<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
PHILLIPS GAS COMPANY
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
<PAGE>
LOGO PHILLIPS GAS COMPANY
NOTICE OF
1997 ANNUAL MEETING
OF STOCKHOLDERS
MAY 13, 1997
AND PROXY STATEMENT
<PAGE>
LOGO PHILLIPS GAS COMPANY
HOUSTON, TEXAS 77056
March 28, 1997
Dear Series A Preferred Stockholder:
You are cordially invited to the Annual Meeting of Phillips Gas Company,
which will be held in the Company's offices at 1300 Post Oak Boulevard, Suite
800, Houston, Texas, on Tuesday, May 13, 1997, commencing at 8:30 a.m. local
time. Your attendance will provide you with an opportunity to hear management's
report on operations and to meet the directors and representatives of the
Company.
The Secretary's formal notice of the meeting and the Proxy Statement
accompany this letter and describe the matters on which action will be taken.
You will have the opportunity to vote on the election of two members of
the Company's Board of Directors. It is important that your views be
represented at the meeting whether or not you are able to attend. Accordingly,
we respectfully request that you sign, date and promptly return your proxy card
in the enclosed postage-paid envelope.
On behalf of the directors and employees of the Company, we value and
appreciate your continued interest in and support of Phillips Gas Company.
Sincerely,
/s/ M. J. Panatier
M. J. Panatier
President and Chief Executive
Officer
<PAGE>
PHILLIPS GAS COMPANY
HOUSTON, TEXAS 77056
NOTICE OF ANNUAL MEETING To Be Held On MAY 13, 1997
To Series A Preferred Stockholders:
The Annual Meeting of Stockholders will be held at the offices of the
Company, 1300 Post Oak Boulevard, Suite 800, Houston, Texas, on Tuesday,
May 13, 1997, at 8:30 a.m. local time, for the purposes of considering and
voting on the following matters as described in the attached Proxy Statement:
Election of two directors by holders of the Company's Series A 9.32%
Cumulative Preferred Stock;
Election of five directors by Phillips Petroleum Company, the sole holder
of the Company's Common Stock; and
Any other matters that may properly come before the meeting.
Series A Preferred stockholders of record at the close of business
March 19, 1997, are the only Series A Preferred stockholders who 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 1996 accompany this notice.
By Order of the Board of Directors
/s/ D. L. Cone
D. L. Cone
Secretary
Dated March 28, 1997
<PAGE>
PHILLIPS GAS COMPANY
HOUSTON, TEXAS 77056
March 28, 1997
PROXY STATEMENT
SOLICITATION
Your proxy is solicited by the Board of Directors and all costs of
solicitation will be borne by the Company. Your proxy will be voted as you
direct and may be revoked by you at any time before it is voted by filing with
the Secretary an instrument revoking it, by executing a later-dated proxy or by
voting in person by ballot at the meeting. This Proxy Statement and Proxy Card
are first being mailed on or about March 28, 1997, to Series A Preferred
stockholders of record as of March 19, 1997. 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 Phillips Gas Company's policy that all proxies, ballots, and voting
tabulations that identify holders of Series A Preferred Stock be kept
confidential, except where disclosure may be required by applicable law, where
stockholders write comments on their proxy cards, and where disclosure is
expressly requested by a stockholder. In limited circumstances, such as a proxy
contest or other solicitation of proxies based on an opposition proxy statement
or any matter requiring stockholder approval of more than the vote of a majority
of the shares present at any meeting, the Company may review the proxies or
ballots. The Company has engaged ChaseMellon Shareholder Services, L.L.C.
("ChaseMellon") as tabulators of all proxies and ballots, and has appointed one
person who is an employee of ChaseMellon to be the Inspector of Election.
VOTING SECURITIES AND PRINCIPAL HOLDERS
The Company has two classes of voting securities. The record date for
stockholders entitled to vote at this meeting is March 19, 1997. At such date,
there were 1,000 shares of the Company's common stock, $.01 par value,
outstanding, all of which are owned by Phillips Petroleum Company, and
13,800,000 shares of Series A Preferred Stock, $25 liquidation preference per
share, outstanding. Holders of record of the Series A Preferred Stock have the
right, voting as a single class, to elect a number of directors of the Company
equal to the smallest whole number that is not less than 25 percent of the
directors of the Company. Phillips Petroleum Company, as the owner of all of the
outstanding common stock of the Company, has the right to elect the remaining
directors. Holders of Series A Preferred Stock will vote in such election on the
basis of one vote per $25 liquidation preference and not cumulatively, and the
holder or holders of one-third of the voting power of the shares of Series A
Preferred Stock then outstanding, present in person or by proxy, will constitute
a quorum for the election of directors by them.
