<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Union Pacific Resources Group Inc.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Union Pacific Resources Group Inc.
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(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]
UNION PACIFIC RESOURCES GROUP INC.
- - --------------------------------------------------------------------------------
JACK L. MESSMAN
Chairman and Chief Executive Officer
March 21, 1997
Dear Shareholders:
1996 was a historic year for Union Pacific Resources Group Inc. The
Company's spin-off from Union Pacific Corporation was completed on October 15
and now UPR is free to do what we do best--explore for, develop and market oil
and natural gas. We launched initiatives to change the culture at UPR and to be
the company of choice for all of our customers. These initiatives are closely
linked. To be the company of choice we must embrace change, be nimble and
flexible enough to accommodate change, and drive change with our exceptional
people and state-of-the-art systems. In 1996, for the first time, all full-time
non-agreement employees of the Company became shareholders through the award of
restricted stock. These awards were made to align the employees' goals with
those of the Company and our shareholders. These employees will be eligible for
additional grants of stock options in future years.
The Company achieved several operational and financial milestones in 1996.
For the seventh consecutive year, we increased our sales volumes. We were the
number one driller in the nation for the fifth consecutive year. Our capital
spending of $880.3 million in 1996 was the highest total ever, excluding
acquisitions.
For 1997, our goals are aggressive and challenging. We want to maintain our
leadership position in drilling, we plan to increase sales and production
volumes, and, for the first time in the Company's history, our capital spending
budget will exceed $1 billion.
Your management and Board of Directors also have addressed several issues
which you are being asked to support with your vote. We are recommending for
your approval certain changes to our Directors' compensation program. Compared
to our current program, these changes will provide less cash compensation to
Directors and more at-risk compensation tied to the performance of UPR's common
stock. We believe these changes will strengthen the alignment of Directors'
interests with those of all other UPR shareholders. The Company's Executive
Incentive Plan and the 1995 Stock Option and Retention Stock Plan are being
presented for your approval to comply with certain Internal Revenue Service
rules related to recently spun-off companies such as UPR. Certain other changes
to these plans, designed to assist the Company with the recruitment and
retention of first-rate executives, also are being presented for your approval.
We urge you to VOTE FOR each of these proposals.
Thank you for your support in 1996. We are excited about our company and
the opportunities which lay ahead, and look forward to bringing you even greater
accomplishments in 1997.
Sincerely,
/s/ Jack L. Messman
<PAGE>
[LOGO]
UNION PACIFIC RESOURCES NOTICE OF ANNUAL MEETING
GROUP INC. OF SHAREHOLDERS
801 Cherry Street
Fort Worth, TX 76102
To the Shareholders: March 21, 1997
You are hereby notified that the 1997 Annual Meeting of Shareholders of
Union Pacific Resources Group Inc., a Utah corporation (the 'Company'), will be
held at the Fort Worth Club, 306 West 7th Street (12th Floor, Sunset and Trinity
Rooms), Fort Worth, Texas, 76102 at 10:00 A.M., CDT, on Wednesday, May 7, 1997
for the following purposes:
(1) to elect ten directors, each to serve until the earlier of his or
her successor being elected or his or her death, resignation or removal;
(2) to consider and vote upon the Company's 1995 Stock Option and
Retention Stock Plan, as amended and restated;
(3) to consider and vote upon the Executive Incentive Plan, as amended
and restated;
(4) to consider and vote upon the 1995 Directors Stock Option Plan, as
amended and restated (in conjunction with other changes to the outside
director compensation program described in the Proxy Statement); and
to transact such other business as may properly come before the Annual Meeting
or any adjournment or postponement thereof.
Only shareholders of record at the close of business on March 3, 1997 are
entitled to notice of and to vote at the Annual Meeting.
Shareholders are urged to date, sign and return the enclosed proxy
promptly, whether or not they expect to attend the Annual Meeting in person.
/s/ Mark S. Knouse
MARK S. KNOUSE
Secretary
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, SHAREHOLDERS
ARE URGED TO DATE, SIGN AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE
ENCLOSED ENVELOPE WHETHER OR NOT THEY EXPECT TO ATTEND THE ANNUAL MEETING IN
PERSON. YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED.
