U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 240.14a-11(c) or 240.14a-12
PHILLIPS PETROLEUM COMPANY
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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NOTICE OF 1998 ANNUAL MEETING
MAY 11, 1998
and PROXY STATEMENT
[PHILLIPS PHILLIPS PETROLEUM COMPANY
66 BARTLESVILLE, OKLAHOMA 74004
Logo]
March 30, 1998
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 11, 1998, commencing at 10 a.m. local time. Your
attendance will provide you with an opportunity to hear the chairman's and
the president's reports on the Company and its operations. Directors and
representatives of the Company will also be in attendance.
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 12 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
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Table of Contents
Page
3 Notice of Annual Meeting
4 Solicitation
4 Confidential Voting
4 Voting Securities and Principal Holders
4 Vote Required for Election of Directors and
Adoption of Company and Stockholder Proposals
5-7 Nominees for Election as Directors
7 Security Ownership of Certain Beneficial Owners
8 Security Ownership of Management
8 Section 16(a) Beneficial Ownership Reporting Compliance
8 Compensation Committee Interlocks and Insider Participation
9-10 General Information Relating to the Board of Directors
10 Compensation of Directors and Nominees
11 Executive Compensation
12 Options/SAR Grants in Last Fiscal Year
12 Ten-Year Option/SAR Repricing
13 Aggregated Option/SAR Exercises in Last Fiscal Year
And Fiscal Year-End Option/SAR Value
13 Long-Term Incentive Plan Awards in Last Fiscal Year
14-16 Compensation Committee Report to Stockholders on
Executive Compensation
17 Performance Graph
18 Pension Plan
19 Termination of Employment and Change-in-Control Arrangements
19 Proposal 1
19 Date for Receipt of Stockholder Proposals
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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.
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PHILLIPS PETROLEUM COMPANY
BARTLESVILLE, OKLAHOMA 74004
NOTICE OF ANNUAL MEETING to be held May 11, 1998
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 11, 1998,
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 12 directors (pages 5 through 7);
Proposal of the Company:
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Proposal 1. To approve the designation of Ernst & Young LLP
as independent auditors for 1998 (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 13, 1998, 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 1997 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 30, 1998
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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.
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PHILLIPS PETROLEUM COMPANY
BARTLESVILLE, OKLAHOMA 74004
March 30, 1998
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 30, 1998, to stockholders of record as of March 13,
1998.
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 ChaseMellon Shareholder
Services, L.L.C. as tabulators of all proxies and ballots, and has appointed two
persons who are employees of ChaseMellon 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 290,963,884 shares outstanding at the
close of business February 28, 1998. The record date for stockholders entitled
to vote at this meeting is March 13, 1998. 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 28, 1998, by any person or group known to own 5 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 and 8 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 28, 1998, unless otherwise stated.
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NOMINEES FOR ELECTION AS DIRECTORS
The number of directors to be elected is 12. The designated proxy holders of the
Company intend, unless otherwise instructed, to vote all proxies for the
election of the following 12 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 1998 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 28, 1998, 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.
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W. W. Allen
Director since 1989 W. W. Allen is Chairman of the Board of Directors
and Chief Executive Officer of the Company, a
Age 61 position he assumed in May 1994. He previously was
President and Chief Operating Officer, beginning in
[photo] December 1991. He is a director of the Bank of
Oklahoma, N.A.
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Norman R. Norman R. Augustine is Chairman of the Board of
Augustine Directors of Lockheed Martin Corporation, a position
he assumed in January 1997. Prior to that, he was
Director since 1989 Chief Executive Officer from January 1996 through
July 1997; and President from March 1995 through
Age 62 June 1996. He previously served as Chairman of the
Board of Directors and Chief Executive Officer of
[photo] Martin Marietta Corporation from April 1988 until
its merger with Lockheed Corporation in March 1995.
He is a director of The Procter & Gamble Company and
The Black & Decker Corporation.
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George B. George B. Beitzel is a director of various
Beitzel corporations. He previously served as Senior Vice
President and Director of International Business
Director since 1980 Machines Corporation from July 1955 to March 1987.
He is a director of Bankers Trust New York
Age 69 Corporation and its subsidiary, Bankers Trust
Company; Bitstream Inc.; Computer Task Group, Inc.;
[photo] Rohm and Haas Company; TIG Holdings; and Xillix
Technologies Corp.
