DEVON ENERGY CORPORATION
20 North Broadway, Suite 1500
Oklahoma City, OK 73102-8260
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders:
The Annual Meeting of Stockholders of Devon Energy
Corporation, an Oklahoma Corporation ("Devon" or the "Company")
will be held in the Community Room (Mezzanine Floor), Bank of
Oklahoma, Robinson Avenue at Robert S. Kerr, Oklahoma City,
Oklahoma on May 20, 1998, at 11:00 a.m., local time, for the
following purposes:
1. To elect three directors for terms expiring in the
year 2001; and
2. To transact such other business as may properly come
before the meeting or any adjournment thereof.
Stockholders of record at the close of business on March 24,
1998, are entitled to notice of and to vote at the meeting. The
accompanying proxy statement contains information regarding the
matters to be considered at the meeting. For reasons outlined in
the attached proxy statement, the Board of Directors recommends a
vote "FOR" the matters being voted upon.
IMPORTANT
YOUR PROXY IS IMPORTANT TO ASSURE A QUORUM AT THE MEETING.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE BE SURE
THAT THE ENCLOSED PROXY IS PROPERLY COMPLETED, DATED, SIGNED AND
RETURNED WITHOUT DELAY. PLEASE USE THE ENCLOSED RETURN ENVELOPE.
IT REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
BY ORDER OF THE BOARD OF DIRECTORS
Marian J. Moon
Corporate Secretary
Oklahoma City, Oklahoma
March 30, 1998
<PAGE>
DEVON ENERGY CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1998
THE COMPANY
Devon is an independent energy company engaged primarily in
oil and gas exploration, development and production and in the
acquisition of producing properties. The Company owns interests
in approximately 1,700 oil and gas properties concentrated in
five core areas: the Permian Basin in southeastern New Mexico
and western Texas; the San Juan Basin in northwestern New Mexico;
the Rocky Mountain region primarily in Wyoming; the Mid-continent
region in Oklahoma and the Texas Panhandle; and the Western
Canada Sedimentary Basin in Alberta, Canada. At December 31,
1997, Devon's estimated proved reserves were 184.0 million
barrels of oil equivalent ("MMBoe"), which were balanced between
oil and natural gas liquids (44%) and natural gas (56%). The
present value of pre-tax future net revenues discounted at 10%
per annum assuming essentially unescalated prices of such
reserves was $913 million. Devon is one of the top 20 public
independent oil and gas companies in the United States, as
measured by oil and gas reserves.
Strategy
Devon's primary objectives are to build production, cash
flow and earnings per share by: (a) acquiring oil and gas
properties, (b) exploring for new oil and gas reserves and (c)
optimizing production from existing oil and gas properties.
During 1988, Devon expanded its capital base with its first
issuance of common stock to the public. This transaction began a
substantial expansion program which has continued through the
subsequent nine years. Devon has used a two-pronged growth
strategy of acquiring producing properties and engaging in
drilling activities.
In the last five years alone, Devon has consummated five
significant acquisitions and drilled 873 new wells, 842 of which
were producers. These activities have resulted in reserve
additions (i.e., extensions, discoveries, purchases and
revisions) of 189.5 MMBoe. Capital costs incurred to complete
these activities totaled $736.8 million, for a five-year finding
and development cost of $3.89 per Boe. Net reserve additions
divided by production resulted in an annual average reserve
replacement factor of 320%.
Devon's objective, however, is to increase value per share,
not simply to increase total assets. Reserves have grown from
2.94 Boe per diluted share at year-end 1992 to 4.91 Boe per
diluted share at year-end 1997. During this same five-year
period, net debt (long-term debt minus working capital) has
remained relatively low, never exceeding $1.17 per Boe. In fact,
at year-end 1997, the Company had no debt and had working capital
of $0.34 per Boe.
The oil and gas industry is characterized by volatile
product prices. Devon's management believes that by (a) keeping
debt levels low, (b) concentrating its properties in core areas
to achieve economies of scale, (c) acquiring and developing high
profit margin properties, (d) continually disposing of marginal
and non-strategic properties and (e) balancing reserves between
oil and gas, Devon's profitability will be maximized, even during
periods of low oil and/or gas prices. In addition, Devon remains
financially flexible to take advantage of opportunities for
mergers, acquisitions, exploration or other growth opportunities.
Since September 29, 1988, Devon's common stock has been
traded on the American Stock Exchange (the "AMEX") under the
symbol "DVN." The Company's mailing address is 20 North
Broadway, Suite 1500, Oklahoma City, OK 73102-8260. Its
telephone number is 405/235-3611.
All references in this proxy statement to Devon or the
Company include its predecessors and subsidiary corporations.
GENERAL INFORMATION
This proxy statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Devon to be
used at the annual meeting of stockholders (the "Meeting"). The
Meeting will be held on the 20th day of May, 1998, and any
adjournment thereof. At the Meeting the shareholders will elect
three directors for terms expiring in the year 2001. The
shareholders will also consider and vote upon such other business
as may properly come before the Meeting or any adjournment
thereof. This proxy statement is first being sent to the
shareholders on or about March 30, 1998.
The Board of Directors has established March 24, 1998, as
the record date (the "Record Date") to determine stockholders
entitled to notice of and to vote at the Meeting. At the close
of business on the Record Date, 32,318,895 shares of $.10 par
value common stock of the Company ("Common Stock") were
outstanding. Each share is entitled to one vote. Devon's
officers and directors own or represent a total of 10,935,543
shares, or 34% of Devon Common Stock, and intend to vote all of
such shares in favor of the election of the three nominees for
director named herein.
Each proxy which is properly signed, dated and returned to
the Company in time for the Meeting, and not revoked, will be
voted in accordance with instructions contained therein. If no
contrary instructions are given, proxies will be voted "FOR" the
three director nominees. Proxies may be revoked at any time
prior to their being exercised by delivering a written notice of
revocation or a later dated proxy to the Secretary of the
Company. In addition, a stockholder present at the Meeting may
revoke his proxy and vote in person.
The office of the Company's Secretary appoints an inspector
of election to tabulate all votes and to certify the results of
all matters voted upon at the Meeting. Election of each director
at the Meeting will be by plurality vote.
Neither the corporate law of the state of Oklahoma, the
state in which Devon is incorporated, nor the Company's
Certificate of Incorporation or Bylaws have any provisions
regarding the treatment of abstentions and broker non-votes. It
is the Company's policy (i) to count abstentions or broker non-
votes for purposes of determining the presence of a quorum at the
Meeting; (ii) to treat abstentions as votes not cast but as
shares represented at the Meeting for determining results on
actions requiring a majority vote; and (iii) to consider neither
abstentions nor broker non-votes in determining results of
plurality votes.
The cost of solicitation of proxies will be borne by the
Company. Proxies may be solicited by mail or personally by
directors, officers or regular employees of the Company, none of
whom will receive additional compensation therefor. The Company
has also retained Morrow & Co., Inc. to assist in solicitation of
proxies for a fee of $3,500, plus reimbursement of certain
expenses. Those holding shares of the Company's Common Stock of
record for the benefit of others ("Nominee Holders") are being
asked to distribute proxy soliciting materials to, and request
voting instructions from, the beneficial owners of such shares.
The Company will reimburse Nominee Holders for their reasonable
out-of-pocket expenses.
