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-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:
----------------------------------------------------------------------
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:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
<PAGE>
[LOGO] PHILLIPS PETROLEUM COMPANY
BARTLESVILLE, OKLAHOMA 74004
NOTICE OF
2000
ANNUAL STOCKHOLDERS MEETING
MAY 8, 2000
and
PROXY STATEMENT
Monday
May 8, 2000
10 a.m. CST
Adams Building
4th Street & Keeler Avenue
Bartlesville, Oklahoma 74004
March 29, 2000
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 8, 2000, starting at 10 a.m. local time. Your
attendance will provide you with an opportunity to hear the chairman's report on
the Company and its operations. Directors and representatives of the Company
will also be in attendance.
The matters to be acted upon are described in the accompanying Notice of Annual
Meeting and the Proxy Statement. At the meeting, we will also respond to any
questions you may have.
In addition to the election of 10 directors, you are asked to vote on one
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. Stockholders of record may instruct the Proxy holders how to
vote your common stock by using the toll-free telephone number on the Proxy Card
or by signing, dating and mailing the Proxy Card in the postage-paid envelope
that we have provided to you.
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/ J. J. Mulva
- -----------------------------------------
J. J. Mulva
Chairman and Chief Executive Officer
<PAGE>
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2 TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
<S> <C>
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
14 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
</TABLE>
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.
<PAGE>
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3 NOTICE OF ANNUAL MEETING
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PHILLIPS PETROLEUM COMPANY
BARTLESVILLE, OKLAHOMA 74004
Dated March 29, 2000
NOTICE OF ANNUAL MEETING to be held May 8, 2000
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 8, 2000,
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 10 directors (pages 5 through 7);
Proposal of the Company:
Proposal 1. To approve the designation of Ernst & Young LLP as independent
auditors for 2000 (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 17, 2000, 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 1999 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
IMPORTANT:
Please (1) use the toll-free telephone number on the Proxy Card to submit your
proxy by phone or (2) 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, please follow the instructions on how to do so for
telephone voting. If you vote by using the proxy card, it is not necessary to
specify your choice but the proxy card must be signed and returned.
<PAGE>
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4 PROXY STATEMENT
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March 29, 2000
SOLICITATION
Your proxy is solicited by the Board of Directors and all costs of solicitation
will be paid by the Company. Your proxy will be voted as you direct. It may be
revoked by you at any time before it is voted by:
(1) filing with the Secretary an instrument revoking the earlier proxy;
(2) executing a later-dated proxy; or
(3) voting in person by ballot at the meeting.
This Proxy Statement and Proxy Card are first being mailed on or about April 4,
2000, to stockholders of record as of March 17, 2000.
Georgeson Shareholder Communications 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 beginning of solicitation and the balance at
its completion, is $12,000 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, including telephone voting, that identify stockholders
be kept confidential, except where:
(1) disclosure may be required by applicable law;
(2) stockholders write comments on their proxy cards;
(3) disclosure is expressly requested by a stockholder;
(4) in limited circumstances such as a proxy contest or other solicitation of
proxies based on an opposition proxy statement; or
(5) any matter for stockholder approval requiring the vote of more than a
majority of the shares present at any meeting.
The Company has engaged ChaseMellon Shareholder Services, L.L.C. to count the
votes represented by proxies, ballots and cast by phone. Two employees of
ChaseMellon Shareholder Services have been appointed 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 282,135,353 shares outstanding at the
close of business February 29, 2000. The record date for stockholders entitled
to vote at this meeting is March 17, 2000. Each share is entitled to one vote.
Included in shares outstanding are 28,358,258 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 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, 2000, 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 a 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, 2000, unless otherwise stated.
<PAGE>
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5 NOMINEES FOR ELECTION AS DIRECTORS
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The number of directors to be elected is 10. The designated proxy holders of the
Company intend, unless otherwise instructed, to vote all proxies for the
election of the following 10 nominees. If elected, they will hold office until
the next Annual Meeting or until their successors are elected. The term of each
present director will expire with the election of directors at the 2000 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, 2000, 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.
NORMAN R. AUGUSTINE AGE 64 Director since 1989
[photo]
Norman R. Augustine is Chairman of the Executive Committee of the Board of
Directors of Lockheed Martin Corporation, a position he assumed in August 1997.
Prior to that, he was Chairman of the Board of Directors of Lockheed Martin
Corporation from August 1997 through March 1998; Chief Executive Officer from
January 1996 through July 1997; and President from March 1995 through June 1996.
He previously served as Chairman of the Board of Directors and Chief Executive
Officer of Martin Marietta Corporation until its merger with Lockheed
Corporation in March 1995. He is a director of The Procter & Gamble Company and
The Black & Decker Corporation.
