATION COMMITTEE recommends for Board approval the salaries for the
Chairman of the Board of Directors and Chief Executive Officer and the
President, and approves salaries for other officers who are members of the
Board of Directors and for employees who earn $200,000 or above. The
Committee makes recommendations to the Board with respect to proposals for
the application of new benefits, incentive plans or programs to officers who
are also directors and the application of amendments to existing plans or
programs which would significantly increase such officers' compensation. The
Committee approves awards under the Annual Incentive Compensation Plan and
the Omnibus Securities Plan. The Compensation Committee held six meetings in
1995.
THE COMMITTEE ON DIRECTORS' AFFAIRS, formerly known as the Nominating
Committee, recommends to the Board qualified candidates for election as
directors and nominates candidates to the Board committees. The Committee
welcomes suggestions from stockholders about qualified candidates.
A stockholder wishing to submit a recommendation to the Committee may do so
by writing Dale J. Billam, Secretary, Phillips Petroleum Company,
Bartlesville, Oklahoma 74004. The Nominating Committee held two meetings in
1995.
THE EXECUTIVE COMMITTEE, when the Board is not in session, may exercise all
power and authority of the Board in the management and business of the
Company, subject to the limitations imposed by the Bylaws. The Committee has
the authority to review and approve proposed corporate action when the Board
is not in session and may advise the Board of any recommendations of the
Committee regarding any proposed corporate action presented to the Board. The
Executive Committee held one meeting in 1995.
THE PUBLIC POLICY COMMITTEE advises management and the Board of Directors
(i) in response to current and emerging public policy issues, and (ii) in the
development and review of policies and budgets in respect of contributions,
including, but not limited to, contributions to organizations whose primary
purpose is charitable, civic, cultural or educational. In order to carry out
these duties, the Committee (a) identifies, evaluates and monitors the
social, political, environmental, occupational, safety and health trends,
issues and concerns, domestic and foreign, which affect or could affect the
Company's business activities and performance; (b) reviews information from
management and approves recommendations to assist in the formulation and
adoption of policies, programs and practices concerning the matters set forth
in (a) above, including, but not limited to ecological and environmental
protection, employee safety, ethical business conduct, consumer affairs,
alcohol and drug abuse, equal opportunity matters and government relations;
and (c) monitors and evaluates on an on-going basis the Company's compliance
with such policies, programs and practices. The Committee also has the
authority to authorize the use of Company funds for political contributions
on behalf of the Company, if and to the extent permitted by law. The Public
Policy Committee held five meetings in 1995.
COMPENSATION OF DIRECTORS AND NOMINEES
The annual Board retainer fee for non-employee directors consists of $11,000
plus 1,000 shares of Phillips common stock. Board members receive $1,000 for
each Board meeting attended. Committee retainer fees are $2,500 for Board
committee chairmen and $2,250 for committee members. Committee meeting fees
consist of $750 for the Board committee chairmen and $500 for the committee
members for each committee meeting attended. These directors may elect to
defer all or a part of their cash compensation. The future payment of this
deferred compensation has been pre-funded in a special trust designated for
this purpose.
These directors also participate in the Non-Employee Director Retirement
Plan. This plan provides a post-Board service benefit paid monthly which is
equal to one-twelfth of the annual cash retainer fee paid for Board service
(currently $11,000) plus one-twelfth of the fair market value of the 1,000
shares of Phillips common stock paid as the retainer for Board service. The
benefit is based on the number of years that the director was a member of the
Board of Directors. The fair market value is determined by calculating the
higher of the average of the fair market values for the twelve months
preceding the director's retirement or the average of the high three years
fair market values of the last ten years. The fair market value is calculated
using a formula which includes daily and monthly calculations. If a director
who has retired from Board service should die prior to completion of the
payment period, the director's surviving spouse will receive the remainder of
the payments due under the plan. If the surviving spouse dies during the
payment period, payments shall cease.