PRINCIPAL SECURITY OWNERSHIP
The table below sets forth as of March 24, 1998, the names
and addresses of each person known by management to own
beneficially more than 5% of the Company's outstanding Common
Stock, the number of shares beneficially owned by each such
stockholder and the percentage of outstanding shares owned. The
table also sets forth the number and percentage of outstanding
shares of Common Stock beneficially owned by the Company's Chief
Executive Officer ("CEO"), each of the Company's directors, the
four most highly compensated executive officers other than the
CEO and by all officers and directors of the Company as a group.
Common Stock
Name and Address of Number of Percent of
Beneficial Owner Shares Class
Kerr McGee Corporation 9,954,000 (1) 30.8%
123 Robert S. Kerr Avenue
Oklahoma City, Oklahoma 73102
Merrill Lynch & Co., Inc. 3,841,800 (2) 11.3%
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Strong Capital Management, Inc. and 1,666,074 (3) 5.1%
Richard S. Strong
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
Common Stock
Name and Address of Number of Percent of
Beneficial Owner Shares Class
J. Larry Nichols* 730,571 (4) 2.2%
Michael E. Gellert* 314,720 (5) 1.0%
H. Allen Turner 122,085 (6) 0.4%
Darryl G. Smette 121,700 (7) 0.4%
John W. Nichols* 101,304 (8) 0.3%
J. Michael Lacey 78,565 (9) 0.2%
David M. Gavrin* 76,251 (10) 0.2%
H. R. Sanders, Jr.* 32,979 (11) 0.1%
Duke R. Ligon 24,900 (12) 0.1%
Lawrence H. Towell* 3,100 (13) <0.1%
Luke R. Corbett* 3,000 (14) <0.1%
Thomas F. Ferguson* 3,000 (15) <0.1%
Tom J. McDaniel* 3,000 (16) <0.1%
All directors and officers of Devon Energy
as a group (16 persons) 1,805,243 (17) 5.4%
_____________________________________
* Director. The business address of each director is 20 North
Broadway, Suite 1500, Oklahoma City, Oklahoma 73102-8260.
(1) Kerr-McGee Corporation ("Kerr-McGee") has reported
beneficial ownership of these shares on Schedule 13D filed
on January 6, 1997. Kerr-McGee acquired these shares on
December 31, 1996, in connection with a transaction whereby
Devon acquired the North American onshore oil and gas
exploration and production properties and businesses of Kerr-
McGee in exchange for 9,954,000 shares of Common Stock. Kerr-
McGee reports shared voting and investment power with
respect to these shares. Because of Kerr-McGee's relatively
large ownership position, Devon and Kerr-McGee have entered
into two agreements which define and limit the two
companies' rights and obligations. In addition, Devon's
board of directors amended Devon's share rights plan so that
Devon's existing anti-takeover defenses will remain in force
for third parties and/or certain further transactions with
Kerr-McGee.
(2) Princeton Services, Inc. ("PSI"), Merrill Lynch Asset
Management, L.P. ("MLAM") and Merrill Lynch Growth Fund (the
"Fund") have reported beneficial ownership of these shares
on Schedule 13G filed on February 6, 1998. PSI is a parent
holding company. MLAM is an investment advisor. The Fund is
an investment company. PSI, MLAM and the Fund report shared
voting and investment power with respect to these shares.
ML&Co., ML Group and PSI disclaim beneficial ownership of
such shares. The number of shares reported includes
1,639,300 shares which MLAM has the right to acquire upon
the conversion of Devon's trust convertible preferred
securities issued in July, 1996.
(3) Strong Capital Management, Inc. ("Strong Capital") and
Richard S. Strong have reported beneficial ownership of
these shares on Schedule 13G filed on February 16, 1998.
Strong Capital is an investment advisor. Richard S. Strong
is Chairman of the Board and principal shareholder of Strong
Capital.
(4) Includes 42,965 shares owned of record by Mr. Nichols as
Trustee of a family trust, 78,624 shares owned by Mr.
Nichols' wife, 12,570 shares owned by Mr. Nichols as trustee
of his children's trusts as to which he exercises sole
voting and investment power, 6,200 shares owned by Mr.
Nichols' son, 6,000 shares owned by Mr. Nichols' daughter
and 250,600 shares which are deemed beneficially owned
pursuant to stock options held by Mr. Nichols.
(5) Includes 309,149 shares owned by Windcrest Partners, a
limited partnership, in which Mr. Gellert shares investment
and voting power and 3,000 shares which are deemed
beneficially owned pursuant to stock options held by Mr.
Gellert.
(6) Includes 118,600 shares which are deemed beneficially owned
pursuant to stock options held by Mr. Turner.
(7) Includes 118,900 shares which are deemed beneficially owned
pursuant to stock options held by Mr. Smette.
(8) Includes 98,304 shares held by a family investment
partnership and 3,000 shares which are deemed beneficially
owned pursuant to stock options held by Mr. Nichols.
(9) Includes 73,400 shares which are deemed beneficially owned
pursuant to stock options held by Mr. Lacey.
(10) Includes 2,141 shares owned by Mr. Gavrin as co-trustee of
the Mark Sandler 1987 Trust, 9,249 shares owned by Mr. Gavrin's
wife and 3,000 shares which are deemed beneficially owned
pursuant to stock options held by Mr. Gavrin.
(11) Includes 30,000 shares which are deemed beneficially owned
pursuant to stock options held by Mr. Sanders.
(12) Includes 24,600 shares which are deemed beneficially owned
pursuant to stock options held by Mr. Ligon.
(13) Includes 3,000 shares which are deemed beneficially owned
pursuant to stock options held by Mr. Towell.
(14) Consists of 3,000 shares which are deemed beneficially owned
pursuant to stock options held by Mr. Corbett.
(15) Consists of 3,000 shares which are deemed beneficially owned
pursuant to stock options held by Mr. Ferguson.
(16) Consists of 3,000 shares which are deemed beneficially owned
pursuant to stock options held by Mr. McDaniel.
(17) Includes 823,700 shares which are deemed beneficially owned
pursuant to stock options held by officers and directors.
ELECTION OF DIRECTORS
Pursuant to provisions of the Company's Certificate of
Incorporation and Bylaws, the Board of Directors has fixed the
number of directors at nine. The Company's Certificate of
Incorporation and Bylaws provide for three classes of directors,
serving staggered three-year terms, with each class to be as
nearly equal in number as possible. The Board of Directors has
nominated David M. Gavrin, Tom J. McDaniel and John W. Nichols
for re-election as directors for terms expiring at the annual
meeting in the year 2001, and in each case until their successors
are elected and qualified. Proxies cannot be voted for a greater
number of persons than the number of nominees named. The three
nominees are presently directors of the Company whose terms
expire at the Meeting. Other directors who are remaining on the
Board will continue in office in accordance with their previous
elections until the expiration of their terms at the 1999 or 2000
annual meeting, as the case may be.
The Board of Directors recommends a vote "FOR" each of the
nominees for election to the Board of Directors.
It is the intention of the persons named in the proxy to
vote proxies "FOR" the election of the three nominees. In the
event that any of the nominees should fail to stand for election,
the persons named in the proxy intend to vote for substitute
nominees designated by the Board of Directors, unless the Board
of Directors reduces the number of directors to be elected.