DAVID L. BOREN AGE 58 Director since 1994
[photo]
David L. Boren 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 and is a former Governor of Oklahoma. He is a director of
AMR Corporation; Texas Instruments Incorporated; Torchmark Corporation; and
Waddell & Reed Financial, Inc.
ROBERT E. CHAPPELL, JR. AGE 63 Director since 1990
[photo]
Robert E. Chappell, Jr., 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.
ROBERT M. DEVLIN AGE 59 Director since 2000
[photo]
Robert M. Devlin is Chairman, President and Chief Executive Officer of American
General Corporation and was elected to the Company's Board in February 2000. He
was elected Chairman of the Board of American General in April 1997, Chief
Executive Officer in October 1996, and President in October 1995. He previously
served as Vice Chairman of American General from 1993 to 1995. He is a director
of Cooper Industries, Inc.
<PAGE>
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6 NOMINEES FOR ELECTION AS DIRECTORS
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LAWRENCE S. EAGLEBURGER AGE 69 Director since 1993
[photo]
Lawrence S. Eagleburger 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. He is a director of Halliburton Company and Universal
Corporation.
LARRY D. HORNER AGE 65 Director since 1991
[photo]
Larry D. Horner is Chairman of Pacific USA Holdings Corporation, a position he
assumed in August 1994. He previously served as Chairman and Chief Executive
Officer of KPMG Peat Marwick. He is a director of American General Corporation;
Asia Pacific Wire & Cable Corporation Limited; Atlantis Plastics, Inc.; Laidlaw
Global Corporation; Newmark Homes Corp.; and UTStarcom, Inc.
J. J. MULVA AGE 53 Director since 1994
[photo]
J. J. Mulva is Chairman of the Board of Directors and Chief Executive Officer of
the Company, a position he assumed October 13, 1999. Previously he was elected
Vice Chairman of the Board of Directors, President and Chief Executive Officer
June 20, 1999, through October 13, 1999; President and Chief Operating Officer
of the Company from May 1994 through June 1999.
RANDALL L. TOBIAS AGE 57 Director since 1992
[photo]
Randall L. Tobias is Chairman Emeritus of Eli Lilly and Company, a position he
assumed in January 1999. He previously served as Chairman of the Board of
Directors and Chief Executive Officer of Eli Lilly and Company from July 1993 to
December 1998. He is a director of Agilent Technologies, Inc.; Kimberly-Clark
Corporation; and Knight-Ridder, Inc.
VICTORIA J. TSCHINKEL AGE 52 Director since 1993
[photo]
Victoria J. Tschinkel is a Senior Consultant to Landers & Parsons, a
Tallahassee, Florida, law firm, a position she assumed in 1987. She previously
served as Secretary of the Florida Department of Environmental Regulation.
<PAGE>
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7 NOMINEES FOR ELECTION AS DIRECTORS
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KATHRYN C. TURNER AGE 52 Director since 1995
[photo]
Kathryn C. Turner is Chairperson and Chief Executive Officer of Standard
Technology, Inc., an engineering and manufacturing firm she founded in 1985. She
is a director of Carpenter Technology Corporation and COMSAT Corporation.
<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
-------------------------------
<S> <C> <C> <C> <C>
Common Vanguard Fiduciary Trust Company 42,210,017 (1) -- 14.96%
P. O. Box 2900
Valley Forge, Pennsylvania 19482
Common Capital Research and Management Company 34,487,300 (2) -- 12.22%
333 South Hope Street
Los Angeles, California 90071
Common Barrow, Hanley Mewhinney & Strauss, Inc. 15,017,000 (2) -- 5.32%
One McKinney Plaza
3232 McKinney Avenue, 15th Floor
Dallas, TX 75204-2429
Common Sanford C. Bernstein & Co., Inc. 15,739,931 (2) -- 5.58%
767 Fifth Avenue
New York, NY 10153
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</TABLE>
(1) As of February 29, 2000, Vanguard as Trustee held 42,210,017 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 28,358,258 shares in
the 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) On February 11, 2000, Capital Research and Management Company ("CRMC")
reported that it exercised sole dispositive power with respect to
34,487,300 shares as of December 31, 1999, in which shares CRMC has
disclaimed beneficial owership. On February 9, 2000, Barrow, Hanley,
Mewhinney & Strauss, Inc. ("Barrows") reported that it exercised sole
voting power over 2,761,800 shares, shared voting power over 12,255,200
shares, sole dispositive power over 15,017,000 shares as of December 31,
1999. On February 8, 2000, Sanford C. Bernstein & Co., Inc. reported that
it exercised sole voting power over 7,949,796 shares, shared voting power
over 1,453,524 shares, and sole dispositive power over 15,739,931 shares as
of December 31, 1999. According to the Schedule 13Gs filed by CRMC, Barrows
and Bernstein with the Securities and Exchange Commission, such shares
equal 13.6 percent, 6 percent and 6.2 percent of the Company's outstanding
shares, respectively. However, when shares held as of February 29, 2000, by
the CBT are included, shares held by CRMC equal only 12.22 percent; by
Barrows, 5.32 percent; and by Bernstein, 5.58 percent of the Company's
outstanding shares.