10
<PAGE>
In lieu of monthly payments, subject to certain limitations, the director may
elect to receive or defer a form of payment which is of equivalent value. Plan
payments have been pre-funded by the Company in a special trust designated for
this purpose. Prior to retirement from Board service, the Company provides each
director with life insurance, the amount of coverage which is based on length of
Board service, begins at $200,000 and increases to a maximum of $300,000.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth compensation information
for services performed in 1995, 1994 and 1993 for those persons who were at
December 31, 1995, the Chief Executive Officer and the four most highly
compensated officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-----------------------------------------------------------------------------------
RESTRICTED SECURITIES LONG-TERM ALL OTHER
OTHER ANNUAL STOCK UNDERLYING INCENTIVE COMPEN-
NAME AND COMPENSATION AWARD(S)(1) OPTIONS/SARS PAYOUT SATION(2)
PRINCIPAL POSITION YEAR SALARY ($) BONUS($) ($) ($) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. W. Allen 1995 824,000 414,375 0 0 185,941 343,298 (3) 7,289
Chairman of the 1994 681,333 899,766 0 0 59,706 484,102 (4) 4,770
Board & CEO 1993 448,250 275,235 0 0 54,154 136,898 (5) 5,499
J. J. Mulva 1995 481,333 221,250 0 0 44,484 184,688 (3) 7,289
President & 1994 415,750 511,710 0 0 34,300 218,925 (4) 4,770
COO 1993 289,417 126,226 0 0 25,504 111,134 (5) 5,499
C. L. Bowerman 1995 343,000 172,495 0 0 26,728 183,906 (3) 7,289
Executive Vice 1994 337,000 260,354 0 0 27,069 259,965 (4) 4,770
President 1993 325,250 155,876 0 0 31,467 114,489 (5) 5,499
W. G. Paul 1995 408,000 203,212 0 0 29,847 198,424 (3) 7,289
Sr. Vice President 1994 402,000 250,002 0 0 30,343 254,683 (4) 4,770
& General Counsel 1993 388,000 152,736 0 0 35,229 159,307 (5) 5,475
(Retired 12/31/95)
J. L. Whitmire 1995 385,000 237,250 0 0 31,838 163,234 (3) 7,288
Executive Vice 1994 374,917 285,830 0 0 29,335 260,764 (4) 4,770
President 1993 292,500 137,256 0 0 25,504 68,648 (5) 5,499
(Retired 1/8/96)
</TABLE>
(1) The Company has not made any outright grants of restricted stock to any
executive during any of the periods covered by the table. The Company
settled awards under its 1985 and 1987 annual incentive plans and under all
long-term incentive plans since 1986 by distributing to award recipients
shares of restricted stock which are not transferable prior to death,
disability or retirement, unless restrictions are earlier lapsed by the
Compensation Committee of the Board of Directors (the "Committee"). The
aggregate number of such restricted shares held at December 29, 1995, and
the market value of such shares on that date (calculated according to SEC
regulation without regard to the restrictions and the resulting inability
of the named executives to realize such values at such time) were:
Mr. Allen, 16,032 shares, $546,090; Mr. Bowerman, 45,050 shares,
$1,534,516; Mr. Mulva, 34,343 shares, $1,169,808; Mr. Paul, 0 shares, $0;
Mr. Whitmire, 42,028 shares, $1,431,579.
(2) Includes Company contributions to the Thrift Plan for the benefit of
participants and the value of the shares allocated to Long-Term Stock
Savings Plan participants as of the respective valuation dates.
(3) Value of the restricted or unrestricted stock on the date of the award for
performance under the Long-Term Incentive Plan Performance Period from
1993-1995.
(4) Value of the restricted stock on the date of the award for performance
under the Strategic Incentive Plan Performance Period from 1991-1994.
(5) Value of the restricted stock on the date of the award for performance
under the Strategic Incentive Plan Performance Period from 1990-1993.
11
<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Stock options granted during 1995 to the Chief Executive Officer and the four
most highly compensated officers of the Company are reflected in the
following Option/SAR Grants in Last Fiscal Year table.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS PRICE APPRECIATION FOR OPTION TERM (1)
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 0% ($) 5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
W. W. Allen 85,941 6.45% 31.44 01/09/05 0 1,699,054 4,306,504
100,000 7.51% 34.75 04/10/05 0 2,185,000 5,538,000
J.J. Mulva 44,484 3.34% 31.44 01/09/05 0 879,449 2,229,093
C. L. Bowerman 26,728 2.01% 31.44 01/09/05 0 528,413 1,339,340
W. G. Paul 29,847 2.24% 31.44 01/09/05 0 590,075 1,495,633
J. L. Whitmire 31,838 2.39% 31.44 01/09/05 0 629,437 1,595,402
- -----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders (2) N/A N/A N/A N/A 0 5,172,591,899 13,110,702,078
</TABLE>
(1) "Potential realizable value" is disclosed in response to SEC rules which
require such disclosure for illustration only. The values disclosed are not
intended to be, and should not be interpreted by stockholders as
representations or projections of future value of the Company's stock or of
the stock price.