INFORMATION ABOUT NOMINEES AND DIRECTORS
Nominees for Re-election as Directors For Terms Expiring in 2001
David M. Gavrin, age 63, a director of Devon since 1979,
serves as the chairman of the Compensation and Stock Option
Committee. In addition to managing his personal investments, he
serves as a director of several other companies as well as for
Devon. The companies for which Mr. Gavrin serves as a director
include Arcadis, N.V., a worldwide infrastructure and
environmental services company; and United American Energy Corp.,
an independent power producer. In addition, Mr. Gavrin was
associated with Drexel Burnham Lambert Incorporated, a former
investment banking firm, for 14 years as First Vice President and
was a General Partner of Windcrest Partners, an investment
partnership, for 10 years.
Tom J. McDaniel, age 59, was appointed to the Board of
Directors in December, 1996 and is a member of the Audit
Committee. Mr. McDaniel has been Kerr-McGee Corporation's Vice-
Chairman of the Board of Directors since February 1, 1997. He
joined Kerr-McGee as Associate General Counsel in 1984, became
Senior Vice President in 1986 and served as Senior Vice President
and Corporate Secretary from 1989 to 1997. Prior to joining Kerr-
McGee, Mr. McDaniel was engaged in the private practice of law
for 18 years. Mr. McDaniel serves on the board of directors of
the National Association of Manufacturers and UMB Oklahoma Bank.
A member of the Oklahoma and American Bar Associations, Mr.
McDaniel holds an undergraduate degree in business from
Northwestern Oklahoma State University and a law degree from the
University of Oklahoma.
John W. Nichols, age 83, is the co-founder of Devon and has
been Chairman of the Board of Directors since 1971. He is a
founding partner of Blackwood & Nichols Co., which developed the
conventional reserves in the Northeast Blanco Unit of the San
Juan Basin. Mr. Nichols is a non-practicing Certified Public
Accountant. Mr. Nichols is the father of J. Larry Nichols.
Directors Whose Terms Expire in the year 2000
Thomas F. Ferguson, age 61, has been a director of Devon
since 1982, and is the chairman of the Audit Committee. He is
Managing Director of Englewood, N.V., a wholly-owned subsidiary
of Kuwaiti-based Al-Futtooh Investments WLL. His 20 year
association with the principals of Al-Futtooh has allowed him to
represent them on the board of directors of Devon and other
companies in which they invest, including Baltic Transit Bank in
Latvia and Tunis International Bank in Tunisia and various
hotels, pharmaceutical companies, an investment banking company
and a venture capital fund. Mr. Ferguson is a Canadian qualified
Certified General Accountant and was formerly employed by the
Economist Intelligence Unit of London as a financial consultant.
J. Larry Nichols, age 55, co-founded Devon with his father,
John W. Nichols. He has been a Director since 1971, President
since 1976 and Chief Executive Officer since 1980. Mr. Nichols
is active in industry and business groups, serving as vice
president of the Independent Petroleum Association of America,
president of the Domestic Petroleum Council, president-elect of
the Natural Gas Supply Association and president-elect of the
Oklahoma Nature Conservancy. In addition, Mr. Nichols is a
director of the Independent Petroleum Association of New Mexico,
the Oklahoma Independent Petroleum Association, the National
Petroleum Council and the National Association of Manufacturers
and serves on the Board of Governors of the American Stock
Exchange. He also serves as a director of Smedvig asa, a
Norwegian shipping manufacturing company and CMI Corporation,
which designs and manufactures automated road construction
equipment. Both of these companies are traded on the New York
Stock Exchange. Mr. Nichols holds a geology degree from
Princeton University and a law degree from the University of
Michigan. He served as a law clerk to Mr. Chief Justice Earl
Warren and Mr. Justice Tom Clark of the U.S. Supreme Court. Mr.
Nichols is member of the Oklahoma Bar Association.
Lawrence H. Towell, age 54, was appointed to the Board of
Directors in December, 1996. Mr. Towell is the Vice President of
Acquisitions in Kerr-McGee's Strategic Planning/Business
Development Division, a position he has held since 1984. Prior
to his current position, he served Kerr-McGee in various
positions since 1975, including Vice President of Engineering and
Vice President of Natural Gas Sales. Prior to his employment
with Kerr-McGee, Mr. Towell was manager of HK Properties for
Howell-Kerr Enterprises in Oklahoma City. Prior to his
employment at Howell-Kerr, he worked for Shell Oil Co. for eight
years serving in various engineering capacities in various
domestic locations. Mr. Towell received his bachelor's degree in
mechanical engineering from Yale University. He is a member of
the Society of Petroleum Engineers, the Independent Petroleum
Association of America and the Yale University Science and
Engineering Association.
Directors Whose Terms Expire in 1999
Luke R. Corbett, age 50, was appointed to the Board of
Directors in December, 1996. Mr. Corbett is Kerr-McGee
Corporation's Chairman of the Board of Directors and Chief
Executive Officer, positions he has held since February 1, 1997.
He joined Kerr-McGee in 1985 as Vice President of Geophysics, was
named Senior Vice President of Exploration for the Exploration
and Production Division in 1987, Senior Vice President in 1991
and President and Chief Operating Officer in 1995. Prior to
joining Kerr-McGee, Mr. Corbett was employed by Amoco Production
Company as a geophysicist. He later joined Aminoil, Inc. where
he held the position of Vice President of Domestic Exploration.
Mr. Corbett is also a director of OGE Energy Corp. He is a
member of the American Association of Petroleum Geologists and
the Society of Exploration Geophysicists and is on the board of
the American Petroleum Institute. He is a member of the Domestic
Petroleum Council and a trustee for the American Geological
Institute Foundation. Mr. Corbett obtained his bachelor's degree
in mathematics from the University of Georgia.
Michael E. Gellert, age 66, has been a director of Devon
since 1971 and is a member of the Compensation and Stock Option
Committee. In addition to managing his personal investments and
serving as a director of Devon, Mr. Gellert serves on the board
of several other companies. These include Humana Inc., owners of
managed health care facilities; Premier Parks, Inc., an amusement
parks operator; Seacor SMIT Inc., owners and operators of marine
equipment; and Regal Cinemas, Inc., owners and operators of
multiplex motion picture theaters. Mr. Gellert is also a member
of the Putnam Trust Company Advisory Board to The Bank of New
York. Mr. Gellert was associated with the Drexel Burnham Lambert
Group and its predecessors for 31 years, including 17 years as a
director, and served in various executive capacities for its
wholly-owned subsidiary, Drexel Burnham Lambert Incorporated.
H. R. Sanders, Jr., age 65, has been a Director since 1981
and is a member of the Audit Committee. He served as Devon's
Executive Vice President from 1981 until his retirement in 1997.
Prior to joining Devon, Mr. Sanders was associated with
RepublicBank Dallas, N.A. serving from 1970 to 1981 as its Senior
Vice President with direct responsibility for independent oil and
gas producer and mining loans. Mr. Sanders is a member of the
Independent Petroleum Association of America, Texas Independent
Producers and Royalty Owners Association, Oklahoma Independent
Petroleum Association and a past director of Triton Energy
Corporation.
INFORMATION ABOUT EXECUTIVE OFFICERS
The positions held by the executive officers of the Company
are as follows.