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David L. Boren David L. Boren is President of the University of
Oklahoma, a position he assumed in November 1994. He
Director since 1994 previously served as a United States Senator from
the State of Oklahoma from November 1979 until
Age 56 November 1994 and is a former Governor of Oklahoma.
He is a director of AMR Corporation; Texas
[photo] Instruments Corporation; and Torchmark Corporation.
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C. L. Bowerman C. L. Bowerman is an Executive Vice President
responsible for planning and corporate relations and
Director since 1989 services, a position he assumed in January 1995. He
previously was Executive Vice President responsible
Age 58 for corporate strategic planning, corporate
information technology and research and development
[photo] beginning in April 1992, and Executive Vice
President responsible for corporate engineering,
corporate strategic planning and research and
development beginning in December 1991.
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Robert E. Robert E. Chappell, Jr., is self employed as an
Chappell, Jr. investment and management consultant. He previously
was the Senior Executive Vice President and Chief
Director since 1990 Investment Officer of Metropolitan Life Insurance
Company, a position he held from October 1989
Age 61 [photo] through December 1992.
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Lawrence S. Lawrence S. Eagleburger is Senior Foreign Policy
Eagleburger Advisor for Baker, Donelson, Bearman & Caldwell, a
Washington, D.C. law firm, a position he assumed in
Director since 1993 January 1993. He previously served as Secretary of
State from December 1992 through January 1993,
Age 67 Acting Secretary of State from August 1992 to
December 1992, and Deputy Secretary of State from
[photo] February 1989 to August 1992. He is a director of
COMSAT Corporation; Corning Incorporated; Dresser
Industries, Inc.; Stimsonite Corporation; and
Universal Corporation.
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Larry D. Larry D. Horner is Chairman of Pacific USA Holdings
Horner Corporation, a position he assumed in August 1994.
He previously was a Managing Director of Arnhold and
Director since 1991 S. Bleichroeder, Inc., from April 1991 through July
1994. He served as Chairman and Chief Executive
Age 63 Officer of KPMG Peat Marwick from October 1984 to
December 1990. He is a director of American General
[photo] Corporation; Asia Pacific Wire & Cable Corp., Ltd.;
Atlantis Plastics, Inc.; Biological & Popular
Culture, Inc.; and Laidlaw Holdings, Inc.
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J. J. Mulva J. J. Mulva 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
Director since 1994 Company and its Chief Financial Officer from January
1994 through April 1994; Senior Vice President and
Age 51 Chief Financial Officer beginning in May 1993; Vice
President and Chief Financial Officer beginning in
[photo] March 1993; and Vice President, Treasurer and Chief
Financial Officer beginning in March 1990.
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Randall L. Randall L. Tobias is Chairman of the Board of
Tobias Directors and Chief Executive Officer of Eli Lilly
and Company, a position he assumed in June 1993. He
Director since 1992 previously was Vice Chairman of the Board of
Directors of AT&T from September 1986 to June 1993.
Age 55 He is a director of Kimberly-Clark Corporation and
[photo] Knight-Ridder, Inc.
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Victoria J. Victoria J. Tschinkel is a Senior Consultant to
Tschinkel Landers & Parsons, a Tallahassee, Florida, law firm,
a position she assumed in 1987. She previously
Director since 1993 served as Secretary of the Florida Department of
Environmental Regulation from 1981 to 1987.
Age 50 [photo]
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Kathryn C. Kathryn C. Turner is Chairperson and Chief Executive
Turner Officer of Standard Technology, Inc., an engineering
and manufacturing firm she founded in 1985. She is a
Director since 1995 director of Carpenter Technology Corporation.
Age 50 [photo]
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<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
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Name and Address of Amount and Nature of Beneficial
Title of Class Beneficial Owner Ownership Percent of Class
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Direct Indirect
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<S> <C> <C> <C> <C>
Common Vanguard Fiduciary Trust Company 47,657,146 (1) -- 16.38%
P. O. Box 2900
Valley Forge, Pennsylvania 19482
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</TABLE>
(1) As of February 28, 1998, Vanguard as Trustee held 47,657,146 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 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.