<PAGE>
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8 SECURITY OWNERSHIP OF MANAGEMENT
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SECURITY OWNERSHIP OF MANAGEMENT
Phillips Petroleum Company
Securities
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
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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<S> <C> <C> <C> <C>
DIRECTORS AND NOMINEES (2)
Common Norman R. Augustine 23,386 -- less than 1%
Common David L. Boren 12,174 -- less than 1%
Common Robert E. Chappell, Jr. 20,724 -- less than 1%
Common Robert M. Devlin 1,347 -- less than 1%
Common Lawrence S. Eagleburger 9,555 6,000 less than 1%
Common Larry D. Horner 19,635 -- less than 1%
Common J. J. Mulva 420,511 -- less than 1%
Common Randall L. Tobias 18,327 -- less than 1%
Common Victoria J. Tschinkel 16,792 -- less than 1%
Common Kathryn C. Turner 11,006 -- less than 1%
EXECUTIVE OFFICERS
Common E. L. Batchelder 49,003 -- less than 1%
Common E. K. Grigsby 58,372 -- less than 1%
Common K. L. Hedrick 185,656 -- less than 1%
Common J. E. Lowe 10,208 -- less than 1%
Common T. C. Morris 115,772 -- less than 1%
Common M. J. Panatier 117,243 -- less than 1%
Common B. Z. Parker 130,840 -- less than 1%
Common B. J. Price 78,895 -- less than 1%
Common J. B. Whitworth 96,687 -- less than 1%
All directors, nominees and executive
officers as a group (19 in group) 1,396,133 6,000 less than 1%
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</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.
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 1999, 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, Lawrence S.
Eagleburger, Randall L. Tobias and Kathryn C. Turner. The Company had no
interlocking relationship during the last fiscal year.
<PAGE>
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9 GENERAL INFORMATION RELATING TO THE BOARD OF DIRECTORS
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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 1999, the Board
of Directors held nine meetings and the directors attended an average of
93 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:
- ----------------------------------------------------------------------
Compen- Directors' Public
Audit sation Affairs Executive Policy
----- ------- ---------- --------- ------
Horner* Tobias* Augustine* Mulva* Tschinkel*
Boren Augustine Chappell Augustine Boren
Chappell Eagleburger Horner Horner Devlin
Devlin Turner Tobias Tobias
Tschinkel Tschinkel Turner
- ----------------------------------------------------------------------
* Chairman
- ----------------------------------------------------------------------
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 counsel,
the independent auditors, the internal audit staff or others 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 Conduct and Ethics and oversees the activities of the Corporate
Compliance and Ethics Committee. The Audit Committee held four meetings
in 1999.
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 1999.
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 four meetings in 1999.
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 three meetings in 1999.
THE PUBLIC POLICY COMMITTEE advises management and the Board of Directors:
(1) in response to current and emerging public policy issues, and
(2) 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;
<PAGE>
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10 COMPENSATION OF DIRECTORS AND NOMINEES
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(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 1999.
COMPENSATION OF DIRECTORS AND NOMINEES
The Board compensation is $106,500 per calendar year for each director who
chairs a committee of the Board and $105,000 per calendar year for each director
who does not chair a committee. One-half of this annual compensation amount is
paid in either restricted or unrestricted stock. The other half is paid as cash,
but may be deferred or taken as additional restricted or unrestricted stock. The
future payment of any deferred cash compensation is funded in a grantor trust
designed for this purpose.
All shares of restricted stock issued on behalf of each non-employee director
are restricted until retirement from the Board of Directors. The dividends
payable on restricted stock are reinvested in restricted stock. The Non-Employee
Director Stock Plan, which became effective January 1, 1998, 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, and all restrictions will lapse in the year the
director reaches age 70. A director may elect to delay the lapsing of the
restrictions until retirement from the Board of Directors. Based on the
director's election, which is made in the year the director reaches age 65 or
the year prior to retirement if the director elects to delay the lapsing until
retirement, 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.
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 who have served the Company as a director for
five years. 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. The proceeds
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 $336,274 in 1999.
<PAGE>
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11 EXECUTIVE COMPENSATION
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EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth compensation information
for services performed in 1999, 1998 and 1997 for those persons who were at
December 31, 1999, the Chief Executive Officer, the three most highly
compensated officers, a retired Chief Executive Officer and a retired Executive
Vice President of the Company.