(2) To lend perspective to the illustrative "potential realizable value," if
the Company's stock price increased 5 percent or 10 percent per year for 10
years from January 1, 1995, (disregarding dividends and assuming for
purpose of the calculation a constant number of shares outstanding), the
total increase in the value of all shares outstanding at January 1, 1995,
is shown above as "potential realizable value" for Total Stockholders.
TEN-YEAR OPTION/SAR REPRICING
There have been no options or stock appreciation right repricings during the
last 10 years for the Chief Executive Officer or for any of the four most
highly compensated officers of the Company as reflected in the following
Ten-Year Option/SAR Repricing table.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES MARKET PRICE EXERCISE LENGTH OF ORIGINAL
UNDERLYING OF STOCK AT PRICE OPTION TERM
OPTIONS/SARS TIME OF AT TIME OF NEW REMAINING AT DATE
REPRICED OR REPRICING OR REPRICING OR EXERCISE OF REPRICING OR
NAME DATE AMENDED (#) AMENDMENT ($) AMENDMENT ($) PRICE ($) AMENDMENT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
W. W. Allen -- 0 -- -- -- --
J. J. Mulva -- 0 -- -- -- --
C. L. Bowerman -- 0 -- -- -- --
W. G. Paul -- 0 -- -- -- --
J. L. Whitmire -- 0 -- -- -- --
</TABLE>
12
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUE
The following table shows the number of shares acquired and the net value
realized from exercising stock options during 1995 and the number and value
of exercisable and unexercisable stock options granted under the 1986 Stock
Plan, the 1990 Stock Plan and the Omnibus Securities Plan at fiscal year-end
1995 for the Chief Executive Officer and the four most highly compensated
executive officers of the Company.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END FISCAL YEAR-END ($)(2)
NUMBER OF SHARES ACQUIRED NET VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED ($) (1) UNEXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
88,928 873,723
W. W. Allen 10,000 216,235 257,798 614,674
80,385 1,076,818
J. J. Mulva 4,000 81,980 82,963 310,812
56,525 532,372
C. L. Bowerman 3,275 53,407 62,764 287,562
55,685 481,992
W. G. Paul 6,621 68,596 70,220 321,848
16,155 111,471
J. L. Whitmire 36,471 451,997 66,592 283,396
</TABLE>
(1) Net value realized is the market price on the date of exercise less the
option price times the number of shares exercised under the option.
(2) Based on $34.0625, the fair market value of the Company's common stock on
December 29, 1995.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
The following table shows Long-Term Incentive Plan awards established under
the Omnibus Securities Plan during 1995 for the Chief Executive Officer and
the four most highly compensated executive officers of the Company.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE-BASED PLANS
-------------------------------------------------------------
PERFORMANCE OR
OTHER PERIOD NUMBER OF SHARES (1)
NUMBER OF UNTIL MATURATION
NAME SHARES (#) OR PAYOUT THRESHOLD (#) (2) TARGET (#) MAXIMUM (#)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
W. W. Allen 14,062 12/31/97 7,031 14,062 28,124
J. J. Mulva 7,144 12/31/97 3,572 7,144 14,288
C. L. Bowerman 4,373 12/31/97 2,187 4,373 8,746
W. G. Paul 4,707 12/31/97 2,354 4,707 9,414
J. L. Whitmire 5,259 12/31/97 2,630 5,259 10,518
</TABLE>
(1) At the end of the three-year performance period, from January 1, 1995,
through December 31, 1997, the Compensation Committee will evaluate the
Company's performance to determine the extent to which target awards have
been earned. The Company's performance will be measured by total
stockholder return, compared with the total stockholder return of the peer
group of eight integrated oil companies used in the Performance Graph.
(2) The Company's total stockholder return must be above the bottom quartile
when compared with the peer group (threshold performance) before any award
can be approved. If the threshold performance is achieved, the Committee
expects to approve awards at the threshold level which is 50 percent of the
target number of shares established for the performance period. The actual
awards earned can range from 0 percent to 200 percent of the target awards.
13
<PAGE>
COMPENSATION COMMITTEE REPORT
TO STOCKHOLDERS
ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors (the "Committee"). The
Committee is composed of the directors named below, all of whom are
independent directors who are not employees and who qualify as disinterested
persons for purposes of Rule 16b-3 adopted under the Securities Exchange Act
of 1934.
The executive compensation programs are designed to motivate all executives
to work as a team to maximize long-term stockholder value and achieve
industry safety leadership.