J. Michael Lacey, age 52, joined Devon as Vice President -
Operations and Exploration in 1989. Prior to his employment with
Devon, Mr. Lacey served as General Manager in Tenneco Oil
Company's Mid-Continent and Rocky Mountain Divisions. He holds
both undergraduate and graduate degrees in Petroleum Engineering
from the Colorado School of Mines, is a Registered Professional
Engineer and a member of the Society of Petroleum Engineers and
the American Association of Petroleum Geologists.
Duke R. Ligon, age 56, joined Devon on February 17, 1997, as
its Vice President - General Counsel. In addition to his 12
years of energy law practice, most recently as a partner of a
large New York City law firm, he was an investment banker at
Bankers Trust Company of New York for 10 years. Mr. Ligon also
served for three years in various positions with the Federal
Energy Administration, U. S. Department of the Interior and
Department of Energy in Washington D. C. He currently serves as
a director of Tarragon Oil and Gas Limited, a Canadian oil and
gas exploration and production company. Mr. Ligon's primary
responsibilities at Devon include assisting in the Company's
acquisition efforts and representing the Company in various legal
matters, including litigation. Mr. Ligon holds an undergraduate
degree in business from Westminster College and a law degree from
the University of Texas School of Law.
Darryl G. Smette, age 50, Vice President - Marketing and
Administrative Planning since 1989, joined Devon in 1986 as
Manager of Gas Marketing. Mr. Smette's educational background
includes an undergraduate degree from Minot State College and a
masters degree from Wichita State University. His marketing
background includes 15 years with Energy Reserves Group, Inc./BHP
Petroleum (Americas), Inc., his last position being Director of
Marketing. He is also an oil and gas industry instructor
approved by the University of Texas' Department of Continuing
Education. Mr. Smette is a member of the Oklahoma Independent
Producers Association, Natural Gas Association of Oklahoma, and
the American Gas Association.
H. Allen Turner, age 45, has been responsible for Devon's
corporate finance and capital formation activities as Vice
President - Corporate Development since 1982. In 1981 he served
as Executive Vice President of Palo Pinto/Harken Drilling
Programs. For the six prior years he was associated with Merrill
Lynch with various responsibilities including Regional Tax
Investments Manager. He is a member of the Petroleum Investor
Relations Association and serves on the Independent Petroleum
Association of America Capital Markets Committee. Mr. Turner is
a graduate of Duke University.
William T. Vaughn, age 51, is Devon's Vice President -
Finance in charge of commercial banking functions, accounting,
tax and information services. Mr. Vaughn was elected in 1987 to
his present position. Prior to that he was Controller of Devon
from 1983 to 1987. Mr. Vaughn's prior experience includes
serving as Controller with Marion Corporation for two years and
employment with Arthur Young & Co. for seven years with various
duties, including audit manager. He is a Certified Public
Accountant and a member of the American Institute of Certified
Public Accountants and the Oklahoma Society of Certified Public
Accountants. He is a graduate of the University of Arkansas with
a Bachelor of Science degree.
Danny J. Heatly, age 42, has been Devon's Controller since
1989. Prior to joining Devon, Mr. Heatly was associated with
Peat Marwick Main & Co. (now KPMG Peat Marwick LLP) in Oklahoma
City for ten years with various duties, including senior audit
manager. He is a Certified Public Accountant and a member of the
American Institute of Certified Public Accountants and the
Oklahoma Society of Certified Public Accountants. He graduated
with a Bachelor of Accountancy degree from the University of
Oklahoma.
Gary L. McGee, age 48, was elected Treasurer in 1983, having
first served as Devon's Controller. Mr. McGee is a member of the
Executive Committees of the Rocky Mountain Oil & Gas Association,
Petroleum Association of Wyoming and Mid-Continent Oil & Gas
Association of Oklahoma. He served as Vice President of Finance
with KSA Industries, Inc., a private holding company with various
interests including oil and gas exploration. Mr. McGee also held
various accounting positions with Adams Resources and Energy Co.
and Mesa Petroleum Company. He received his accounting degree
from the University of Oklahoma.
Marian J. Moon, age 47, was elected Corporate Secretary in
1994. Ms. Moon has served Devon in various capacities since
1984, including her current position as Manager of Corporate
Finance. She has also served as Assistant Secretary with
responsibilities including compliance with SEC and stock exchange
regulations. Prior to joining Devon, Ms. Moon was employed for
eleven years by Amarex, Inc., an Oklahoma City based oil and
natural gas production and exploration firm, where she served
most recently as Treasurer. Ms. Moon is a member of the
Petroleum Investor Relations Association and the American Society
of Corporate Secretaries. She is a graduate of Valparaiso
University.
MEETINGS AND COMMITTEES OF THE BOARD
During 1997, the Board of Directors of the Company held four
regular meetings. All directors attended (a) at least three of
the four meetings of the Board of Directors and (b) all of the
meetings held by committees of the Board on which they served.
The Board of Directors has standing audit, compensation and stock
option, and dividend committees. It does not have a standing
nominating committee.
Mr. Ferguson was the sole member of the Company's Audit
Committee until March 11, 1998, at which time Mr. McDaniel and
Mr. Sanders were appointed by the Board to join such Committee.
Mr. Ferguson continues to serve as Chairman. The Audit Committee
meets with the Company's independent public accountants and
reviews the consolidated financial statements of the Company on a
regular basis. The functions of the Audit Committee consist of
recommending independent accountants to the Board of Directors;
approving the nature and scope of services performed by the inde
pendent accountants and reviewing the range of fees for such
services; conferring with the independent accountants and
reviewing the results of their audit; reviewing the Company's
accounting and financial controls; and providing assistance to
the Board of Directors with respect to the corporate and
reporting practices of the Company. The Board of Directors, as
recommended by the Audit Committee, has selected KPMG Peat
Marwick LLP to serve as the Company's independent public
accountants for the fiscal year ending December 31, 1998. The
Audit Committee met two times during 1997.
The Compensation and Stock Option Committee, which consists
of Messrs. Gavrin (Chairman) and Gellert, determines the nature
and amount of compensation of all executive officers of the
Company who are also directors and the amount and terms of stock
options granted to all employees. In addition, this committee
provides guidance to and makes recommendations to management
regarding employee benefit programs. The Compensation and Stock
Option Committee held one meeting in 1997. The Committee also
met in January, 1998 by telephone to evaluate and consider the
grant of stock options based upon 1997 performance.
The Dividend Committee declares dividends on Common Stock.
However, such Committee may declare dividends neither no more or
nor less than the amount last declared by the full Board of
Directors. In 1997 the Dividend Committee, which consisted of
Mr. Sanders and Mr. Larry Nichols (Chairman), held four meetings.
On March 11, 1998, the Board of Directors changed the membership
of the Dividend Committee to Mr. Larry Nichols (Chairman) and Mr.