<TABLE>
<CAPTION>
Summary Compensation Table
- -----------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
------------------------------------ -----------------------------------------------------------
Awards Payouts
Restricted Securities All Other
Other Annual Stock Underlying Long-Term Compen-
Name and Compensation Award(s)(1) Option/ Incentive sation (2)
Principal Position Year Salary ($) Bonus ($) ($) ($) SARs (#) Payout ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. J. Mulva 1999 806,669 1,075,804 0 0 186,800 558,803(3) 14,580
Chairman of the 1998 684,501 398,300 0 0 124,500 316,361(4) 9,211
Board & CEO 1997 625,500 738,787 0 0 66,600 293,552(5) 9,217
(effective 10/13/99)
K. L. Hedrick 1999 465,498 319,153 0 0 52,800 337,894(3) 14,580
Executive Vice 1998 431,499 171,010 0 0 74,700 176,721(4) 9,211
President 1997 366,750 321,538 0 0 21,200 97,357(5) 9,217
T. C. Morris 1999 404,997 374,368 0 0 40,100 187,769(3) 14,580
Sr. Vice President 1998 382,252 178,182 0 0 53,300 119,208(4) 9,211
& CFO 1997 363,751 334,348 0 0 21,000 116,442(5) 9,217
B. Z. Parker 1999 452,502 387,311 0 0 52,800 260,054(3) 13,780
Executive Vice 1998 333,751 234,304 0 0 57,700 106,298(4) 8,207
President 1997 260,500 216,286 0 0 26,892 59,894(5) 7,648
W. W. Allen (6) 1999 783,750 0(7) 0 0 0 0(7) 6,975,059 (8)
Chairman of the 1998 945,000 570,901 0 0 228,800 520,270(4) 9,211
Board & CEO (retired) 1997 870,000 1,105,328 0 0 210,400 568,289(5) 9,217
C. L. Bowerman (9) 1999 426,122 273,207 0 0 0 208,899(3) 496,897(10)
Executive Vice 1998 478,752 214,461 0 0 72,800 175,434(4) 9,211
President (retired) 1997 453,501 473,567 0 0 29,600 182,005(5) 9,217
- -----------------------------------------------------------------------------------------------------------------------------------
</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 Strategic Incentive Plans (SIP) and Long-Term Incentive Plans (LTIP)
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, 1999, 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, 0 shares, $0; Mr. Hedrick, 20,295 shares,
$957,036; Mr. Morris, 12,342 shares, $582,002; Mr. Mulva, 68,197 shares,
$3,215,915; Mr. Parker, 22,441 shares, $1,058,233.
(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 LTIP Performance Period from 1997-1999.
(4) Value of the restricted stock on the date of the award for performance
under the LTIP Performance Period from 1996-1998.
(5) Value of the restricted stock on the date of the award for performance
under the LTIP Performance Period from 1995-1997.
(6) W. W. Allen retired as a Director and Officer of the Company effective
October 13, 1999.
(7) Pursuant to his retirement agreement, W. W. Allen waived all rights to a
bonus under the Annual Incentive Compensation Plan and any award under the
LTIP for Performance Period from 1997-1999. Further explanation is found
in the Compensation Committee's Report on page 17.
(8) Reflects amounts paid under Mr. Allen's retirement agreement. Further
explanation is found on page 17.
(9) C. L. Bowerman retired as a Director and Officer of the Company as of
September 13, 1999, and as an employee effective November 12, 1999.
(10) Includes $482,317 as lump sum payment under his retirement agreement.
<PAGE>
===============================================================================
12 OPTIONS/SAR GRANTS
===============================================================================
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Stock options granted during 1999 to the Chief Executive Officer, the three most
highly compensated officers, the retired Chief Executive Officer and a retired
Executive Vice President of the Company are reflected in the following
Option/SAR Grants in Last Fiscal Year table.