The Company's Board of Directors consists of seven members. Accordingly,
two directors are to be elected at this meeting by the holders of the Series A
Preferred Stock.
NOMINEES FOR ELECTION AS DIRECTORS
The number of directors to be elected by the holders of the Series A
Preferred Stock is two. The designated proxy holders of the Company intend,
unless otherwise instructed, to vote all proxies for the election of the
following two nominees, to hold office for the ensuing year or until their
successors are elected. 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
<PAGE>
March 7, 1997, including data on their business backgrounds and the names of
public companies and other selected entities for which they also serve as
directors:
JOHN L. ADAMS, 52, is Chairman and Chief Executive Officer of Texas
Commerce Bank -- Dallas, Texas, a position to which he was elected in June 1987.
He is also Vice Chairman of Texas Commerce Bank National Association, having
been elected to that position in November 1988. Mr. Adams serves as a Director
of the Zale Lipshy University Medical Center; Trinity Industries, Inc.; and TU
Electric (Advisory Board).
OTWAY B. DENNY, JR., 47, is a partner in the law firm of Fulbright &
Jaworski, Houston, Texas, where he has practiced law since 1973. Mr. Denny is a
past President of the Houston Bar Association and is certified as an Advocate by
the American Board of Trial Advocates.
Each of the nominees was first elected to the Company's Board of Directors
by the Board of Directors on April 13, 1993.
The Company and Phillips Petroleum Company maintain banking relationships
in the ordinary course of business with Texas Commerce Bank National Association
and The Chase Manhattan Bank (National Association), both subsidiaries of The
Chase Manhattan Corporation. Mr. Denny and his firm has and continues to
represent Phillips Petroleum Company in a number of litigation matters. Neither
Mr. Denny nor his firm currently serves as legal counsel to the Company.
DIRECTORS ELECTED BY COMMON STOCKHOLDER
The following individuals are the nominees for directors of the Company to
be elected by Phillips Petroleum Company, the Company's sole common stockholder.
Phillips Petroleum Company has advised the Company that at the Annual Meeting it
intends to elect the five persons listed below as directors, to hold office for
the ensuing year or until their successors are elected. Directors' terms of
office expire at the Annual Meeting of Stockholders in each year.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
E. L. Batchelder 49 Senior Vice President, Treasurer, Controller and
Chief Financial Officer; Director
G. B. Beitzel 68 Director
C. L. Bowerman 57 Vice President; Director
J. J. Mulva 50 Chairman of the Board of Directors
M. J. Panatier 48 President and Chief Executive Officer; Director
</TABLE>
Each of these directors, except Mr. Beitzel, has been an employee of
Phillips Petroleum Company for more than five years. Mr. Mulva was elected
President and Chief Operating Officer of Phillips Petroleum Company, effective
May 1, 1994. Mr. Bowerman is Executive Vice President responsible for planning
and corporate relations and services of Phillips Petroleum Company. Mr. Panatier
had been an employee of the Company, but again became a Phillips Petroleum
Company employee in the GPM Gas Services Company division on November 1, 1992.
Mr. Batchelder has been an employee of Phillips Petroleum Company since 1972.
Mr. Panatier was elected to the Board of Directors on January 16, 1992, Mr.
Beitzel on March 16, 1992, Mr. Batchelder on June 1, 1994, and Mr. Bowerman on
May 9, 1995. Mr. Mulva was elected to the position of Chairman of the Board of
Directors, on May 1, 1994.
2
<PAGE>
BIOGRAPHIES
E. L. Batchelder was elected Senior Vice President, Treasurer, Controller
and Chief Financial Officer of the Company in June 1994. Prior thereto, Mr.
Batchelder was President of Phillips Driscopipe, Inc., a subsidiary of Phillips
Petroleum Company, beginning in March 1992; general sales manager of wholesale
marketing for Phillips 66 Company beginning in April 1990; and manager of
communications networks and computer services for Phillips Petroleum Company
beginning in April 1989.
G. B. Beitzel is a director of various corporations. He previously served
as Senior Vice President and Director of International Business Machines
Corporation from July 1955 to March 1987. Mr. Beitzel is Chairman of the Board
of the Colonial Williamsburg Foundation. He is a director of Bankers Trust New
York Corporation and its subsidiary, Bankers Trust Company; Bitstream Inc.;
Caliber System, Inc., formerly Roadway Services, Inc.; Computer Task Group,
Inc.; Rohm and Haas Company; TIG Holdings; and Xillix Technologies Corp. Mr.