McDaniel, and appointed Messrs. Corbett and John Nichols as
alternate members.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information regarding annual
and long-term compensation during 1995, 1996 and 1997 for the
chief executive officer ("CEO") and the four most highly
compensated executive officers, other than the CEO, who were
serving as executive officers of the Company on December 31,
1997.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation(2)
Name Principal Awards of All Other
Position Year Salary Bonus Other(1) Options Compensation(3)
#Shares
<S> <S> <C> <C> <C> <S> <C> <C>
J.L. Nichols President 1997 $400,000 $500,600 -- (4) $4,800
& CEO
1996 $325,000 $500,600 -- 40,000 $3,000
1995 $300,000 $200,600 -- 36,000 $3,000
J.M. Lacey Vice 1997 $220,000 $125,600 -- (4) $4,800
President
1996 $210,000 $ 90,600 -- 20,000 $3,000
1995 $200,000 $ 65,600 -- 18,000 $3,000
Duke R. Ligon Vice 1997 $175,000(5) $125,550 -- 30,000 $4,800
President
D.G. Smette Vice 1997 $176,000 $125,600 -- (4) $4,800
President
1996 $168,000 $ 90,600 -- 20,000 $3,000
1995 $160,000 $ 65,600 -- 18,000 $3,000
H.A. Turner Vice 1997 $176,000 $125,600 -- (4) $4,800
President
1996 $168,000 $ 90,600 -- 20,000 $3,000
1995 $160,000 $ 65,600 -- 18,000 $3,000
<FN>
(1) Excludes other compensation which, in aggregate, does not
exceed the lesser of $50,000 or10% of the total annual
salary and bonus reported for the named executive officer.
(2) No awards of restricted stock or payments under long-term
incentive plans were made by the Company to any of the
named executives in any period covered by the table.
(3) These amounts represent Company matching contributions to
the Devon Energy Incentive Savings Plan.
(4) Annual option grants for 1997, which normally would have been
made in December, 1997 were not made until January, 1998. It
is anticipated that future consideration of option grants will
be made only once per year, at year-end. If that is the case,
there may be two separate option grants for the named executive
officers in 1998. See "Option Grants in 1997 and 1998" below.
(5) Mr. Ligon joined the Company on February 7, 1997. The amount
shown does not include $62,740 of expenses reimbursed to Mr.
Ligon by the Company to relocate from New York to Oklahoma City.
</TABLE>
Option Grants in 1997 and 1998
The following tables set forth information concerning
options to purchase Common Stock granted in 1997 and 1998 to the
five individuals named in the Summary Compensation Table. The
material terms of such options appear in the following tables and
the footnotes thereto.
<TABLE>
<CAPTION>
Individual Grants in 1997
Percent of Total Exercise
Options Options Granted Price Per Expiration Grant Date
Name Granted in 1997 Share (1) Date Present Value (2)
<S> <C> <C> <C> <C> <C>
J. Larry Nichols -- -- -- -- --
J. Michael -- -- -- -- --
Duke R. Ligon 30,000 (3) 55.6% $32.81 02/09/2007 $387,900
Darryl G. Smette -- -- -- -- --
H. Allen Turner -- -- -- -- --
</TABLE>
Individual Grants in January 1998 Based on 1997 Performance
<TABLE>
<CAPTION>
Percent of Exercise
Options Total Options Price Expiration Grant Date
Name Granted Granted in 1998 Per Share (4) Date Present Value (5)
<S> <C> <C> <C> <C> <C>
J. Larry Nichols 40,000 (6) 13.1% $36.75 01/20/2008 $556,800
J. Michael Lacey 20,000 (7) 6.6% $36.75 01/20/2008 $278,400
Duke R. Ligon 20,000 (7) 6.6% $36.75 01/20/2008 $278,400
Darryl G. Smette 20,000 (7) 6.6% $36.75 01/20/2008 $278,400
H. Allen Turner 20,000 (7) 6.6% $36.75 01/20/2008 $278,400
<FN>
(1) Exercise price is the fair market value on the date of
grant, determined by calculating the average of the high and
low prices of Common Stock on the date of grant as reported
by the American Stock Exchange.
(2) The grant date present value is an estimation of the possible
future value of the option grant based upon one of the
methods prescribed by the Securities and Exchange Commission,
the Binomial Option Pricing Model. This model uses the past
performance of a stock to predict the future value of a stock
option. The following assumptions were used in the model:
volatility (a measure of the historic variability of a stock
price) - 34.0%; risk-free interest rate (the interest paid by
zero-coupon U.S. government issues with a remaining term
equal to the expected life of the options) - 6.2% per annum;
annual dividend yield - 0.6%; and expected life of the
options - five years from grant date. The option value
estimated using this model does not necessarily represent the
value to be realized by the named officers.
(3) These options were granted to Mr. Ligon upon his employment
with the Company on February 10, 1997. One-third of the
options vest and become exercisable on each of the first,
second and third anniversaries of the grant date.
(4) Exercise price is the fair market value on the date of grant,
which is the closing price of Common Stock on the date of
grant as reported by the American Stock Exchange.
(5) The grant date present value is an estimation of the
possible future value of the option grant based upon the
Binomial Option Pricing Model. The following assumptions
were used in the model: volatility (a measure of the historic
variability of a stock price) - 33.6%; risk-free interest
rate (the interest paid by zero-coupon U.S. government issues
with a remaining term equal to the expected life of the
options) - 5.4% per annum; annual dividend yield - 0.5%; and
expected life of the options - five years from grant date. The
option value estimated using this model does not necessarily
represent the value to be realized by the named officers.
(6) These options were granted on January 21, 1998, in connection
with 1997 performance. 34,600 of such shares were immediately
vested and exercisable, 2,700 vest and become exercisable on
January 21, 2001, and the remaining 2,700 vest and become
exercisable on January 21, 2002.
(7) These options were granted on January 21, 1998, in
connection with 1997 performance. 14,600 of such shares were
immediately vested and exercisable. However, 80% of the
unexercised portion of such options are subject to forfeiture
upon the officer's voluntary termination or termination for
cause prior to January 21, 1999. This percentage decreases
20% in each subsequent year. After January 21, 2002, none of
the 14,600 options are subject to forfeiture. Of the remaining
options, 2,700 vest and become exercisable on January 21, 2001
and 2,700 vest and become exercisable on January 21, 2002.
</TABLE>
Aggregate Option Exercises in 1997 and Year-End Option Values
The following table sets forth information for the five
individuals named in the Summary Compensation Table concerning
their exercise in 1997 of options to purchase Common Stock and
the unexercised options to purchase Common Stock held by the named
individuals at December 31, 1997.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-the-Money
at 12/31/97 Options at 12/31/97 (2)
Number of Value
Name Shares Aquired Realized (1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
J. Larry Nichols -- $ -- 211,800 10,200 $3,548,963 $ 99,788
J. Michael Lacy 39,200 $1,081,175 55,200 13,600 $ 705,925 $166,650
Duke R. Ligon -- $ -- 30,000 -- $ 170,700
Darryl G. Smette 2,000 $ 72,500 100,700 13,600 $1,713,888 $166,650
H. Allen Turner -- -- 100,400 13,600 $1,694,100 $166,650
<FN>
(1) The value realized equals the aggregate amount of the excess
of the fair market value (the average of the high and low
prices of the Common Stock as reported by the American Stock
Exchange on the exercise date) over the relevant exercise
price.
(2) The value is based on the aggregate amount of the excess of
$38.50 (the closing price as reported by the American Stock
Exchange for December 31, 1997) over the relevant exercise
price for outstanding options that were exercisable and in-
the-money at year-end.
</TABLE>
Compensation Pursuant to Plans
Long-term Incentive Plans. Devon has outstanding stock
options issued to certain of its directors, executive officers
and employees under three separate stock option plans adopted in
1988, 1993 and 1997 (the "1988 Plan", the "1993 Plan" and the
"1997 Plan", respectively). Options granted under the 1988 Plan
and the 1993 Plan remain exercisable by the employees owning such
options, but no new options will be granted under either of such
plans. At December 31, 1997, 12 participants held options
granted under the 1988 Plan and 23 participants held options
granted under the 1993 Plan.