<TABLE>
<CAPTION>
|
|
INDIVIDUAL GRANTS |
-------------------------------------------------------- | POTENTIAL REALIZABLE VALUE AT
Number of Percent of Total | ASSUMED ANNUAL RATES OF STOCK PRICE
Securities Options/SARS | APPRECIATION FOR OPTION TERM (1)
Underlying Granted to Exercise or |
Options/SARS Employees in Base Price Expiration |
Name Granted Fiscal Year ($/Share) Date | 0% ($) 5% ($) 10% ($)
- --------------------------------------------------------------------------------|-------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. J. Mulva 70,000 3.48% 52.66 7/26/09 | 0 2,063,600 5,229,700
116,800 5.81% 46.88 10/11/09 | 0 3,868,416 9,803,024
|
K. L. Hedrick 52,800 2.63% 46.88 10/11/09 | 0 1,556,544 3,944,688
|
T. C. Morris 40,100 1.99% 46.88 10/11/09 | 0 1,182,148 2,995,871
|
B. Z. Parker 52,800 2.63% 46.88 10/11/09 | 0 1,556,544 3,944,688
|
W. W. Allen 0 0% -- -- | -- -- --
|
C. L. Bowerman 0 0% -- -- | -- -- --
|
Total Stockholders (2) N/A N/A N/A N/A | 0 7,435,409,458 18,843,264,606
- --------------------------------------------------------------------------------|-------------------------------------------------
</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, 1999, (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, 1999,
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, for any of the three most highly
compensated officers, for the retired Chief Executive Officer or for a retired
Executive Vice President of the Company as reflected in the following Ten-Year
Option/SAR pricing 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>
J. J. Mulva -- 0 -- -- -- --
K. L. Hedrick -- 0 -- -- -- --
T. C. Morris -- 0 -- -- -- --
B. Z. Parker -- 0 -- -- -- --
W. W. Allen -- 0 -- -- -- --
C. L. Bowerman -- 0 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
===============================================================================
13 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
===============================================================================
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 1999, 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 1999 for
the Chief Executive Officer, the three most highly compensated executive
officers, the retired Chief Executive Officer and a retired Executive Vice
President 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>
233,951 2,894,344
J. J. Mulva 0 0 329,752 480,023
99,877 1,158,293
K. L. Hedrick 5,971 154,283 125,126 207,449
34,448 194,701
T. C. Morris 6,917 118,219 96,636 181,133
61,572 595,707
B. Z. Parker 4,299 102,762 106,073 86,691
589,139 6,258,560
W. W. Allen 22,458 559,720 336,140 1,605,482
74,367 619,098
C. L. Bowerman 22,453 469,835 78,639 250,817
- -----------------------------------------------------------------------------------------------------------
</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 $47.15625, the fair market value of the Company's common stock on
December 31, 1999.
<PAGE>
===============================================================================
14 LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
===============================================================================
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 1999 for the Chief Executive Officer, the three
most highly compensated executive officers, the retired Chief Executive Officer
and a retired Executive Vice President 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>
J. J. Mulva (3) 29,715 12/31/01 14,858 29,715 59,430
K. L. Hedrick 11,334 12/31/01 5,667 11,334 22,668
T. C. Morris 9,143 12/31/01 4,572 9,143 18,286
B. Z. Parker 10,044 12/31/01 5,022 10,044 20,088
W. W. Allen 40,922 (4) 12/31/01 20,461 40,922 81,844
C. L. Bowerman 12,078 (5) 12/31/01 6,039 12,078 24,156
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) At the end of the three-year performance period, from January 1, 1999,
through December 31, 2001, 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 and return on capital employed, compared with the total
stockholder return and return on capital employed of the 1999 oil industry
peer 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.
(3) In addition, the target award for J. J. Mulva for the Performance Period
established during 1998 was increased 5,244 shares to reflect a promotion.
(4) Pursuant to his Retirement Agreement, W. W. Allen waived all rights to
awards for the Performance Period. Therefore, the 40,922 shares have been
reduced to 0 (zero).
(5) The number of shares for C. L. Bowerman will be prorated to 3,355 shares.
For threshold, target and maximum, the amounts are: 1,678 shares; 3,355
shares; and 6,710 shares, respectively, based on the ten months he was an
employee during the Performance Period.
COMPENSATION COMMITTEE REPORT
TO STOCKHOLDERS
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors administers the Company's
executive compensation program. The Committee is composed of the directors who
are independent, outside directors and who qualify as disinterested persons for
purposes of Rule 16b-3 of 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 employed by the Company, and to achieve industry safety
leadership and environmental stewardship.
Executive compensation decisions made by the Committee are based on a
combination of quantitative and qualitative measures. During 1999, the
quantitative measures were: relative total return to stockholders; relative
return on capital employed by the Corporation; and the Corporation's safety
performance. The determination of safety performance is based on several factors
including, but not limited to, employee and contractor recordable injury rate,
progress on implementation of the Corporation's Process for Safety Excellence
performance, lost time injuries, severity of injuries, and awards for
environmental performance. Quantitative measures to evaluate business unit and
staff performance included: for operating units: controllable expense, operating
efficiency, return on capital employed, capital efficiency and safety
performance; for growth units: progress on contracts for growth projects,
exploration value indices, growth value indices, controllable expense and safety
performance.
Staff units are measured on their performance for controlling expenses, the
success of the customers who bear their costs, and safety performance.