Beitzel is a director of Phillips Petroleum Company and has served in such
capacity since July 1980.
C. L. Bowerman is an Executive Vice President of Phillips Petroleum Company
and is responsible for planning and corporate relations and services, a position
he assumed in January 1995. He previously was Executive Vice President
responsible for corporate strategic planning, corporate information technology
and research and development beginning in April 1992; Executive Vice President
responsible for corporate engineering, corporate strategic planning and research
and development beginning December 1991; and Senior Vice President responsible
for refining, marketing, supply and transportation beginning in October 1988.
Mr. Bowerman became a director of Phillips Petroleum Company in December 1989.
J. J. Mulva is President and Chief Operating Officer of Phillips Petroleum
Company, a position he assumed in May 1994. Previously he was an Executive Vice
President and Chief Financial Officer from January 1994 through April 1994;
Senior Vice President and Chief Financial Officer beginning in May 1993; Vice
President and Chief Financial Officer beginning in March 1993; Vice President,
Treasurer and Chief Financial Officer beginning in March 1990; and Vice
President and Treasurer beginning in September 1988. Mr. Mulva became a director
of Phillips Petroleum Company in January 1994.
M. J. Panatier was elected President and Chief Executive Officer in
September 1994. Mr. Panatier was Senior Vice President and Chief Operating
Officer of the Company from April 1992 to September 1994. Prior thereto, he was
division manager of gas and gas liquids plants and systems of Phillips Petroleum
Company beginning in December 1990.
GENERAL INFORMATION RELATING TO THE BOARD OF DIRECTORS
The Company was organized as a wholly owned subsidiary of Phillips
Petroleum Company in January 1992. It remained a wholly owned subsidiary of
Phillips Petroleum Company until it completed an initial public offering of its
Series A 9.32% Cumulative Preferred Stock on December 14, 1992.
From the time of its organization, the Company has had its own Board of
Directors. The business and affairs of the Company have been and are managed
under the direction of the Board of Directors. To assist it in carrying out its
duties, the Board of Directors has delegated certain authorities to three
committees it has created. The Board of Directors held three meetings in 1996,
and took other actions by unanimous written consent in accordance with
procedures established by the Company's By-laws.
COMMITTEES
The Board of Directors has established the following committees:
<TABLE>
<CAPTION>
AUDIT EXECUTIVE COMPENSATION AND NOMINATING
----- --------- ---------------------------
<S> <C> <C>
Beitzel* Mulva* Mulva*
Adams Adams Bowerman
Denny Beitzel
</TABLE>
- ---------------
* Chairman.
3
<PAGE>
THE AUDIT COMMITTEE was formed in April 1993 to review the scope of the
engagement of the independent auditors to be engaged by the Company, including
the remuneration to be paid, and review on a continuing basis the independence
of the auditors. The Committee reviews with the independent auditors, the
Controller, legal counsel 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 that 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; (5) the adequacy of the Company's accounting
practices and internal control structure; and (6) the status of the Keep Well
Agreement with Phillips Petroleum Company. The Committee may direct legal
counsel, the independent auditors and the internal audit staff to inquire into
and report to it on any matter having to do with the Company's business affairs.
The Committee also monitors compliance by the Company with the Phillips
Petroleum Company Code of Business Ethics, Conduct and Responsibility. The Audit
Committee held two meetings in 1996.
THE EXECUTIVE COMMITTEE, when the Board is not in session, may exercise all
power and authority of the Board in the management of the business of the
Company, subject to the limitations imposed by the By-laws. 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 was formed in January 1993. The Executive Committee did not meet in
1996.
THE COMPENSATION AND NOMINATING COMMITTEE recommends to the Board policies
and arrangements for the compensation directors and qualified candidates for
election as directors. The Committee welcomes suggestions from stockholders
about qualified candidates. A stockholder wishing to submit a recommendation to
the Committee may do so by writing to the Chairman of the Nominating Committee,
Phillips Gas Company, 1300 Post Oak Boulevard, Suite 800, Houston, Texas 77056.
This Committee was formed in February 1992. The Compensation and Nominating
Committee held one meeting in 1996.
COMPENSATION OF DIRECTORS
Directors who were employees of Phillips Petroleum Company in 1996 (Messrs.