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SECURITY OWNERSHIP OF MANAGEMENT
Phillips Petroleum Company
Securities
Amount and Nature of
Beneficial Ownership
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Title of Class Name of Beneficial Owner Direct(1) Indirect Percent of Class
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Directors and Nominees (2)
Common W. W. Allen 484,479 -- less than 1%
Common Norman R. Augustine 10,200 -- less than 1%
Common George B. Beitzel 71,209 -- less than 1%
Common David L. Boren 4,100 -- less than 1%
Common C. L. Bowerman 154,060 654 less than 1%
Common Robert E. Chappell, Jr. 8,500 -- less than 1%
Common Lawrence S. Eagleburger 6,300 -- less than 1%
Common James B. Edwards (3) 14,223 -- less than 1%
Common Larry D. Horner 7,500 -- less than 1%
Common J. J. Mulva 279,962 -- less than 1%
Common Randall L. Tobias 8,000 -- less than 1%
Common Victoria J. Tschinkel 6,429 -- less than 1%
Common Kathryn C. Turner 4,100 -- less than 1%
Executive Officers
Common K. Am 78,379 -- less than 1%
Common R. G. Ceconi 96,462 -- less than 1%
Common R. K. Gupta 48,934 2,276 less than 1%
Common K. L. Hedrick 115,347 -- less than 1%
Common J. L. Howe 135,426 -- less than 1%
Common J. C. Mihm 159,884 676 less than 1%
Common T. C. Morris 103,481 -- less than 1%
Common M. J. Panatier 77,992 -- less than 1%
Common B. Z. Parker 87,464 -- less than 1%
Common B. J. Price 66,925 -- less than 1%
Common J. B. Whitworth 148,199 -- less than 1%
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All directors, nominees and executive
officers as a group (24 in group) 2,177,555 3,606 less than 1%
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(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.
(3) Mr. James B. Edwards, a current director, is retiring as director having
reached mandatory retirement age.
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SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
To the Company's knowledge, no person or entity who was a director, officer or
beneficial owner of more than 10 percent of the Company's common stock failed to
file, on a timely basis during 1997, reports required by Section 16(a) of the
Securities Exchange Act of 1934, as amended.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Members of the Compensation Committee are Norman R. Augustine, George B.
Beitzel, Lawrence S. Eagleburger, Randall L. Tobias and Kathryn C. Turner. The
Company had no interlocking relationship during the last fiscal year.
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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. In calendar year 1997, the Board
of Directors held eight meetings and the directors attended an average of
97 percent of all Board and Committee meetings.
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:
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Compen- Directors' Public
Audit sation Affairs Executive Policy
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Horner* Beitzel* Edwards* Allen* Tschinkel*
Boren Augustine Augustine Beitzel Boren
Edwards Eagleburger Chappell Chappell Chappell
Tobias Tobias Eagleburger Edwards
Tschinkel Turner Horner Turner
Mulva
* Chairman
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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 five meetings in 1997.
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 all Executive Officers and for all
employees who earn $250,000 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 seven meetings in 1997.
The Committee on Directors' Affairs 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 Committee on Directors' Affairs held two meetings in 1997.
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 five meetings in 1997.
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,
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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
four meetings in 1997.
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 funded in a special trust designated for this purpose.
Effective January 1, 1998, the Board of Directors unanimously agreed to
terminate the Non-Employee Director Retirement Plan for all non-employee
directors whose normal retirement date is after 1998. Commensurate with this
action and to further align the interests of the non-employee directors with
those of stockholders, the Board of Directors unanimously approved the Phillips
Petroleum Company Stock Plan for Non-Employee Directors ("Non-Employee Director
Stock Plan"). The Non-Employee Director Stock Plan became effective January 1,
1998, and provides for the issuance of restricted or unrestricted Company common
stock.
The Non-Employee Director Stock Plan provides for an initial grant of restricted
stock in satisfaction of the non-employee directors' December 31, 1997, accrued
retirement benefits in the Non-Employee Director Retirement Plan. The
Non-Employee Director Stock Plan also provides for annual grants of restricted
stock which are targeted to render competitive the directors' total compensation
from the Company when compared to the total compensation of other non-employee
directors within the Company's peer group. The grant for 1998 will be 400 shares
of the Company's common stock which is restricted, non-transferable and
forfeitable. Both the initial grant and the grant of the 400 shares of
restricted stock will be made in March 1998. For 1998, a dividend-equivalent
amount will be payable to each non-employee director receiving these shares
equal to the dividend which would have been payable on such shares if they had
been granted to and retained by the directors on the effective date of the Plan.
All dividends payable on restricted stock, and such dividend-equivalent, are
reinvested in restricted stock.