The Committee 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 Company's businesses are extremely capital intensive, requiring large
investments, in most cases over a number of years, before tangible financial
returns are achieved. For the
<PAGE>
===============================================================================
15 COMPENSATION COMMITTEE REPORT
===============================================================================
near 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 the external factors that may have affected that
measure, and uses its discretion in evaluating performance achievements of
executives, business units and staffs.
By design, executive compensation provides awards that vary with performance and
produce an opportunity for earnings through performance over a longer term. The
Company's objective 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 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 under such Section. The Committee's policy is also to
maintain flexibility to approve compensation arrangements which it deems to be
in the best interest of the Company and its stockholders, but which arrangements
may not always qualify for full tax deductibility. 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 1999
Salaries
- --------
During 1999, 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, in which case the Committee recommends any salary change
to the Board of Directors. At its July 26, 1999, meeting, the Committee reviewed
competitive salary data for Chief Executive Officers in the petroleum industry
and recommended a salary increase for Mr. Mulva. The competitive data utilized
included data provided by an independent third-party consultant. The salary
increase was in connection with Mr. Mulva becoming Vice Chairman and Chief
Executive Officer. After review, the Committee unanimously agreed to recommend
to the Board that Mr. Mulva's salary be increased from $740,000 annually to
$900,000 annually. The recommendation was approved at the July Board of
Directors meeting.
In addition to the above, in the October 1999 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 such officers and
employees were effective October 1, 1999.
Annual Incentive Compensation Program
- -------------------------------------
The Committee administers the Annual Incentive Compensation Plan ("AICP") which
provides an opportunity for the award of annual bonuses. The AICP has objectives
which are established by the Committee each year. For 1999, the Committee set
three Companywide objectives: (i) total stockholder return for 1999 should
warrant an award based on performance relative to the shareholder return of the
oil industry peer companies, as listed in the Proxy Statement Performance Graph;
(ii) return on capital employed by the Corporation should warrant an award based
on performance relative to the return on capital employed of the oil industry
peer companies, as listed on the Proxy Statement Performance Graph; (iii) safety
performance should warrant awards as measured by a number of factors including
employee recordable injury rate, contractor recordable injury rate, Process for
Safety Excellence Plan performance, chargeable vehicle incidents, lost time
injuries, considering severity of injuries as well as industry/governmental
awards for safety and environmental performance.
The Committee established targets for individual AICP awards based on individual
grades. The target awards are established using data internally generated and
data obtained from an independent, third-party consultant. For 1999, the target
percentages varied from 22.5 percent of salary for the beginning level of AICP
eligibility to 85 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 AICP to approve individual awards
from 0 percent of the target amount to 200 percent of the target amount for the
award year based upon the Committee's assessment of performance.
Mr. Mulva's AICP award is 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 2000, the Committee approved cash awards for strategic business
units and staff units under the 1999 AICP. The awards for AICP 1999 performance
ranged from 49.5 percent of the target bonus amount to 137 percent of the target
bonus amount based on a review of the Company's 1999 corporate and business or
staff unit's performance.
In determining the amount of incentive compensation award to be paid to Mr.
Mulva, the Committee focused on three
<PAGE>
===============================================================================
16 COMPENSATION COMMITTEE REPORT
===============================================================================
measures in the plan that determine performance for the Company. These three are
relative total shareholder return, return on capital employed, and safety.
It was determined that total shareholder return including reinvested dividends
was 13.5 percent. This placed the Company seventh in the peer group of eleven
companies. It was further determined that return on capital employed by the
Corporation in 1999 was 8.2 percent. This placed the Company sixth of the eleven
companies in the peer group. The Company's recordable injury rate for 1999 was
the third best in the past ten years. In addition, the Company achieved numerous
objectives under the Process for Safety and Environmental Excellence.
Based on these results, Mr. Mulva received an award for 1999 performance, which
was 107 percent of the target amount. In addition, the Committee approved an
individual performance adjustment to this award of 40 percent to recognize
Mr. Mulva's leadership in negotiation and execution of strategic transactions
that are deemed critical to the future well being of the Company.
The amount of the award to Mr. Mulva is 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
October of each year. To date, all grants 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. In addition, individual
performance is considered when making each option grant.
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 when considering such grants in October of each year.
In its July 26, 1999, meeting, the Compensation Committee unanimously made a
stock option grant of 70,000 shares of common stock to Mr. Mulva to recognize
his promotion to the position of Vice Chairman and Chief Executive Officer. In
its October meeting, the Committee approved a stock option grant for Mr. Mulva
for 113,400 shares of common stock. The October stock option grant was in
conjunction with the annual stock option grants to eligible employees.