Mulva and Bowerman) and of the GPM Gas Services Company division of Phillips
Petroleum Company (Messrs. Panatier and Batchelder) received no compensation for
their services as directors of the Company apart from the compensation they
received as employees of Phillips Petroleum Company.
Directors who are not employees of Phillips Petroleum Company or of its GPM
Gas Services Company division receive an annual retainer fee of $27,000, plus
$1,000 per meeting for each meeting of the Board of Directors attended.
Directors who are not employees of Phillips Petroleum Company or its GPM Gas
Services Company division are also entitled to fees of $500 for members and $750
for the chairman for each Board committee meeting attended.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following information relates to the only person known to the Company
to be the owner, as of December 31, 1996, of more than five percent of any class
of the Company's voting securities.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- -------------- -------------------------- --------------------- ----------------
<S> <C> <C> <C>
Common Stock, Phillips Petroleum Company 1,000 shares owned 100%
$.01 par Phillips Building directly of record
value Bartlesville, OK 74004
</TABLE>
4
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following information relates to the ownership of equity securities of
the Company and Phillips Petroleum Company as of February 28, 1997, by
directors, nominees, and executive officers of the Company:
<TABLE>
<CAPTION>
PHILLIPS GAS COMPANY SECURITIES
-----------------------------------------------------
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
--------------------
TITLE OF CLASS NAME OF BENEFICIAL OWNER DIRECT INDIRECT PERCENT OF CLASS
- ------------------ ------------------------- ------ -------- ----------------
<S> <C> <C> <C> <C>
DIRECTORS AND NOMINEES
-------------------------
Series A Preferred J. L. Adams 500 1,000 less than 1%
Series A Preferred E. L. Batchelder -- -- less than 1%
Series A Preferred G. B. Beitzel 1,000 -- less than 1%
Series A Preferred C. L. Bowerman -- -- less than 1%
Series A Preferred O. B. Denny, Jr. 150 -- less than 1%
Series A Preferred J. J. Mulva 475 1,070(1) less than 1%
Series A Preferred M. J. Panatier 2,900 -- less than 1%
</TABLE>
- ---------------
(1) Mr. Mulva disclaims beneficial ownership of all such shares.
<TABLE>
<CAPTION>
PHILLIPS PETROLEUM COMPANY SECURITIES
-------------------------------------------------------
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
-----------------------
TITLE OF CLASS NAME OF BENEFICIAL OWNER DIRECT(1) INDIRECT PERCENT OF CLASS
- ------------------ ------------------------ --------- -------- ----------------
<S> <C> <C> <C> <C>
DIRECTORS AND NOMINEES
-----------------------
Common J. L. Adams -- -- less than 1%
Common E. L. Batchelder 40,215 -- less than 1%
Common G. B. Beitzel 69,922 -- less than 1%
Common C. L. Bowerman 182,629 654 less than 1%
Common O. B. Denny, Jr. -- -- less than 1%
Common J. J. Mulva 227,893 -- less than 1%
Common M. J. Panatier 60,910 -- less than 1%
</TABLE>
- ---------------
(1) Direct ownership includes shares which may be acquired under options within
60 days of the record date.
5
<PAGE>
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 1996, reports required by Section 16(a) of the
Securities Exchange Act of 1934, as amended.
RELATIONSHIPS WITH PHILLIPS PETROLEUM COMPANY
The Company is a subsidiary of Phillips Petroleum Company, which owns 100
percent of its outstanding common stock and has the right to elect up to 75
percent of the Company's directors. Until December 14, 1992, the effective date
of the initial public offering of the Company's Series A Preferred Stock, the
Company was wholly owned by Phillips Petroleum Company. As a subsidiary whose
financial results continue to be consolidated into those of Phillips Petroleum
Company, the Company is controlled by Phillips Petroleum Company.
The Company has entered into a number of gas supply contracts with Phillips
Petroleum Company. Under these contracts, the Company purchased raw gas
representing approximately 9 percent of its total raw gas throughput in 1996.
The Company and Phillips Petroleum Company are parties to a long-term sales
contract under which the Company has committed to sell and Phillips Petroleum
Company has agreed to purchase substantially all of the natural gas liquids
recovered by the Company.
The Company also sells all of the sulfur it produces to Phillips Petroleum
Company under an evergreen sales contract. In 1996, the Company sold
approximately 7 percent of its residue gas under various contracts to Phillips
Petroleum Company for use as a refinery fuel and for other purposes.