Shares that are accumulated on behalf of each non-employee director are
restricted until retirement. However, the Non-Employee Director Stock Plan
provides for annual lapsing of the restrictions on a percentage of the shares
held in the account on behalf of the non-employee director beginning five years
before normal retirement from the Board of Directors, and all restrictions will
lapse in the year the director reaches age 70. Based on the director's election,
which is made in the year the director reaches age 65, the director may have the
value of lapsed shares credited to the director's account in the Deferred
Compensation Plan for Non-Employee Directors or may take possession of the
lapsed shares. The director may also elect to delay the lapsing of the
restrictions until retirement from the Board of Directors.
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.
As part of the Company's overall program to support communities and recognize
the importance of charitable giving, The Phillips Petroleum Company Charitable
Giving Program was established in December 1996. The program is funded by life
insurance policies on directors. Upon the death of an individual director, the
Company will donate the $1,000,000 proceeds from such life insurance to one or
more qualifying charitable organizations recommended by the individual director,
which will be paid in $100,000 installments over a 10-year period. Individual
directors derive no financial benefit from this program, because all charitable
deductions for Federal and State income taxes accrue solely to the Company. The
Company paid premiums of $336,274 in 1997.
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EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth compensation information for
services performed in 1997, 1996 and 1995 for those persons who were at
December 31, 1997, the Chief Executive Officer and the four most highly
compensated officers.
<TABLE>
<CAPTION>
Summary Compensation Table
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Long-Term Compensation
-----------------------------------------
Annual Compensation Awards Payouts
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Restricted Securities All Other
Other Annual Stock Underlying Long-Term Compen-
Name and Compensation Award(s)(1) Option/ Incentive sation(2)
Principal Position Year Salary($) Bonus($) ($) ($) SARs (#) Payout($) ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. W. Allen 1997 870,000 1,105,328 0 0 210,400 568,289(3) 9,217
Chairman of the 1996 850,000 1,105,000 0 0 237,359 579,469(4) 8,053
Board & CEO 1995 824,000 414,375 0 0 185,941 343,298(5) 7,289
J. J. Mulva 1997 625,500 738,787 0 0 66,600 293,552(3) 9,217
President & 1996 594,667 731,340 0 0 65,105 322,656(4) 8,053
COO 1995 481,333 221,250 0 0 44,484 184,688(5) 7,289
C. L. Bowerman 1997 453,501 473,567 0 0 29,600 182,005(3) 9,217
Executive Vice 1996 445,250 379,842 0 0 36,592 263,025(4) 8,053
President 1995 343,000 172,495 0 0 26,728 183,906(5) 7,289
K. L. Hedrick 1997 366,750 321,538 0 0 21,200 97,357(3) 9,217
Executive Vice 1996 345,750 232,476 0 0 22,802 124,294(4) 7,335
President 1995 256,000 83,666 0 0 15,470 76,534(5) 7,289
T. C. Morris 1997 363,751 334,348 0 0 21,000 116,442(3) 9,217
Sr. Vice President 1996 356,000 243,493 0 0 24,240 131,600(4) 8,052
& CFO 1995 280,000 109,122 0 0 16,921 76,602(5) 7,285
- -------------------------------------------------------------------------------------------------------------------------------
</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 that 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") or after
a change of control. The aggregate number of such restricted shares held at
December 31, 1997, 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 times) were: Mr. Allen, 0 shares, $0; Mr. Bowerman, 47,933 shares,
$2,309,771; Mr. Hedrick, 13,733 shares, $661,759; Mr. Morris, 24,992
shares, $1,204,302; Mr. Mulva, 53,157 shares, $2,561,503.
(2) Includes Company contributions to the Thrift Plan for the benefit of
participants and the value of the shares allocated to Long-Term Stock
Savings Plan participants as of the respective valuation dates.
(3) Value of the restricted stock on the date of the award for performance
under the Long-Term Incentive Plan Performance Period from 1995-1997.
(4) Value of the restricted stock on the date of the award for performance
under the Long-Term Incentive Plan Performance Period from 1994-1996.
(5) Value of the restricted stock on the date of the award for performance
under the Long-Term Incentive Plan Performance Period from 1993-1995.