Executive compensation decisions made by the Committee are based on a
combination of quantitative and qualitative measures. During 1995, the
quantitative measures employed included: relative total return to
stockholders; improved safety performance through reduced rates of recordable
injuries and chargeable vehicle accidents and through the implementation of
improved safety systems; comparative safety performance as measured by lost
work days; comparative finding and development cost and reserve replacement
and other internal business objectives. The Committee also uses qualitative
measures of performance such as experience, ability to develop and implement
strategic plans, leadership in the industry and community, and social
responsibility.
The Committee recognizes that the Company's businesses are extremely capital
intensive, requiring large investments, in most cases over a number of years,
before tangible financial returns are achieved. In addition, in the short
term, the Company's prospects and performance as measured by its share price
can be significantly affected by commodity price movements and geopolitical
factors over which the Company and its management have no control. Therefore,
the Committee evaluates the quantitative and qualitative measures, but may
use discretion in recognizing performance achievements and value enhancement.
Section 162(m) of the Internal Revenue Code requires establishment of
performance-based standards for the deduction of certain compensation to any
individual in excess of $1 million per year. The stock options granted by the
Committee under prior stockholder approved plans are exempt from this
provision. No officer of the Company is expected to receive compensation in
1996 which will result in non-deductibility of such compensation expense to
the Company. The Committee will study the implications of Section 162(m)
during 1996 to determine if a proposal will be presented for stockholder
approval in the 1997 Annual Meeting to qualify some or all of the
compensation plans administered by the Committee for the performance-based
exception to Section 162(m).
By design, the executive compensation program is variable, based on
performance and results in an opportunity for earnings through performance
over a longer term.
The Company's objective in so doing is to provide a greater percentage of the
total compensation of its executives through variable or "at-risk"
compensation arrangements under the Annual Incentive Compensation Plan, stock
options and through awards under the Long-Term Incentive Plan.
EXECUTIVE COMPENSATION ACTIONS FOR 1995
Salaries
- --------
In its April 1995 meeting, the Committee recommended to the Board of
Directors salary increases for Mr. Allen, Chairman of the Board and Chief
Executive Officer, and for Mr. Mulva, President, to be effective May 1, 1995.
The recommendations, which were unanimously adopted by the non-employee
members of the Board of Directors, were based on, without assigning relative
weight to any of the factors: (i) a comparison of Mr. Allen's and Mr. Mulva's
salaries with those of chief executive officers and presidents of other
companies in the petroleum industry, including those in the peer group by
which the Company evaluates its stockholder return performance, and by
comparing Mr. Allen's and Mr. Mulva's salaries to those of chief executive
officers and presidents of companies outside the petroleum industry whose
relative size is similar to Phillips using internally developed competitive
salary information and competitive salary data provided by an independent
third party consultant; (ii) Mr. Allen's and Mr. Mulva's leadership in
directing key strategic corporate decisions; (iii) Mr. Allen's and
Mr. Mulva's key leadership roles in implementing cost containment strategies;
and (iv) their industry and national public service.
In October 1995 as part of a Companywide lump-sum merit salary program for
salaried employees, the Committee reviewed and approved lump-sum merit
payments for all employees with annual salaries of $200,000 or above, except
for the Chairman of the Board and the President whose salaries were increased
effective May 1, 1995.
Annual Incentive Compensation Program
- -------------------------------------
The Committee administers the Annual Incentive Compensation Plan ("AICP"),
which provides an opportunity for the award of annual bonuses. Under the
AICP, a threshold of Company financial performance must be met before awards
can be approved. For 1995, the minimum amount of cash flow generation that
was required was $1.29 billion and the amount for 100 percent of the award
for cash generation was $1.612 billion. In addition to the minimum cash flow
generation threshold, the AICP employs objectives, which the Committee
establishes each year. For 1995, the Committee set three Companywide
objectives: (i) total stockholder return for 1995 greater than the median
stockholder return of the oil industry peer group used by the Company to
measure its stockholder return performance as listed in the Performance
Graph; (ii) meeting pre-established safety targets for the recordable injury
rate; and (iii) generation of $1.612 billion cash from operating activities.
14
<PAGE>
The Committee establishes targets each year for individual AICP awards on the
basis of a percentage of salary which varies according to the employee's job
grade classification established under the Company's job evaluation system.
The target awards are established using internally generated data and data
obtained from an independent third party consultant which are intended to
provide competitive bonus opportunities if performance objectives are met.