For 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 its December 1998 meeting, the Committee established the seventh performance
period under the Plan, which is for the period of January 1, 1999, through
December 31, 2001. Target awards for Mr. Mulva 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 salary band 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 VII were
established 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 two
measurements: the Company's relative total stockholder return compared with the
peer companies against which the Company evaluates its stockholder return
performance and the Company's return on capital employed compared with the peer
companies against which the Company evaluates its stockholder return
performance.
In the February 2000 meeting of the Compensation Committee, awards for the fifth
performance period of the plan covering the period 1997 through 1999 were
determined. It was determined that the total shareholder return for the period
was 16 percent which placed the Company fifth of the nine companies in the peer
group for the entire three-year period. The Compensation Committee also
considered for the peer group, return on capital employed. The Company obtained
during the three-year period a return on capital employed of 9.1 percent,
placing the Company third in the group of nine companies which were in the peer
group for the entire three-year period.
Based on the above performance, the Committee granted awards equaling 30 percent
greater than the target amount set for the participants at the beginning of the
fifth performance period.
<PAGE>
===============================================================================
17 PERFORMANCE GRAPH
===============================================================================
Mr. Mulva's award was increased by 35 percent to recognize his leadership and
individual performance during the three-year performance period. The value of
the award to Mr. Mulva and for the five most highly compensated executive
officers is set forth on the line for 1999 in the Summary Compensation Table
found on page 11.
Retirement Agreement
- --------------------
During the summer of 1999, while working with the Board on issues pertaining to
both the long-term direction of the Company and leadership succession, Mr. Allen
concluded that the next five years would likely be a period of great change for
the Company requiring sustained leadership beyond Mr. Allen's normal retirement
age of 65. In light of these discussions, Mr. Allen informed the Board of his
intention to retire from the Company effective October 13, 1999, the date of his
62nd birthday. To recognize that the decision was made at Mr. Allen's personal
sacrifice and was made to address the best interest of the Company, the Board
entered into a Retirement Agreement with Mr. Allen on August 10, 1999. Pursuant
to the terms of the Retirement Agreement, Mr. Allen resigned his position as
Chief Executive Officer effective June 30, 1999, resigned his position as
Chairman of the Board of Directors and retired as an active employee effective
October 13, 1999. Mr. Allen's retirement benefit was determined as if he had
remained employed until December 31, 2000, and achieved target levels of
performance through that date under the Company's Annual and Long Term
Incentive Plans. Accordingly, the Company paid Mr. Allen $6,935,479 pursuant
to the agreement. In addition, Mr. Allen retains all stock options held as of
the retirement date. All restricted stock held by Mr. Allen on the retirement
date was forfeited, and the value of such stock was credited to Mr. Allen's
account in the Key Employee Deferred Compensation Plan of the Phillips
Petroleum Company.
THE COMPENSATION COMMITTEE
Randall L. Tobias, Chairman
Norman R. Augustine
Lawrence S. Eagleburger
Kathryn C. Turner
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL STOCKHOLDER RETURN (1)
Among Phillips Petroleum, S&P 500 Index, and Peer Group Indexes (2) (3)
Assumes $100 invested on 12/31/94 in Phillips common stock, S&P 500 Index and
Peer Group Indexes.
[ GRAPH APPEARS HERE ]
This graph shows the Company's total return to stockholders compared with the
S&P 500 Index and the two peer group indexes of integrated oil companies over
the five-year period from December 31, 1994, through December 31, 1999.
(1) Assumes $100 invested at closing prices on December 31, 1994, in Phillips
common stock, S&P 500 Index and Peer Group Indexes. Also assumes dividend
reinvestment.
(2) Amerada Hess, ARCO, BP Amoco (1999 only), Chevron, Conoco (1999 only),
Exxon, Marathon, Mobil (1995-1998 only), Occidental, Texaco and Unocal.
(3) Amerada Hess, ARCO, Conoco (1999 only), Marathon, Occidental, Texaco and
Unocal.
1995 1996 1997 1998 1999
- ---------------------------------------------------------------------
Phillips Petroleum 108 144 163 147 167
S&P 500 Index 138 169 226 290 351
Peer Group Index(2) 131 163 201 225 269
Peer Group Index(3) 122 154 182 159 185
- ---------------------------------------------------------------------
At the beginning of 1999, the companies comprising peer companies for
compensation purposes consisted of Amerada Hess, Conoco, Marathon, Occidental,
Texaco and Unocal. The Compensation Committee further considered the
appropriateness of the peer group in its May 1999 meeting. After deliberation,
the Committee expanded the peer companies by adding ARCO, BP Amoco, Chevron and
ExxonMobil.