11
<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Stock options granted during 1997 to the Chief Executive Officer and the four
most highly compensated officers of the Company are reflected in the following
Option/SAR Grants in Last Fiscal Year table.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Individual Grants Price Appreciation for Option Term (1)
------------------------------------------------------ ---------------------------------------
Number of Percent of Total
Securities Options/SARS
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date 0% ($) 5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
W. W. Allen 85,400 7.23% 45.75 01/13/07 0 2,456,958 6,226,514
125,000 10.58% 38.00 04/15/07 0 2,987,500 7,570,000
J. J. Mulva 55,400 4.69% 45.75 01/13/07 0 1,593,858 4,039,214
8,000 0.68% 43.75 02/09/07 0 220,080 557,840
3,200 0.27% 43.85 07/14/07 0 88,256 223,648
C. L. Bowerman 29,600 2.51% 45.75 01/13/07 0 851,592 2,158,136
K. L. Hedrick 17,500 1.48% 45.75 01/13/07 0 503,475 1,275,925
3,700 0.31% 50.25 12/08/07 0 116,920 296,333
T. C. Morris 21,000 1.78% 45.75 01/13/07 0 604,170 1,531,110
- -----------------------------------------------------------------------------------------------------------------------
Total Stockholders (2) N/A N/A N/A N/A 0 7,575,199,432 19,197,351,080
- -----------------------------------------------------------------------------------------------------------------------
</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, 1997, (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, 1997,
is shown above as "potential realizable value" for Total Stockholders.
TEN-YEAR OPTION/SAR REPRICING
There have been no option 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 -- -- -- --
K. L. Hedrick -- 0 -- -- -- --
T. C. Morris -- 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 1997 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 1997 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>
229,818 3,628,947
W. W. Allen 0 0 496,319 5,153,892
114,280 2,221,630
J. J. Mulva 24,179 762,063 146,248 1,349,818
29,062 599,155
C. L. Bowerman 67,810 1,290,986 77,447 786,527
51,169 937,206
K. L. Hedrick 456 10,315 52,305 500,427
20,059 312,880
T. C. Morris 19,863 344,217 51,241 493,089
- -----------------------------------------------------------------------------------------------
</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 $48.1875, the fair market value of the Company's common stock on
December 31, 1997.
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 1997 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 13,093 12/31/99 6,547 13,093 26,186
J. J. Mulva 8,484 12/31/99 4,242 8,484 16,968
C. L. Bowerman 4,534 12/31/99 2,267 4,534 9,068
K. L. Hedrick 6,926 12/31/99 3,463 6,926 13,852
T. C. Morris 3,207 12/31/99 1,604 3,207 6,414
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) At the end of the three-year performance period, from January 1, 1997,
through December 31, 1999, 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 seven 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, outside directors 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, to achieve a high level
of return on the capital assets employed by the Company and to achieve industry
safety leadership.
Executive compensation decisions made by the Committee are based on a
combination of quantitative and qualitative measures. During 1997, quantitative
measures employed by the Committee to evaluate corporate performance were:
relative total return to stockholders; the generation of cash flow adjusted for
working capital changes and other changes in long-term accounts from the
Company's operating activities; and improving safety performance through
reduction of recordable injuries. Quantitative measures employed by the
Committee to evaluate business unit and staff performance were: the achievement
of pre-established targets set for organizations engaged in the development of
projects designed to result in profitable growth and the addition of value to
the Company; controlling expenses; the generation of funds from the business
unit's operating activities; improving safety performance through reduction of
recordable injuries; and the implementation of a process to achieve safety
excellence. In addition, staff units are measured by the relative success of
their internal customers.
The Committee also uses the following qualitative measures of performance: the
application of experience; accomplishments in developing and implementing
strategic plans; contribution to growth of business lines; 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 upward or downward by commodity price movements and
geopolitical factors over which the Company and its management have no control.
Therefore, the Committee evaluates both quantitative and qualitative measures,
and external factors, and may use discretion in recognizing performance
achievements leading to the creation of economic value enhancement.
By design, executive compensation provides awards which vary with performance
and produce an opportunity for earnings through performance over a longer term.
The Company's objective in so doing is to provide a substantial percentage of
the total compensation of its executives through variable or "at-risk"
compensation arrangements under the Annual Incentive Compensation Plan, the
granting of stock options and through awards under the Long-Term Incentive Plan.
Internal Revenue Code Section 162(m)
- ------------------------------------
The Compensation Committee has carefully considered the implications of Section
162(m) of the Internal Revenue Code. The Committee's policy is, where possible
and considered appropriate, to preserve corporate tax deductions, including the
deductibility of compensation to the executive officers named in the Summary
Compensation Table pursuant to Section 162(m) of the Internal Revenue Code. The
Committee's policy is also to maintain the flexibility to approve compensation
arrangements which it deems to be in the best interest of the Company and its
stockholders, but which may not always qualify for full tax deductibility. The
Committee believes that it is in the best interest of the Company and its
stockholders to preserve the flexibility to reward executives consistent with
the Company's pay philosophy for each element of compensation. The Committee
will continue to review the executive compensation practices of the Company to
determine if elements of executive compensation administered by the Committee
are appropriate for qualification as "performance-based compensation" under the
provisions of Section 162(m) of the Internal Revenue Code.