The Company and Phillips Petroleum Company are parties to a series of
Operation and Management Services Agreements, under the terms of which employees
of Phillips Petroleum Company, primarily in the GPM Gas Services Company
division of Phillips Petroleum Company, are made available to carry out the
Company's business activities. In addition, under these Operation and Management
Services Agreements, Phillips Petroleum Company provides all necessary
managerial, operational and control functions for the conduct of the business
and operations of the Company and its subsidiaries.
The terms of the Operation and Management Services Agreements include
prices for such services intended to reimburse Phillips Petroleum Company for
its actual costs incurred in providing such services. Included in these costs
are the compensation expenses incurred by Phillips Petroleum Company for its
employees. The executive officers of the Company are Phillips Petroleum Company
employees in the GPM Gas Services Company division, who provide their services
to the Company on a full-time basis through the Operations and Management
Services Agreements.
6
<PAGE>
EXECUTIVE COMPENSATION
To comply with specific compensation disclosure requirements established by
rules of the Securities and Exchange Commission (SEC), the Company presents the
following information about compensation paid by Phillips Petroleum Company to
the Company's President and Chief Executive Officer and the Company's Senior
Vice President, Treasurer, Controller and Chief Financial Officer (who are the
only executive officers of the Company) in their capacities as employees of
Phillips Petroleum Company. Neither of these persons received any compensation
from the Company for their services as executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------------------------------------------------
SECURITIES LONG-
RESTRICTED UNDERLYING TERM
OTHER ANNUAL STOCK OPTIONS/ INCENTIVE ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUT COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($) ($) (#)(3) ($) ($)(4)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
E. L. Batchelder........... 1996 160,680 68,620 0 0 4,435 9,450(5) 5,695
Senior Vice President, 1995 159,780 25,444 0 0 4,573 18,870(6) 7,273
Treasurer, Controller and 1994(7) 91,405 21,391 0 0 0 48,268(8) 3,989
Chief Financial Officer
M.J. Panatier.............. 1996 280,750 209,420 0 0 17,624 111,650(5) 7,717
President and Chief 1995 219,000 58,124 0 18,696(9) 11,493 61,778(6) 7,280
Executive Officer 1994(10) 198,042 91,446 0 0 10,355 0 4,770
</TABLE>
- ---------------
(1) These salaries were paid by Phillips Petroleum Company, which is the
employer of each of the named executive officers. The Company does not pay
any salary to any of its executive officers.
(2) Awards made to the executive officers in their capacities as employees of
Phillips Petroleum Company under the Phillips Petroleum Company annual
bonus plan. The Company does not have a bonus plan or other arrangements
under which bonuses could be paid.
(3) Options to purchase shares of common stock of Phillips Petroleum Company,
granted by Phillips Petroleum Company to the named executive officers in
their capacities as employees of Phillips Petroleum Company under the 1990
Stock Plan and the Omnibus Securities Plan of Phillips Petroleum Company.
The Company does not have a stock option plan or other arrangements under
which options on any class of its stock could be granted and has no
outstanding options for any shares of any class.
(4) Includes contributions by Phillips Petroleum Company to the Thrift Plan of
Phillips Petroleum Company for the benefit of the named executive officers
in their capacities as employees of Phillips Petroleum Company and
participants in the Thrift Plan, and the value of shares of common stock of
Phillips Petroleum Company allocated to the named executive officers in
their capacities as employees of Phillips Petroleum Company and as
participants in the Phillips Petroleum Company Long-Term Stock Savings
Plan, in each case as of the respective valuation dates.
(5) The value of the restricted stock on the date of the award for performance
pursuant to the Long-Term Incentive Plan under the Omnibus Securities Plan
of Phillips Petroleum Company for the performance period from 1994-1996
which was awarded in February 1997 for such period.
(6) The value of the restricted stock on the date of the award for performance
pursuant to the Long-Term Incentive Plan under the Omnibus Securities Plan
of Phillips Petroleum Company for the performance period from 1993-1995
which was awarded in February 1996 for such period.
(7) Mr. Batchelder was elected Senior Vice President, Treasurer, Controller and
Chief Financial Officer for the Company effective June 1, 1994. The amount
of compensation to Mr. Batchelder shown for 1994 is that paid during his
period of service in such capacity.
(8) The value of the restricted stock on the date of the award for performance
pursuant to the Strategic Incentive Plan under the 1990 Stock Plan of
Phillips Petroleum Company for the performance period from 1991-1994 which
was awarded in April 1995 for such period.