Effective May 21, 1997, Devon shareholders adopted the 1997
Plan and reserved two million shares of Common Stock for issuance
thereunder to directors, officers and employees.
The exercise price of options granted under the 1997 Plan
may not be less than the estimated fair market value of the stock
on the date of grant (plus 10% if the grantee owns or controls
more than 10% of the total voting stock of Devon prior to the
grant). Options granted are exercisable during a period
established for each grant, which period may not exceed 10 years
from the date of grant. Under the 1997 Plan, the grantee must
pay the exercise price in cash or in Common Stock, or a
combination thereof, at the time the option is exercised. The
1997 Plan expires on March 25, 2007. As of December 31, 1997, 7
participants held options granted under the 1997 Plan. In
January, 1998, options were granted to an additional 28
participants.
The Company has no other plans that provide compensation
intended to serve as incentive for performance to occur over a
period longer than one fiscal year.
Retirement Plan. Devon maintains a defined benefit
retirement plan (the "Basic Plan") which provides benefits based
upon past and future employment service with Devon. Each eligible
employee who retires is entitled to receive annual retirement
income, computed as a percentage of "final average compensation"
(which consists of the average of the highest three consecutive
years' salaries, wages, and bonuses out of last ten years), and
credited years of service up to 25 years. Contributions by
employees are neither required nor permitted under the Basic
Plan. Benefits are computed based on straight-life annuity
amounts and are reduced by Social Security payments. All of the
executive officers participate in the Basic Plan.
The following table sets forth the credited years of service
under Devon's Basic Plan for each of the five individuals named
in the Summary Compensation Table.
Credited
Years of Service
Name of Individual (Through December 31, 1997)
J. Larry Nichols 28 years
J. Michael Lacey 9 years
Duke R. Ligon 1 year
H. Allen Turner 16 years
Darryl G. Smette 11 years
Supplemental Retirement Plan. Effective July 1, 1995, Devon
established a non-qualified deferred compensation plan (the
"Supplemental Plan"), the purpose of which is to provide
supplemental retirement income to certain selected key management
and highly compensated employees because their annual
compensation is greater than the maximum annual compensation that
can be considered in computing their benefits under the Company's
Basic Plan. An employee must be selected by the Compensation and
Stock Option Committee in order to be eligible for participation
in the Supplemental Plan. All of the five individuals named in
the Summary Compensation Table and one additional executive
officer, William T. Vaughn, have been selected to participate in
the Supplemental Plan. Each eligible participant's supplemental
retirement income will equal 65% of his final average
compensation, multiplied by a fraction, the numerator of which is
his credited years of service (not to exceed 20) and the
denominator of which is 20, less any offset amounts. Offset
amounts are (i) retirement benefits payable to the participant
under the Basic Plan, (ii) benefits due to the participant under
Social Security, and (iii) any benefits which are paid to the
participant under the Company's long-term disability plan. The
Supplemental Plan is currently unfunded.
The following table illustrates estimated annual benefits
payable upon retirement under the Company's retirement plan,
including the Supplemental Plan, to employees in specified
compensation and years of service classifications, assuming a
normal retirement in 1997 at age 65.
<TABLE>
<CAPTION>
Final Average
Compensation Years of Service
<C> <C> <C> <C> <C> <C>
15 20 25 30 35
$250,000 $109,932 $146,576 $146,576 $146,576 $146,576
$300,000 $134,307 $179,076 $179,067 $179,076 $179,076
$350,000 $158,682 $211,576 $211,576 $211,576 $211,576
$400,000 $183,057 $244,076 $244,076 $244,076 $244,076
$450,000 $207,432 $276,576 $276,576 $276,576 $276,576
$500,000 $231,807 $309,076 $309,076 $309,076 $309,076
$550,000 $256,182 $341,576 $341,576 $341,576 $341,576
$600,000 $280,557 $374,076 $374,076 $374,076 $374,076
$650,000 $304,932 $406,576 $406,576 $406,576 $406,576
$700,000 $329,307 $439,076 $439,076 $439,076 $439,076
$750,000 $353,682 $471,576 $471,576 $471,576 $471,576
$800,000 $378,057 $504,076 $504,076 $504,076 $504,076
$850,000 $402,432 $536,576 $536,576 $536,576 $536,576
$900,000 $426,807 $569,076 $569,076 $569,076 $569,076
$950,000 $451,182 $601,576 $601,576 $601,576 $601,576
</TABLE>
Supplemental Retirement Income Agreement. Effective in
March, 1997, the Board established a nonqualified deferred
compensation plan for John W. Nichols. Mr. Nichols, who retired
as an employee of Devon on April 30, 1997, receives the
compensation received by non-employee directors plus a pension of
$180,000 per year. Upon Mr. Nichols' death, $100,000 per year
will be paid as survivor's benefit to Mr. Nichols' wife for the
remainder of her life. Mr. Nichols does not participate in
either the Basic Plan or the Supplemental Plan.
Severance Agreements
Pursuant to severance agreements, each of the five
individuals named in the Summary Compensation Table is entitled
to certain compensation ("Severance Payment") in the event that
his employment with the Company is terminated (a) within one year
of the acquisition by the Company of reserves or assets which
result in the reserves or assets of the Company increasing by at
least 20% or (b) within two years of a change in control of the
Company. "Change of control" is defined in the agreements as
being an event which results in an entity or group acquiring
either (i) 30% or more of the Company's outstanding voting
securities, or (ii) less than 30% of the outstanding voting
securities, but which a majority of the Board of Directors
determines has caused a change in control. In either case the
Severance Payment would be approximately equal to two times the
individual's annual compensation.
The Company also has a severance agreement with one
additional executive officer, William T. Vaughn, with terms
identical to the above-referenced severance agreements.
Employment Agreement
The Company has an Employment Agreement with Duke R. Ligon
dated February 7, 1997, which has an initial term of two years
and, unless sooner terminated, shall automatically renew for an
additional two year term. The Employment Agreement provides that
Mr. Ligon will be paid a base salary at the annual rate of
$200,000 and will be eligible to participate in other incentive
compensation and benefit arrangements provided to other employees
of the Company. The Employment Agreement also provides that Mr.
Ligon will be eligible to participate in the Company's stock
option plans and shall be granted a nonqualified stock option to
purchase at least 30,000 shares of the Company's Common Stock at
a price not less than fair market value on the date of grant.
Mr. Ligon was granted an option to purchase 30,000 shares on
February 10, 1997, at an exercise price of $32.81. One-third of
these options vest on each of the first, second and third
anniversaries of the grant date.
If the Company terminates Mr. Ligon's employment other than
for cause or by reason of his death or disability, or if Mr.
Ligon terminates for good reason within 24 months following a
change of control, the Company shall pay Mr. Ligon a cash lump
sum payment equal to his earned but unpaid base salary plus his
base salary otherwise payable to him for the remainder of his
employment term. Any amounts paid to Mr. Ligon under his
employment agreement would offset any Severance Payment due him
under his severance agreement.