Executive Compensation Actions for 1997
Salaries
- --------
During 1997, the Committee reviewed and approved salaries for all executive
officers and employees with annual salaries of $250,000 or above, except for the
Chairman of the Board and the President, in which cases the Committee recommends
their salaries to the Board of Directors for consideration. In September 1997,
as part of the Company's annual salary program, the Committee reviewed
competitive salary data for the Chairman of the Board and for the President to
determine if the Committee would recommend to the Board of Directors that the
salaries of these two officers be changed. Competitive salary data provided by
an independent, third-party consultant was utilized for this purpose. On the
basis of the information provided, the Committee unanimously approved a
resolution recommending to the Board of Directors that Mr. Allen's annual salary
be increased from $850,000 to $930,000. Mr. Allen's salary had not been
increased since April of 1995. In addition, after considering competitive salary
data, the Committee unanimously agreed to recommend to the Board of Directors
that the annual salary of Mr. Mulva, the President and Chief Operating Officer,
be
14
<PAGE>
increased from $612,000 to $666,000. The changes to Mr. Allen and Mr. Mulva's
salaries were effective October 1, 1997.
In addition to the recommendations stated above, in the September 1997
Compensation Committee meeting, the Committee used competitive salary data to
approve changes to the annual salaries of other executive officers and all other
employees whose annual salary was $250,000 or greater. The approved changes to
the annual salaries of executive officers and other employees whose salary was
$250,000 or greater were effective October 1, 1997.
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 1997, the minimum amount of cash flow generation, after
adjustments for changes in working capital and other changes in long-term
accounts that was required to activate this Plan, was $1.46 billion and the
target amount for cash generation was $1.826 billion. In addition to the minimum
cash threshold, the AICP contains objectives which the Committee establishes
each year. For 1997, the Committee set three Companywide objectives: (i) total
stockholder return for 1997 should exceed the median stockholder return of the
oil industry peer companies, as listed in the Proxy Statement Performance Graph
used by the Company to compare its stockholder return performance; (ii) safety
performance should be better than pre-established targets measuring recordable
injury rate; and (iii) cash flow generation from operating activities, adjusted
for working capital changes and other changes in long-term accounts, should
exceed $1.826 billion.
The Committee establishes targets each year for individual AICP awards based on
a percentage of salary. The target awards are established using both internally
generated data and data obtained from an independent, third-party consultant and
are intended to provide competitive bonus opportunities if performance
objectives are met. For 1997, the target percentages varied from 22.5 percent of
salary for the beginning level of AICP eligibility to 75 percent of salary for
the Chief Executive Officer. The target percentages are prorated to recognize
changes in salary bands during the year. The Committee is authorized under the
terms of the AICP to approve individual awards from 0 percent of the target
amount to 200 percent of the target amount 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
the business unit or staff group with which the participant is related, as well
as corporate performance. In February 1998, the Committee approved cash awards
for SBU and staff units under the 1997 AICP ranging from 79 percent of the
target bonus to 154 percent of target bonus based on a review of the Company's
1997 corporate and business unit or staff group performance.
In determining the amount of incentive compensation award to be paid to Mr.
Allen and Mr. Mulva, the Committee determined that cash flow, adjusted for
working capital changes and other changes in long-term accounts, exceeded the
minimum threshold by $753 million. The results for 1997 exceeded the target by
21 percent and were 8 percent better than the amount achieved in 1996. The
Company's total return to shareholders was in excess of 13 percent and ranked
sixth in the peer group. The Company's rate of recordable injuries was
14 percent better than the established target, which made 1997 the safest year
in the Company's history, exceeding the previous record set in 1996. Taking the
above into consideration, it was the Committee's judgment to grant AICP awards
to Mr. Allen and to Mr. Mulva which were 37.8 percent greater than the target
amount. The amount of the awards for Mr. Allen and Mr. Mulva are set forth in
the Summary Compensation Table found in this Proxy Statement.