(9) The value of 538 shares of restricted stock on the date of the award made
to Mr. Panatier pursuant to the Omnibus Securities Plan of Phillips
Petroleum Company. The restricted stock which is not transferable prior to
death, disability or retirement unless such restrictions are earlier lapsed
by action of Phillips Petroleum Company's Compensation Committee. As of
December 31, 1996, the market value of the 538 shares valued at $44.875 per
share, was $24,143 (calculated according to SEC regulations without regard
to the restrictions and the inability of Mr. Panatier to realize such
values at that time).
(10) Mr. Panatier was elected President and Chief Executive Officer effective
September 12, 1994. Mr. Panatier had previously been Senior Vice President
and Chief Operating Officer of the Company.
7
<PAGE>
OPTIONS/SARS GRANTS IN LAST FISCAL YEAR
The following table describes grants of stock options or stock appreciation
rights (SARs) by Phillips Petroleum Company to the executive officers of the
Company during the Company's last fiscal year. These options were granted to the
optionees in their capacities as employees of Phillips Petroleum Company under
the Omnibus Securities Plan of Phillips Petroleum Company, and represent options
to acquire the common stock of Phillips Petroleum Company, NOT any stock of the
Company.
The Company has no stock option plan or program, and there are no options
outstanding in respect of any class of the Company's Stock, including the Series
A Preferred Stock. Readers of this proxy statement are cautioned that this
disclosure, which is required by SEC rules, should not be read as implying that
any stock price appreciation can or should be anticipated by holders of the
Company's Series A Preferred Stock.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (1)
- -------------------------------------------------------------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES OR BASE
GRANTED IN PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
E. L. Batchelder......... 4,435 .34% 34.75 01/08/06 96,905 245,610
M. J. Panatier........... 17,395 1.35% 34.75 01/08/06 380,081 963,335
229 .02% 42.44 10/14/06 6,112 15,490
</TABLE>
- ---------------
(1) Readers are particularly cautioned that these "potential realizable values"
relate to the value of the common stock of Phillips Petroleum Company, NOT
any stock (including the Series A Preferred Stock) of the Company.
"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 Phillips Petroleum
Company's stock or of its stock price. Holders of Series A Preferred Stock
of the Company realize no additional value from any price appreciation of
the common stock of Phillips Petroleum Company.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table shows the number of shares of common stock of Phillips
Petroleum Company that were acquired through exercise of options by the
Company's executive officers during the Company's last fiscal year. The options
held by the named executive officers in their capacities as employees of
Phillips Petroleum Company under the 1986 Stock Plan, the 1990 Stock Plan and
the Omnibus Securities Plan of Phillips Petroleum Company are as listed below
and are NOT options to acquire any stock of the Company.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS AT
AT FISCAL FISCAL YEAR-END
NUMBER OF NET VALUE YEAR-END ($)(1)
SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE ($) UNEXERCISABLE UNEXERCISABLE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
E. L. Batchelder......................... 8,700 100,012 8,957/ 155,412/
12,359 165,290
M. J. Panatier........................... 0 0 25,611/ 460,191/
34,039 417,033
</TABLE>
- ---------------
(1) Based on the fair market value of Phillips Petroleum Company's common stock
of $44.875 on December 31, 1996.
8
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
The following table shows Long-Term Incentive Plan awards established in
1996 by Phillips Petroleum Company for the executive officers of the Company
during the Company's last fiscal year. These awards were established for the
executives in their capacities as employees of Phillips Petroleum Company under
the Omnibus Securities Plan of Phillips Petroleum Company. The Company has no
long-term incentive plan or program.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
PERFORMANCE OR --------------------------------
OTHER PERIOD
UNTIL NUMBER OF SHARES(1)
NUMBER OF MATURATION OR THRESHOLD TARGET MAXIMUM
NAME SHARES(#) PAYOUT (#)(2) (#) (#)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
E. L. Batchelder...................... -- -- -- -- --
M. J. Panatier........................ 2,751 12/31/98 1,376 2,751 5,502
</TABLE>
- ---------------
(1) At the end of the three-year performance period, from January 1, 1996,
through December 31, 1998, the Compensation Committee of Phillips Petroleum
Company will evaluate Phillips Petroleum Company's performance to determine
the extent to which target awards have been earned. The performance will be
measured by comparing Phillips' stockholder return to a peer group of eight
integrated oil companies.