For 1995, the target percentages varied from 12 percent of salary for the
beginning level of AICP eligibility to 65 percent of salary for the Chief
Executive Officer. The target percentages are prorated to recognize
promotions during the year. The Committee is authorized under the terms of
the AICP to approve individual awards from 0 percent to 200 percent of target
for the award year.
Mr. Allen's and Mr. Mulva's AICP awards are based on overall corporate
performance. Awards to all other AICP participants reflect the performance of
business units or staff groups with which they are related, as well as
corporate performance. In February 1996, the Committee approved cash awards
for strategic business units and staff units under the 1995 AICP ranging from
63 percent of target bonus to 138 percent of target bonus based on a review
of the Company's 1995 corporate and business unit or staff group performance.
In determining the amount of incentive compensation awards to be paid to
Mr. Allen and Mr. Mulva, the Committee determined that cash generated from
operating activities exceeded the minimum threshold by $200 million. While
the target of $1.612 billion was not met, the actual results were
14.6 percent better than 1994 and 32.4 percent better than 1993. The Company's
total return to stockholders did not meet the established objective and,
therefore, no credit was given for this measure in the award. The Company's
rate of recordable injuries, although slightly above the established target,
made 1995 the safest year in the Company's history. Taking the above into
consideration, it was the Committee's judgment to grant AICP awards to
Mr. Allen and Mr. Mulva which were 25 percent less than their target amounts.
The amount of the awards for Mr. Allen and Mr. Mulva are set forth in the
Summary Compensation Table found on page 11 of his Proxy Statement.
Stock Options
- -------------
It is the Committee's practice to consider the grant of stock options in
January of each year. All grants to date have been made at the fair market
value of the Company's stock on the date of the grant. The number of shares
subject to options at the date of each grant is set using internally
generated information and information from independent third party
consultants to achieve option grants which approximate those granted by peer
companies to persons in corresponding positions. The number of shares subject
to option grants varies based on job grade classification and salary. Grants
in January 1995 ranged from 75 percent of annual salary for the lowest level
of eligibility to 350 percent of annual salary for the Chairman and Chief
Executive Officer. It is also the Committee's practice to consider
supplemental stock option grants in recognition of promotions during the year
based on the same criteria as the grants in January. As part of the review of
total compensation including long-term incentive awards, the Committee also
approved a stock option grant to Mr. Allen in its April 1995 meeting. For
Mr. Allen and the other executive officers, the stock option grants are set out
in the Options/SAR Grants in Last Fiscal Year table.
Long-Term Incentive Program
- ---------------------------
The Committee is currently administering two different long-term incentive
programs. Both the former stock plans and the Omnibus Securities Plan were
approved by shareholders. It has been the Committee's practice each year to
establish a three-year or four-year performance period, at the end of which
performance for the period is measured against pre-determined objectives and
awards, if any, are made.
In April 1995, the Committee approved payment of awards under the Strategic
Incentive Plan Performance Period VI ("SIP VI"). SIP VI covered the period
from January 1, 1991, through December 31, 1994. A target award for each
individual had been established at the outset of the performance period,
based on a percentage of salary varying according to job grade
classification. Supplemental target awards were approved for individuals who
were promoted during the performance period to positions with higher job
grade classifications. For SIP VI, target awards were based upon 22 percent
of salary for the lowest level of eligibility to 65 percent of salary for the
Chairman and Chief Executive Officer.
The Committee approved payments for SIP VI at 40 percent above the target
award level. The awards for SIP VI were based on the Company ranking second
of ten in the peer group for Total Stockholder Return, and second of ten for
safety performance as measured by lost work day rate. These rankings were
made for purposes of SIP VI on the Company's position within the range of
returns for the peer group and not on the market capitalization weighted
basis required in the Performance Graph presented in this Proxy Statement.
Also, the peer group for awards under the Strategic Incentive Plan included
one additional company not in the peer group used in the Performance Graph in
this Proxy Statement for evaluation of the Company's stockholder return
performance. This additional company ceased to be an integrated oil and gas
company and was removed from the peer group for purposes of the Proxy
Statement Performance Graph and for measurement of future performance under
the Long-Term Incentive Plan.
The Committee also employed internal performance measures with pre-determined
objectives for SIP VI. The objectives met included maintenance of Corporate
Staff expenses at a predetermined rate which was adjusted for inflation;
achieving span of control objectives; maintaining staff-to-line ratio
objectives; and replacement of 100 percent or more of hydrocarbon reserves
produced during the four-year period. An additional objective, which was met,
was maintenance of finding costs for hydrocarbon reserves in the lowest
quartile of a peer group (which includes three additional companies, as well
as those companies in the stockholder return peer group).