Stock Options
- -------------
It is the Committee's practice to consider the grant of stock options during
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. If the date of the grant is not
a day in which the Company's stock is traded on the New York Stock Exchange, the
fair market value is determined on the first trading day immediately preceding
the date on which the Committee grants the option. 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 job positions. The number of shares subject to option grants
varies based on job classification and salary. Grants in January 1997 ranged in
estimated value from 35 percent of annual salary for the lowest level of
eligibility to 200 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 used by the Committee in grants during January of each year.
During the April 1997 Compensation Committee meeting, the Committee approved a
supplemental grant of a stock option to Mr. Allen of 125,000 shares of the
Company's common stock. The purpose of the grant was to recognize Mr. Allen's
outstanding performance for 1996 and to render Mr. Allen's total compensation
competitive with that of his peers within the petroleum industry.
During the February 1997 Compensation Committee meeting, the Committee approved
a supplemental grant of a
15
<PAGE>
stock option to Mr. Mulva of 8,000 shares of the Company's common stock. The
purpose of the grant was to recognize Mr. Mulva's outstanding performance for
1996. In addition, in the July 1997 Compensation Committee meeting, the
Committee approved an additional supplemental grant of a stock option to Mr.
Mulva of 3,200 shares of the Company's common stock. The purpose of the July
grant was to recognize Mr. Mulva's role in the successful conclusion of
negotiations regarding the Company's properties in the North Sea.
For Mr. Allen, Mr. Mulva 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 administers the Long-Term Incentive Plan under the Omnibus
Securities Plan approved by stockholders in 1993. Under the terms of this plan,
each year the Committee establishes a three-year performance period. The plan
contains a single performance measure which is the Company's total return to
stockholders compared with the total return to stockholders for the oil industry
peer companies listed in the Performance Graph information on page 17. Before
awards may be granted, the Company's total stockholder return must be above the
bottom quartile of the industry peer companies.
In the January 1997 meeting, the Committee established the fifth performance
period of the plan, which extends from January 1, 1997, through December 31,
1999. Target awards for Mr. Allen and the other executive officers are shown 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 Performance Period V were
established by the Committee using both internally generated information and
competitive data provided by an independent, third-party consultant.
Supplemental target awards, which are included in the target awards listed in
the table, were approved in recognition of promotions during the year. Actual
awards, if any, will be determined by the Committee at the end of the
performance period based on a single measurement which is the Company's relative
total stockholder return compared with the peer companies against which the
Company evaluates its stockholder return performance.
In 1995, the Committee established the third performance period of the Long-Term
Incentive Plan ("LTIP III"). 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 companies as listed in the Proxy Statement Performance
Graph and used by the Company to compare its shareholder return performance. For
LTIP III, the peer group included one additional company, Unocal, which was a
member of the peer group when LTIP III commenced. The LTIP III performance
period covered the three years from 1995 through 1997.
In 1995, the Committee established a target award for each individual based on a
percentage of salary varying by job grade classification and price of Company
stock at the beginning of the performance period. 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 oil industry peer companies. The Committee
determined that the Company's total return to stockholders for the three-year
period was above the total return to stockholders of the companies in the bottom
quartile of the peer group. The Committee further determined that the Company's
total return to stockholders was 63 percent for the three-year performance
period which placed the Company in the third quartile of the peer group. The
Company placed sixth of the nine positions in the oil industry peer group
including the Company. On the basis of the above performance, the Committee
granted awards equaling 10 percent less than the target amount set in 1995
adjusted for promotions, if any, during the three-year performance period.
The value of the awards for LTIP III, which are settled in restricted stock for
the five most highly compensated executive officers, is set forth on the line
for 1997 in the Summary Compensation Table found in this Proxy Statement.