(2) Phillips Petroleum 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 Compensation Committee of Phillips Petroleum Company 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.
9
<PAGE>
PENSION PLAN TABLE
The Retirement Income Plan, in which all active eligible employees of
Phillips Petroleum Company 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 (AICP). 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 following table shows the maximum estimated straight-life annual
benefits payable at normal retirement age to employees based on the annual
compensation levels and years of service indicated, prior to reductions required
by the plan for Social Security benefits.
ESTIMATED ANNUAL RETIREMENT BENEFITS UNDER
FINAL AVERAGE EARNINGS FORMULA(1)(2)
<TABLE>
<CAPTION>
ANNUAL AVERAGE OF
HIGHEST 3 CONSECUTIVE
CALENDAR YEARS' SALARY
AND AICP AWARDS IN 10 YEARS OF CREDITED SERVICE AT NORMAL RETIREMENT
YEARS PRECEDING -----------------------------------------------
RETIREMENT(3) 20 25 30 35 40
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$150,000 48,000 60,000 72,000 84,000 96,000
200,000 64,000 80,000 96,000 112,000 128,000
250,000 80,000 100,000 120,000 140,000 160,000
300,000 96,000 120,000 144,000 168,000 192,000
400,000 128,000 160,000 192,000 224,000 256,000
500,000 160,000 200,000 240,000 280,000 320,000
600,000 192,000 240,000 288,000 336,000 384,000
</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
supplement payments. Phillips Petroleum Company also maintains, as a
recruiting tool, a supplemental plan under which officers and other
executives who are hired during mid-career may receive retirement income in
excess of that which their shorter Credited Service would provide under the
retirement plan. However, total benefits under this supplemental plan and
the retirement plan will not exceed benefits obtainable under the retirement
plan by a full career employee at similar salary levels. These supplemental
benefits have been partially pre-funded by Phillips Petroleum Company in a
special trust designated for this purpose.
(2) The named executive officers years of credited service with Phillips
Petroleum Company for retirement purposes, at March 7, 1997, were as
follows: E. L. Batchelder, 25 years, and M. J. Panatier, 22 years.
(3) AICP Awards are shown under the heading "Bonus" in the Summary Compensation
Table.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Phillips Petroleum Company determines the compensation of all of its
employees in accordance with its own policies and plans. The Company has no role
in setting these policies and plans or in determining compensation levels for
any Phillips Petroleum Company employee. Although the Company does not determine
compensation levels for its executive officers, it does, as noted above, have a
Compensation and Nominating Committee of its Board of Directors, the purposes of
which are to nominate and recommend compensation levels for directors who are
not employees of Phillips Petroleum Company.
10
<PAGE>
Mr. Mulva and Mr. Bowerman comprised the Compensation and Nominating
Committee in 1996. Mr. Mulva was the Chairman of the Company's Board of
Directors in 1996. Mr. Bowerman is a Vice President, but not an executive
officer, of the Company. Neither Mr. Mulva nor Mr. Bowerman are, or have been
during the last completed fiscal year, members of the Compensation Committee of
the Board of Directors of Phillips Petroleum Company.
BOARD REPORT ON EXECUTIVE COMPENSATION
Because the Company's Compensation and Nominating Committee does not
determine the compensation of the Company's executive officers, this report is
presented by the full Board of Directors:
The Company was organized during 1992 by Phillips Petroleum Company. Prior
to the public offering of the Company's Series A Preferred Stock in December
1992, Phillips Petroleum Company as the Company's sole stockholder designated
the Company's directors and assembled the Company's management team, including
its executive officers. The Board of Directors, reflecting the desire of the
Company's sole stockholder, elected the named executive officers to their
respective offices as the management team was assembled.
The executive officers of the Company are Phillips Petroleum Company
employees in the GPM Gas Services Company division of Phillips Petroleum
Company. The executive officers provide their services to the Company through a
series of Operation and Management Services Agreements between the Company and
Phillips Petroleum Company. These Agreements have been approved by the Board of
Directors and include prices for services intended to reimburse Phillips
Petroleum Company for its actual costs incurred in providing the services.
Compensation of Phillips Petroleum Company employees is among the costs
reimbursed.
Phillips Petroleum Company determines the compensation of all of its
employees in accordance with its own policies and plans. The Company has no role
in setting these policies and plans, or in determining compensation levels for
any Phillips Petroleum Company employee.