15
<PAGE>
In addition, the Committee evaluated performance against certain internal
performance measures which it does not disclose in this report because of its
view that the standards and the Company's performance involve confidential
commercial or business information, which if disclosed would have an adverse
effect on the Company.
The value of the awards, which were settled in restricted stock for Mr. Allen
and the other named executive officers, for SIP VI are set forth on the line for
1994 in the Summary Compensation Table.
SIP VI is the final performance period under the Strategic Incentive Plan.
The only continuing form of long-term incentive program is the Long-Term
Incentive Plan under the Company's Omnibus Securities Plan, which was
approved by stockholders in 1993. The Committee established the third
performance period of the plan, which extends from January 1, 1995, through
December 31, 1997. Target awards for Mr. Allen and the other named executive
officers were established as presented in the Long-Term Incentive Plan Awards
in Last Fiscal Year table and were based on a percentage of salary varying
according to job grade classification and the price of the Company's stock at
the beginning of the performance period. The target levels approved by the
Committee for this performance period were established by the Committee by
using internally-generated information and competitive data provided by an
independent third party consultant. Actual awards, if any, will be determined
by the Committee at the end of the performance period based on the single
measurement of the Company's relative total stockholder return, compared with
the peer group by which the Company evaluates its stockholder return
performance. Before awards may be granted the Company's total stockholder
return must be above the bottom quartile when compared with the industry peer
group.
In 1993, the Committee established the first performance period of the
Long-Term Incentive Plan ("LTIP I"). The Plan has a single performance measure
which is total return to stockholders compared with the total return to
stockholders of the oil industry peer group used by the Company to measure
its stockholder return performance as listed in the Performance Graph. The
LTIP I performance period covered three years from 1993 through 1995.
In 1993, the Committee established a target award for each individual based
on a percentage of salary varying according to job grade classification.
Under the terms of the Long-Term Incentive Plan, no award can be granted
unless the Company's total return to stockholders is greater than the total
return to stockholders of the bottom quartile of the eight company peer
group. In February 1996, the Comittee approved awards for LTIP I. The
Committee determined that the Company's total return to stockholders for the
three-year period was above the total stockholder return of the companies in
the bottom quartile of the peer group. The Committee further determined that
the Company's total stockholder return for the three-year period was equal to
that of the median of the peer group. On the basis of this performance, the
Committee granted awards equal to 100 percent of the target amounts set in
1993 as adjusted for promotions, if any occurred, during the three-year
performance period.
The value of the awards for LTIP I, which were settled in restricted stock
for Messrs. Allen, Mulva and Bowerman, and in unrestricted stock for
Messrs. Paul and Whitmire, are set forth on the line for 1995 in the Summary
Compensation Table found on page 11 of this Proxy Statement.
THE COMPENSATION COMMITTEE
Larry D. Horner, Chairman
Norman R. Augustine
George B. Beitzel
Randall L. Tobias
Victoria J. Tschinkel
16
<PAGE>
PERFORMANCE GRAPH
The following graph shows the Company's total return to stockholders compared
with the S&P 500 Index and a peer group of eight integrated oil companies
over the five-year period from December 31, 1990, through December 31, 1995.
*Total return assumes dividend reinvestment
**Amoco, Chevron, Exxon, Mobil, Texaco
Amerada Hess, ARCO, Unocal
[Performance Graph appears in this space.]
Assumes $100 invested on 12/31/90 in
Phillips Common Stock, S&P 500 Index
and Peer Group Index.
Phillips Petroleum (1) S&P 500 Index (2) Peer Group Index** (3)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C>
(1) PHILLIPS PETROLEUM $ 96 105 126 147 159
- --------------------------------------------------------------------------------------------------------------------
(2) S&P 500 INDEX 130 140 155 157 215
- --------------------------------------------------------------------------------------------------------------------
(3) PEER GROUP INDEX 110 115 131 137 179
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
TERMINATION OF EMPLOYMENT
AND
CHANGE-IN-CONTROL ARRANGEMENTS
THE WORK FORCE STABILIZATION PLAN authorized on April 26, 1988, provides that
all employees of the Company, including executive officers, who are laid off
(as defined in the plan) within two years following a change of control of
the Company will be entitled to severance benefits equal to four weeks' pay
for each year of service, subject to a maximum of 104 weeks. "Pay" is
determined by adding the employee's current base salary, regularly scheduled
overtime pay and most recent Annual Incentive Compensation Plan award (or
target award, if greater).