THE COMPENSATION COMMITTEE
George B. Beitzel, Chairman
Norman R. Augustine
Lawrence S. Eagleburger
Randall L. Tobias
Kathryn C. Turner
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 seven integrated oil companies over
the five-year period from December 31, 1992, through December 31, 1997.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL STOCKHOLDER RETURN (1)
Among Phillips Petroleum, S&P 500 Index, and Peer Group Index (2)
Dollars
260|------------------------------------------------------------------|
| |
| # |
| |
240|------------------------------------------------------------------|
| * |
| o |
| |
220|------------------------------------------------------------------|
| |
| |
| |
200|--------------------------------------------------o---------------|
| * |
| # |
| |
180|------------------------------------------------------------------|
| |
| |
| |
160|------------------------------------------------------------------|
| #* |
| o |
| |
140|-------------------------o----------------------------------------|
| Assumes $100 invested on 12/31/92 in|
| Phillips Common Stock, S&P 500 Index|
| and Peer Group Index. |
120|-------------o-----------*----------------------------------------|
| * |
| # # |
| |
100|-|o#*--------|-----------|----------|-------------|-------------|-|
1992 1993 1994 1995 1996 1997
o Phillips Petroleum # S&P 500 Index * Peer Group Index(2)
1993 1994 1995 1996 1997
Phillips Petroleum $ 120 $ 140 $ 151 $ 202 $ 229
S&P 500 Index 110 112 153 189 252
Peer Group Index (2) 114 119 157 193 235
Peer Group Index (3) 114 119 156 192 233
(1) Total return assumes dividend reinvestment
(2) Amerada Hess, Amoco, ARCO, Chevron, Exxon, Mobil, Texaco
(3) Commencing in 1997, Phillips changed its peer group to exclude Unocal
Corporation, which sold its refining, marketing and transportation
operations. The line representing the Peer Group Index without Unocal is
included in the graph and table above. The difference between the Peer
Group Index without Unocal and the Peer Group Index which includes Unocal
is not material. The Peer Group Index including Unocal is listed in the
table but not illustrated with a line in the Performance Graph.
17
<PAGE>
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) 20 25 30 35 40 45
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 650,000 208,000 260,000 312,000 364,000 416,000 468,000
850,000 272,000 340,000 408,000 476,000 544,000 612,000
1,150,000 368,000 460,000 552,000 644,000 736,000 828,000
1,450,000 464,000 580,000 696,000 812,000 928,000 1,044,000
1,750,000 560,000 700,000 840,000 980,000 1,120,000 1,260,000
2,050,000 656,000 820,000 984,000 1,148,000 1,312,000 1,476,000
2,350,000 752,000 940,000 1,128,000 1,316,000 1,504,000 1,692,000
2,650,000 848,000 1,060,000 1,272,000 1,484,000 1,696,000 1,908,000
</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 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 28, 1998, for
retirement purposes are: W. W. Allen, 38 years; C. L. Bowerman, 36 years;
K. L. Hedrick, 26 years; T. C. Morris, 32 years; and J. J. Mulva, 26 years.
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>
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, as defined below, 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 certain claims for benefits under the plan.
A change of control would take place if there is (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, (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,
(iii) approval of a complete liquidation or dissolution of the Company by
shareholders, or (iv) approval by shareholders of a reorganization, merger,
consolidation, sale or other disposition of all or substantially all of the
assets of the Company, or the acquisition of the assets of another entity,
unless following such transaction (a) shareholders of the Company prior to the
transaction continue to beneficially own at least 60 percent of the resulting
corporation's stock and voting securities, (b) no person (other than employee
benefit plans) beneficially owns more than 20 percent of such corporation's
stock and voting securities, and (c) a majority of the Board of Directors of the
resulting corporation were directors of the Company immediately prior to the
transaction.
Other Change-in-Control Arrangements
Upon a change of control, benefits to officers and other employees would be
accelerated under the Omnibus Securities Plan, the 1986 Stock Plan, the 1990
Stock Plan, and the Annual Incentive Compensation Plan.
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 1998 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 1999 Annual Meeting must
be received at the Company's executive offices in Bartlesville, Oklahoma, no
later than November 30, 1998, 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 30, 1998
19
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[ PHILLIPS
66
Logo ]
Printed on recycled paper
<PAGE>
[LOGO]
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PHILLIPS PETROLEUM COMPANY
Annual Meeting May 11, 1998
The undersigned hereby appoints W. ALLEN, N. AUGUSTINE and R. CHAPPELL, JR. 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 11, 1998, 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
<PAGE>
This Proxy will be voted or not voted as you Please mark your
direct below. In the absence of direction, votes as indicated [X]
it will be voted FOR Directors, and FOR Proposal 1. 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,
L. Horner, J. Mulva, R. Tobias, V. Tschinkel and K. Turner.
VOTE FOR VOTE WITHHELD *To withhold authority to vote for any
all nominees for all nominees nominee write that nominee's name on
listed above* listed above the space below.
[ ] [ ] ________________________________________
- --------------------------------------------------------------------------------
Company recommends a vote FOR:
Proposal 1 to approve the
designation of the independent
auditors, Ernst & Young LLP.
I PLAN TO ATTEND THE
FOR AGAINST ABSTAIN 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:________________ , 1998
______________________________
______________________________
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.
<PAGE>