<PAGE>
===============================================================================
18 PENSION PLAN
===============================================================================
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 grantor 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, 2000, for
retirement purposes are: K. L. Hedrick, 28 years; T. C. Morris, 34 years;
J. J. Mulva, 28 years; and B. Z. Parker, 31 years. See the Summary
Compensation Table for their current covered compensation. W. W. Allen
retired as an employee in October 1999 with 41 years credited service and
C. L. Bowerman retired as an employee in November 1999 with 40 years of
credited service.
(3) AICP Awards are shown under the heading "Bonus" in the Summary Compensation
Table.
<PAGE>
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19 PROPOSAL 1
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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 or Performance
Incentive Programs 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:
(1) 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;
(2) 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;
(3) approval of a complete liquidation or dissolution of the Company by
shareholders; or
(4) 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 of the Company or the
resulting corporation) 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 2000 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 2001 Annual Meeting must
be received at the Company's executive offices in Bartlesville, Oklahoma, no
later than December 6, 2000, 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, 2000
<PAGE>
===============================================================================
20 PROXY STATEMENT
===============================================================================
[logo]
[logo]
Printed on recycled paper
<PAGE>
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PHILLIPS PETROLEUM COMPANY
Annual Meeting May 8, 2000
The undersigned hereby appoints J. MULVA, R. TOBIAS and V. TSCHINKEL 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 8, 2000, 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^
YOUR VOTE IS IMPORTANT!
You can vote in one of two ways:
1. Call toll-free 1-800-840-1208 on a touch-tone telephone in the United
States, Puerto Rico or Canada, and follow the instructions on the reverse
side. There is NO CHARGE to you for this call.
or
2. Mark, sign and date your proxy card and return it promptly in the enclosed
envelope. If you are outside the United States, Puerto Rico or Canada, you
must return your proxy card by mail to vote.
PLEASE VOTE
In order to reduce the costs associated with producing and mailing your Annual
Report and Proxy Statement in future years, we urge you to elect on your proxy
card that you would like to view your Annual Report and Proxy Statement
electronically via the Internet. Your election can be revoked at any time by
calling 1-800-840-1208. You will continue to receive your proxy card in the
mail, regardless of your election.
<PAGE>
This Proxy will be voted or not voted as you Please mark your
direct below. In the absence of such 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:
01 N. Augustine, 02 D. Boren, 03 R. Chappell, 04 R. Devlin, 05 L. Eagleburger,
06 L. Horner, 07 J. Mulva, 08 R. Tobias, 09 V. Tschinkel and 10 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 the
listed above* listed above space below.
[ ] [ ] ________________________________________
- ------------------------------------------------------------------------------
Company recommends a vote FOR: I consent to future access of the
Proposal 1 to approve the Annual Reports and Proxy Statements
designation of the independent electronically via the Internet. I
auditors, Ernst & Young LLP. understand that the Company may no
longer distribute printed materials
FOR AGAINST ABSTAIN to me for any future Stockholder
[ ] [ ] [ ] Meeting until such consent is
revoked. [ ]
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:__________________, 2000
______________________________
______________________________
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^
- ------------------------------------------------------------------------------
IF YOU WISH TO VOTE BY TELEPHONE IN THE UNITED STATES, PUERTO RICO OR CANADA,
PLEASE FOLLOW THE INSTRUCTIONS BELOW. IF YOU VOTE BY TELEPHONE, PLEASE DO NOT
RETURN YOUR CARD BY MAIL.
- ------------------------------------------------------------------------------
HAVE YOUR VOTING DIRECTION CARD IN HAND.
TO VOTE BY PHONE THROUGH OUR TABULATOR, CHASEMELLON SHAREHOLDER SERVICES,
L.L.C.:
o On a touch-tone telephone call Toll Free 1-800-840-1208 -- 24 hours a
day -- 7 days a week.
o Enter your eleven-digit Control Number which is indicated below.
- ------------------------------------------------------------------------------
Option 1: To vote as the Board of Directors recommends, press 1. If you wish
to vote separately for the Election of Directors and Proposal 1, press 0.
- ------------------------------------------------------------------------------
When you press 1, your vote will be confirmed and cast as you directed. END
OF CALL
- ------------------------------------------------------------------------------
Option 2: If you chose to vote separately for the Election of Directors and
Proposal 1, you will hear the following instructions:
Election of To VOTE FOR ALL nominees, press 1;
Directors: To WITHHOLD FOR ALL nominees, press 9;
To WITHHOLD FOR AN INDIVIDUAL nominee, press 0, enter the two
digit number that appears next to the name of the nominee for
whom you DO NOT wish to vote.
Proposal 1: You may make your selection at any time.
To vote FOR, press 1;
To vote AGAINST, press 9;
To ABSTAIN, press 0.
- ------------------------------------------------------------------------------
Your vote will be repeated and you will have an opportunity to confirm it.
THANK YOU FOR VOTING
<PAGE>