Company-sponsored medical, dental and life insurance programs would be
continued for affected employees. The period of time which severance benefits
cover would be added to service for purposes of retirement plan calculations,
and all affected employees would be immediately vested. In addition, affected
employees would be entitled to require the Company to purchase their
principal residences under a formula-pricing arrangement intended to protect
them from loss of value, and would be entitled to reimbursement of legal
expenses incurred in connection with any claim for benefits under the plan.
A change of control would take place if there is either (i) an acquisition
(other than directly from the Company) of 20 percent or more of the beneficial
interest in the Company's voting stock by a party other than the Company, a
subsidiary or a Company-sponsored benefit plan, or (ii) a change in the Board of
Directors as a result of which the current directors (together with the
successors which they nominate or approve for nomination) cease to be a majority
of the Board.
PENSION PLAN
THE RETIREMENT INCOME PLAN, in which all active eligible employees (including
executive officers) participate, does not require participant contributions.
Benefits are computed in accordance with several formulas. Officers,
including executive officers, generally receive benefits under a final
average earnings formula. Benefits are based on length of service, a
participant's annual salary and awards paid under the Annual Incentive
Compensation Plan. Normal retirement age is 65. A participant may retire as
early as age 55 and receive a reduced benefit. Benefits for a retiring
employee are paid in the form of a straight-life annuity or one of several
other forms of equivalent actuarial value.
The Pension Plan Table shows the maximum estimated straight-life annual
benefits payable at normal retirement age to employees in the higher salary
classifications, prior to reductions required by the plan for Social Security
benefits.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
ESTIMATED ANNUAL RETIREMENT BENEFITS UNDER FINAL AVERAGE EARNINGS FORMULA (1) (2)
ANNUAL AVERAGE OF HIGHEST 3 YEARS OF CREDITED SERVICE
CONSECUTIVE CALENDAR YEARS' AT NORMAL RETIREMENT
SALARY AND AICP AWARDS IN 10 ---------------------------------------------------------------------------------------------------
YEARS PRECEDING RETIREMENT (3) 10 15 20 25 30 35 40 45
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 450,000 72,000 108,000 144,000 180,000 216,000 252,000 288,000 324,000
650,000 104,000 156,000 208,000 260,000 312,000 364,000 416,000 468,000
850,000 136,000 204,000 272,000 340,000 408,000 476,000 544,000 612,000
1,150,000 184,000 276,000 368,000 460,000 552,000 644,000 736,000 828,000
1,450,000 232,000 348,000 464,000 580,000 696,000 812,000 928,000 1,044,000
1,750,000 280,000 420,000 560,000 700,000 840,000 980,000 1,120,000 1,260,000
2,150,000 344,000 516,000 688,000 860,000 1,032,000 1,204,000 1,376,000 1,548,000
</TABLE>
(1) As required by the Internal Revenue Code of 1986, as amended, the
retirement plan may not provide annual benefits exceeding a maximum amount,
or include in benefit computations, compensation in excess of the amount
specified in the Internal Revenue Code. Also, participation in the
Company's AICP deferral program and voluntary salary reduction program may
cause a reduction in retirement plan benefits. Additional amounts, if
required to provide the total benefits indicated in the table, would be
made by supplemental Company payments. The Company also maintains, as a
recruiting tool, a supplemental plan under which officers and other
executives who are hired during mid-career may receive retirement income in
excess of that which their shorter Credited Service would provide under the
retirement plan. However, total benefits under this supplemental plan and
the retirement plan will not exceed benefits obtainable under the
retirement plan by a full career employee at similar salary levels. These
supplemental benefits have been partially pre-funded by the Company in a
special trust designated for this purpose.
(2) With respect to the executive officers named in the Summary Compensation
Table, their years of credited service as of February 29, 1996, for
retirement purposes are: W. W. Allen, 36 years; C. L. Bowerman, 34 years;
and J. J. Mulva, 24 years. Years of credited service for retirement
purposes for W. G. Paul, 16 years, and J. L. Whitmire, 27 years, are based
on their retirement dates of 12/31/95 and 1/8/96, respectively. See the
Summary Compensation Table for their current covered compensation.
(3) AICP Awards are shown under the heading "Bonus" in the Summary Compensation
Table.