The Company does have the right to seek adjustment of the prices for
services under the Operation and Management Services Agreements. However, no
such adjustments have been requested or made with respect to the compensation of
any of the persons serving as executive officers of the Company, and the
Company's Board of Directors has elected as executive officers all of the
persons proposed by Phillips Petroleum Company.
The Board of Directors' policy with respect to compensation of the
Company's executive officers is to allow their employer, Phillips Petroleum
Company, which is the Company's parent, and into which the results of the
Company's operations are consolidated, to determine their compensation in
accordance with the policies and plans of Phillips Petroleum Company. In the
judgment of the Board of Directors, all stockholders of the Company have the
opportunity to benefit from the application of the policies and plans of
Phillips Petroleum Company to all of its employees. While the Board of Directors
has reserved the authority to make specific compensation-related decisions in
the context of specific elections of officers or by initiating renegotiation of
prices under the Operation and Management Services Agreements, it found no need
to do so during 1996.
<TABLE>
<S> <C>
J. L. Adams O. B. Denny, Jr.
E. L. Batchelder J. J. Mulva
G. B. Beitzel M. J. Panatier
C. L. Bowerman
</TABLE>
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP has been designated to serve the Company as its
independent auditors for the current fiscal year. Ernst & Young LLP has served
as the Company's independent auditors since its organization, and prior thereto
has served as the independent auditors of Phillips Petroleum Company since 1949.
Representatives of Ernst & Young LLP will be present at the meeting to make any
statement they desire and to answer questions directed to them.
11
<PAGE>
VOTE REQUIRED FOR ELECTION OF DIRECTORS
Provided that a quorum of one-third of the outstanding shares of Series A
Preferred Stock is present and represented at the meeting, the affirmative vote
of a majority of the Series A Preferred Stock so represented is required for
election of directors to be elected by holders of Series A Preferred Stock. For
purposes of determining whether the directors have been elected by a majority
vote, abstentions are the equivalent of a negative vote.
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 that require a stockholder vote, it is intended
that the proxy holders will use their own discretion in voting on such other
matters.
Information included in this Proxy Statement is as of the date of
preparation, approximately March 7, 1997, unless otherwise stated.
DATE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1998 Annual Meeting
must be received at the Company's executive offices in Houston, Texas, no later
than December 1, 1997, for inclusion in the Company's Proxy Statement and form
of proxy relating to that meeting.
By Order of the Board of Directors,
/s/ D. L. Cone
D. L. Cone
Secretary
Houston, Texas
March 28, 1997
PLEASE SIGN, DATE, AND PROMPTLY MAIL THE ENCLOSED PROXY IN THE ACCOMPANYING
POSTAGE-PAID ENVELOPE. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE COMPANY'S
RECOMMENDATIONS, IT IS NOT NECESSARY TO SPECIFY YOUR CHOICE BUT YOUR PROXY MUST
BE SIGNED AND RETURNED. IN ANY EVENT, YOUR PROMPT RESPONSE IS REQUESTED AND YOUR
COOPERATION WILL BE APPRECIATED.
12
<PAGE>
APPENDIX - FORM OF PROXY
Definitive Copy
LOGO
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PHILLIPS GAS COMPANY
Annual Meeting May 13, 1997
The undersigned hereby appoints G.B. Beitzel, J.J. Mulva and M.J. Panatier
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 offices of the
Company, 1300 Post Oak Boulevard, Suite 800, Houston, Texas, on May 13, 1997,
at 8:30 a.m., and at any adjournment thereof, in the manner stated herein as
to the following matters and in their discretion on any other matters that
come before the meeting, all as described in the Notice and Proxy Statement.
This Proxy is Continued on the Reverse Side
Please Sign on the Reverse Side and Return Promptly
- ------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
<PAGE>
This Proxy will be voted or not voted as you direct below. In the absence of
such direction, it will be voted FOR Directors.
Please mark
your votes as ---
indicated in | X |
this example ---
------------------------------------------------------------------------
Company recommends a vote FOR: ELECTION OF DIRECTORS: Nominees: John L.
Adams and Otway B. Denny, Jr.
VOTE FOR VOTE WITHHELD *To withhold authority to vote for
all nominees from all nominees any nominee write that nominee's
listed above* listed above name on the space below.
__ __
|__| |__| ---------------------------------
__
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:______________________, 1997
__________________________________
__________________________________
Signature(s) of Stockholder(s)
Your signature(s) on this proxy form should be exactly the same as the
name(s) imprinted hereon. Persons signing as executors, administrators,
trustees, or in similar capabilities, should so indicate.
- ------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
<PAGE>