Director Compensation
Non-management directors of Devon receive an annual retainer
of $20,000, payable quarterly, plus $1,000 for each Board meeting
attended. Also, directors serving as chairmen of the standing
committees of the Board of Directors receive an additional $2,000
per year. Committee members who attend the meetings of their
standing committee receive $1,000 per meeting. John W. Nichols,
Chairman of the Board, received $66,667 in 1997 as payment for
his services as an employee prior to his retirement on April 30,
1997. Thereafter he was compensated on the same basis as other
non-employee directors and as Chairman of the Board.
Non-management directors are eligible to receive stock
options in addition to their cash remuneration. Such directors
are eligible to receive stock option grants of up to 3,000 shares
immediately after each annual meeting of shareholders at an
exercise price equal to the fair market value of the Common Stock
on that date. Any unexercised options will expire ten years
after the date of grant. The Compensation and Stock Option
Committee, which awards options to non-management directors, may
elect to grant awards that are less than the 3,000 shares
maximum. However, the Compensation and Stock Option Committee
has no other discretion regarding the award of stock options to
non-management directors. 1997 was the first year in which
directors were eligible to receive stock options. The following
table sets forth information concerning options granted to non-
management directors:
<TABLE>
<CAPTION>
Individual Grants in 1997
Percent of Exercise Price
Options Total Options Per Share Expiration Grant Date
Name Granted (1) 1997 (2) Date Date Present Value (3)
<S> <C> <C> <C> <C> <C>
Luke R. Corbett 3,000 5.6% $36.875 (4) 5/20/2007 $44,280
Thomas F. Ferguson 3,000 5.6% $36.875 (4) 5/20/2007 $44,280
David M. Gavrin 3,000 5.6% $36.875 (4) 5/20/2007 $44,280
Michael E. Gellert 3,000 5.6% $36.875 (4) 5/20/2007 $44,280
Tom J. McDaniel 3,000 5.6% $36.875 (4) 5/20/2007 $44,280
John W. Nichols 3,000 5.6% $36.875 (4) 5/20/2007 $44,280
H.R. Sanders, Jr. 3,000 5.6% $36.281 (5) 5/19/2007 $43,560
Lawrence H.Towell 3,000 5.6% $36.875 (4) 5/20/2007 $44,280
<FN>
(1) These options were granted on May 21, 1997 (except Mr.
Sanders', which were granted on May 20, 1997). They became
immediately vested and exercisable on the date of grant.
(2) Annual option grants for officers and employees for 1997,
which normally would have been made in December, 1997, were
not made until January, 1998. Had the January, 1998 grant
actually been made in December, 1997, the percent of total
options granted to each director named in the table below
would have been 0.8%, rather than the 5.6% shown.
(3) The grant date present value is an estimation of the
possible future value of the option grant based upon the
Binomial Option Pricing Model. The following assumptions were
used in the model: volatility (a measure of the historic
variability of a stock price) - 33.6%; risk-free
interest rate (the interest paid by zero-coupon U.S.
government issues with a remaining term equal to the expected
life of the options) - 6.5% per annum; annual dividend yield -
0.5%; and expected life of the options - five years from grant
date. The option value estimated using this model does not
necessarily represent the value to be realized by the named
directors.
(4) Exercise price is the fair market value on the date of grant
which is the closing price of Common Stock on the date of
grant as reported by the American Stock Exchange.
(5) Exercise price is the fair market value on the date of the
grant, determined by calculating the average of the high
and low prices of Common Stock on the date of the grant as
reported by the American Stock Exchange.
</TABLE>
Compensation and Stock Option Committee Report on Executive
Compensation
The Compensation and Stock Option Committee of the Board of
Directors (the "Committee") establishes the general compensation
policies of the Company. The Committee meets in November or
December of each year to establish specific compensation levels
for the CEO and to review the executive officers' compensation in
general. (The compensation for executive officers other than the
CEO is determined by the CEO.)
The Committee's goal in setting executive compensation is to
motivate, reward and retain management talent who support the
Company's goals of increasing absolute and per share growth for
shareholders. This goal is carried out through awards of base
salary, annual cash bonuses and stock options.
The Committee generally believes that the total cash
compensation of its CEO and other executive officers should be
similar to the total cash compensation of similarly situated
executives of peer group public companies within the oil and gas
industry. Further, a significant portion of the complete
compensation package should be tied to the Company's success in
achieving long-term growth in per share earnings, cash flow,
reserves and stock price.
Base Salary. A competitive base salary is considered vital
to support the continuity of management and is consistent with
the long-term nature of the oil and gas business. The Committee
believes that the base salaries of the executive officers should
be similar to the base salaries of executive officers of similar
companies within the oil and gas industry. Therefore, no
performance criteria are applied to the base salary portion of
the total compensation. Performance of the Company versus its
peers is, however, given significant weight in the cash bonus and
stock option portions of compensation.
The CEO's base salary for 1997 was based upon information
available to the Committee at its December, 1996 meeting. At
that meeting the Committee established a peer group of 10
companies to which Devon should be compared. This peer group
included companies which are similar to Devon in total revenues,
balance sheet ratios, oil and gas reserves and overall oil and
gas operations. (The industry group index in the Performance
Graph included in this proxy statement includes, but is not
limited to, the companies used for this compensation analysis.
In its analysis, the Committee specifically focused on those
companies that are most similar to Devon in size, financial
structure and operations, believing that the most direct
comparisons would not necessarily include all of the more than
200 companies included in the industry group index used for the
Performance Graph.)
A review of the base salaries for the highest-paid executive
at each of these peer companies revealed that the 1996 base
salary of the CEO was at the low end of the range of all base
salaries in the group, and only 85% of the average base salary
for the group. As a result of this finding, the Committee
increased the CEO's base salary for 1997 by 23% to improve his
base salary in relationship to the peer group.
The Committee advised the CEO that similar criteria should
be used to evaluate the base salaries of the other executive
officers of the Company.
Cash Bonuses. The Committee believes that the officers'
cash bonuses should be tied to Devon's success in meeting its
corporate goals and budgets and in achieving growth in comparison
to those of the Company's industry peers and to the individual
officers' contribution to such success. Cash bonuses for
calendar year 1997 were set at the December, 1997 Committee
meeting. In setting the cash bonus for the CEO for the calendar
year 1997, the Committee reviewed the performance of the peer
group of 12 oil and gas companies. (Two companies on the prior
year's list had changed sufficiently as to be no longer
comparable to Devon, and were thus removed from the list. Four
other companies similar to Devon were added.)
The Committee reviewed Devon's growth over the last three
years, compared with the peer group average on a number of
different measures, notably, change in earnings per share, cash
flow per share, reserves per share and stock price. Devon's
growth in cash flow per share and stock price exceeded that of
the peer group average for the years reviewed. The growth in
earnings per share and reserves per share was somewhat less than
the peer group average. The Committee also noted that Devon's
stock price over the last year had increased by 12% while the
average stock price for the peer group had decreased by 7%. A
large portion of this 1997 stock price performance was associated
with the consummation of a merger with Kerr-McGee Corporation's
North American onshore subsidiaries; which was consummated on
December 31, 1996. As a result of this analysis, the Committee
awarded the CEO a cash bonus of $500,000. This award resulted in
his total cash compensation for 1997 being 91% of the average
total 1996 cash compensation for the highest-paid executives of
the companies in the peer group.
The Committee advised the CEO that similar criteria should
be used in establishing cash bonuses for the other executive
officers.