18
<PAGE>
PROPOSAL 1 - BY THE COMPANY
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ADOPTION OF THE
FOLLOWING RESOLUTION, WHICH WILL BE PRESENTED AT THE MEETING:
--------------------------------------
RESOLVED, that the Board of Directors' designation of Ernst & Young LLP to
serve as the independent auditors to audit the books, records and accounts of
the Company for the 1996 fiscal year be and hereby is approved.
--------------------------------------
Upon the recommendation of the Audit Committee, the Board of Directors has
designated Ernst & Young LLP for the purpose stated above and, in accordance
with the Bylaws of the Company, has directed that a vote of stockholders be
taken to determine their approval or disapproval.
As provided in the Company's Bylaws, in the event of stockholder disapproval,
the Board must then determine whether to replace the independent auditors
before the end of the current year and shall designate other independent
auditors for the following year.
Ernst & Young LLP, which has served as the Company's independent auditors
since 1949, is familiar with the Company's operations, accounting policies
and procedures and is, in the Company's opinion, well-qualified to act in
this capacity. Representatives of Ernst & Young LLP will be present at the
meeting to make any statement they desire and to answer questions directed to
them.
OTHER MATTERS
The Company knows of no matters to be presented at the meeting other than
those included in the Notice preceding this Proxy Statement. If other matters
should come before the meeting which require a stockholder vote, it is
intended that the proxy holders will use their own discretion in voting on
such other matters.
DATE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1997 Annual Meeting
must be received at the Company's executive offices in Bartlesville,
Oklahoma, no later than November 27, 1996, for inclusion in the Company's
Proxy Statement and form of proxy relating to that meeting.
By Order of the Board of Directors,
/s/ Dale J. Billam
-----------------------------------
Dale J. Billam
Secretary
Bartlesville, Oklahoma 74004
March 29, 1996
STOCKHOLDERS ARE ENCOURAGED TO KEEP THEIR ACCOUNT ADDRESS UP TO DATE AND
PROMPTLY DEPOSIT THEIR DIVIDEND CHECKS TO AVOID SURRENDER OF THESE FUNDS AND
RELATED STOCK TO THEIR RESPECTIVE STATES UNDER UNCLAIMED PROPERTY LAWS.
19
<PAGE>
LOGO
<PAGE>
APPENDIX - FORM OF PROXY
Definitive Copy
PHILLIPS' Shield
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PHILLIPS PETROLEUM COMPANY
Annual Meeting May 13, 1996
The undersigned hereby appoints W. ALLEN, D. BOREN and K. TURNER as
proxy holders with power of substitution, or, if all do not act on a
matter, those who do act, to vote all stock which the undersigned could
vote at the Company's annual stockholders' meeting to be held at the Adams
Building, 4th Street and Keeler Avenue, Bartlesville, Oklahoma, on May 13,
1996, at 10 a.m., and at any adjournment thereof, in the manner stated
herein as to the following matters and in their discretion on any other
matters that come before the meeting, all as described in the Notice and
Proxy Statement.
This Proxy is Continued on the Reverse Side
Please Sign on the Reverse Side and Return Promptly
^FOLD AND DETACH HERE^
<PAGE>
This Proxy will be voted or not voted as you direct below. In the absence
of such direction, it will be voted FOR Directors, and FOR Proposal 1.
Please mark ---
your votes as | X |
indicated in ---
this example
Company recommends a vote FOR: ELECTION OF DIRECTORS: Nominees: W. Allen,
N. Augustine, G. Beitzel, D. Boren, C. Bowerman, R. Chappell, Jr.,
L. Eagleburger, J. Edwards, L. Horner, J. Mulva, R. Tobias, V. Tschinkel,
and K. Turner.
VOTE FOR VOTE WITHHELD *To withhold authority to vote for
all nominees from all nominees any nominee write that nominee's
listed above* listed above name on the space below.
__ __
|__| |__| ---------------------------------
Company recommends a vote FOR:
Proposal 1 to approve the
designation of the independent
auditors, Ernst & Young LLP.
FOR AGAINST ABSTAIN
__ __ __
|__| |__| |__|
__
I PLAN TO ATTEND THE |__|
ANNUAL MEETING
Please mark, date, sign and return this proxy card promptly. To vote in
accordance with the Company's recommendations no boxes need be checked.
Dated:______________________, 1996
__________________________________
__________________________________
Signature(s) of Stockholder(s)
Your signature(s) on this proxy form should be exactly the same as the
name(s) imprinted hereon. Persons signing as executors, administrators,
trustees, or in similar capabilities, should so indicate.
^FOLD AND DETACH HERE^
<PAGE>