Stock Options. The Committee desires to reward key
management and professional employees for long-term strategic
management practices and enhancement of shareholder value by
awarding stock options. Stock options are granted at an option
price equal to the fair market value of the Common Stock on the
grant date. The grant of these options and the optionees'
holdings of unexercised options and/or ownership of exercised
option shares is designed to closely align the interests of the
executive officers with those of the shareholders. The ultimate
value of the stock options will depend on the continued success
of the Company, thereby creating a continuing incentive for
executive officers to perform long after the initial grant.
Due to time limitations, the grant of stock options was not
considered at the December, 1997 meeting of the Committee.
Rather, the Committee met by telephone in January, 1998 to
consider stock option grants. Stock options were awarded to the
CEO and other executive officers on January 21, 1998.
The award of options is based generally upon the same
criteria as that used for the award of cash bonuses; that is,
more options are awarded if the Company performs well in
relationship to its peers, and less or none are awarded if the
Company does not perform well. In addition, the Committee wants
to encourage executives to maintain ownership of Company stock
and/or unexercised options. Although there are no specific
ownership criteria used in awarding options, long-term ownership
is viewed favorably. The Committee noted that Devon's officers
as a group still retain over 72% of all options (both vested and
unvested) granted to them.
The Committee generally seeks to award no more than 1% of
the outstanding shares in any one year, and further desires to
keep the total number of shares under option and available for
option to less than 10% of the total shares outstanding. As of
December 31, 1997, there were 1,078,400 shares under option and
1,979,000 shares available for option, which were 3.3% and 6.1%,
respectively, of the total shares outstanding.
Policy on Deductibility of Compensation. Section 162(m) of
the Internal Revenue Code limits the tax deduction to $1 million
for compensation paid to any one executive officer, unless
certain requirements are met. The Committee presently intends
that all compensation paid to executive officers will meet the
requirements for deductibility under Section 162(m). However,
the Committee may award compensation which is not deductible
under Section 162(m) if it believes that such awards would be in
the best interest of the Company or its shareholders.
Intention to Submit a Compensation Plan to the Shareholders.
The Committee has no present intention of submitting any
compensation plans to the shareholders for approval which would
result in the issuance of more than 5% of the Company's
outstanding Common Stock.
We believe that the Company has an appropriate compensation
structure which properly rewards and motivates its executive
officers to build shareholder value.
As to Compensation to As to Compensation to Executive
the CEO Officers other than the CEO
David M. Gavrin, Chairman J. Larry Nichols
Michael E. Gellert
Compensation Committee Interlocks
The Compensation Committee is composed of two independent,
non-employee directors, Mr. Gavrin and Mr. Gellert. These
directors have no interlocking relationships as defined by the
Securities and Exchange Commission.
Performance Graph
The following performance graph compares the Company's
cumulative total stockholder return on its Common Stock for the
five-year period from December 31, 1992 to December 31, 1997,
with the cumulative total return of the Standard & Poor's 500
stock index and the Stock Index by Standard Industrial
Classification Code ("SIC Code") for Crude Petroleum and Natural
Gas. The SIC Code for Crude Petroleum and Natural Gas is 1311.
The identities of the 200+ companies included in the index will
be provided upon request.
CUMULATIVE TOTAL RETURN*
THE COMPANY, S&P 500, AND SIC CODE INDEX
FOR CRUDE PETROLEUM AND NATURAL GAS
FISCAL YEAR ENDING
COMPANY 1992 1993 1994 1995 1996 1997
DEVON ENERGY CORP. 100 138.07 122.90 172.66 236.59 263.56
INDUSTRY INDEX 100 119.15 124.87 137.33 182.60 185.09
BROAD MARKET 100 110.08 111.54 153.45 188.69 251.64
Assumes $100 invested on December 31, 1992, in Devon Energy
Corporation Common Stock, S&P 500 Index and SIC Code Index for
Crude Petroleum and Natural Gas.
* Total return assumes reinvestment of dividends.
CERTAIN TRANSACTIONS
In 1986, H. R. Sanders, Jr., a director of Devon and
Executive Vice President of the Company until his retirement in
May, 1997, executed a non-interest bearing note in favor of Devon
in the principal amount of $125,000, to evidence his borrowings
from Devon. This note, which was executed as part of Mr.
Sanders' employment agreement with Devon, was made on terms
favorable to him to induce him to move to Oklahoma City. This
note, which is due on demand, is secured by a first mortgage on
Mr. Sanders' personal residence. As of December 31, 1997, the
outstanding balance of the note was $119,000.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any stockholder desiring to present a proposal for action at
the 1999 Annual Meeting of Stockholders of the Company must
present the proposal to the Secretary of the Company not later
than December 1, 1998. Only those proposals that comply with the
requirements of Rule 14a-8 promulgated under the Securities
Exchange Act of 1934 will be included in the Company's proxy
statement for the 1999 Annual Meeting. No stockholder proposals
were received by the Company for inclusion in this proxy
statement.
OTHER MATTERS
The Board of Directors of the Company knows of no other
matter to come before the Meeting other than that set forth
herein and in the accompanying Notice of Annual Meeting of
Stockholders. However, if any other matters should properly come
before the Meeting, it is the intention of the persons named in
the accompanying proxy to vote such proxies as they deem
advisable in accordance with their best judgment.
Your cooperation in giving this matter your immediate
attention and in returning your proxy promptly will be
appreciated.
BY ORDER OF THE BOARD OF DIRECTORS
Marian J. Moon
Corporate Secretary
March 30, 1998
DEVON ENERGY CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Devon Energy Corporation, an
Oklahoma corporation, hereby nominates and appoints John W.
Nichols and J. Larry Nichols or either one of them, with full
power of substitution, as true and lawful agents and proxies to
represent the undersigned and vote all shares of stock of Devon
Energy Corporation owned by the undersigned in all matters coming
before the Annual Meeting of Stockholders (or any adjournment
thereof) of Devon Energy Corporation to be held in the Community
Room (Mezzanine Floor), Bank of Oklahoma on Wednesday, May 20,
1998, at 11:00 a.m., local time. The Board of Directors
recommends a vote "FOR" the matters set forth on the reverse
side.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
X
Please mark
votes as in this
example.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER
SPECIFIED BELOW BY THE STOCKHOLDER. TO THE EXTENT CONTRARY
SPECIFICATIONS ARE NOT GIVEN, THIS PROXY WILL BE VOTED "FOR" THE
NOMINEES LISTED IN ITEM 1.
1. ELECTION OF DIRECTORS
2. OTHER MATTERS:
Nominees: David M. Gavrin,
Tom J. McDaniel and In their discretion, to
John W. Nichols vote with respect to any other
matters that may come before
FOR WITHHELD the meeting or any adjournment
(all nominees) (as to all thereof, including matters
nominees) incident to its conduct.
I RESERVE THE RIGHT TO REVOKE
THE PROXY AT ANY TIME BEFORE
THE EXERCISE THEREOF.
WITHHELD Please sign exactly as your
(as to nominees listed below) name appears at left,
indicating your official
position or representative
capacity, if applicable. If
shares are held jointly, each
owner should sign.
You may withhold your vote for
a particular nominee by Signature:
marking this box and naming ______________________________
the nominee for which your Date _______
vote is being withheld.
Signature:
______________________________
Date_______