(THE ENCLOSED RETURN ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.)
<PAGE>
UNION PACIFIC RESOURCES GROUP INC.
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 7, 1997
GENERAL INFORMATION
INTRODUCTION
This Proxy Statement is being furnished to shareholders of Union Pacific
Resources Group Inc., a Utah corporation (the 'Company'), in connection with the
solicitation of proxies by the Board of Directors (the 'Board') of the Company
for use at the Annual Meeting of Shareholders ('Annual Meeting') to be held on
May 7, 1997 for the purpose of considering and voting upon the matters set forth
in the accompanying notice of the Annual Meeting.
The Annual Meeting is the first annual meeting of shareholders following
Union Pacific Corporation's distribution (the 'Distribution') to its
shareholders of approximately 83% of the outstanding Common Stock of the Company
(the 'Common Stock') in October 1996. The Common Stock is now widely held.
The first date on which this Proxy Statement and the accompanying form of
proxy are being sent to shareholders of the Company is March 21, 1997.
COMMON STOCK OUTSTANDING
The close of business on March 3, 1997 (the 'Record Date') has been fixed
as the date of record for the determination of shareholders of the Company
entitled to notice of and to vote at the Annual Meeting. As of the Record Date,
there were 253,781,440 shares of Common Stock outstanding.
VOTING OF COMMON STOCK
The presence of a majority of the issued and outstanding shares of Common
Stock entitled to vote, represented in person or by proxy, is required for a
quorum at the Annual Meeting. Holders of shares of Common Stock are entitled to
one vote at the Annual Meeting for each share of Common Stock held of record at
the Record Date. In the election of directors, shareholders will not be allowed
to cumulate their votes. If you do not wish your shares to be voted for
particular nominees, please identify the exceptions in the designated space
provided on the proxy card. The ten nominees receiving the highest number of
votes will be elected. Accordingly, abstentions and broker non-votes will not
affect the outcome of the election. The approval of the proposed amendments to
the Company's 1995 Stock Option and Retention Stock Plan, Executive Incentive
Plan and 1995 Directors Stock Option Plan, and any other matter presented for
approval by the shareholders will be approved, in accordance with Utah law, if
the votes cast in favor of a matter exceed the votes cast opposing such matter.
As a result, abstentions and broker non-votes will not affect the outcome of any
matter.
All shares represented by properly executed proxies will, unless such
proxies have been previously revoked, be voted at the Annual Meeting in
accordance with the directions on the proxies. If no direction is indicated, the
shares will be voted as recommended by the Board. The Board has designated Jack
L. Messman and Mark S. Knouse to receive appointments as agents named in the
enclosed proxy. The Company has no knowledge of any matters other than those
matters set forth in the Notice of Annual Meeting of Shareholders to be brought
before the Annual Meeting. If any other matters are properly presented to the
Annual Meeting for action, it is intended that Jack L. Messman or Mark S.
Knouse, as an agent named in the enclosed proxy, and acting thereunder, will
vote in accordance with his best judgment on such matters. A shareholder
executing and returning a proxy has the power to revoke it at any time before it
is voted by providing written notice of such revocation to the Secretary of the
Company, by submitting a validly executed later-dated proxy or by attending the
Annual Meeting and voting in person. The mere presence of a shareholder at the
Annual Meeting, however, will not constitute a revocation of a previously
submitted proxy.
1
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The Company will bear the cost of printing and mailing proxy materials to
its shareholders as well as associated solicitation costs. Arrangements will be
made with brokerage houses and other custodians, nominees and fiduciaries for
the forwarding of solicitation material to the beneficial owners of Common Stock
held of record by such persons, and the Company may reimburse such custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them
in connection with such solicitation. Following the mailing of the proxy
soliciting materials, proxies may be solicited by officers and other employees
of the Company in person or by telephone, facsimile or telegraph. The Company
will use the services of D. F. King, Inc., 77 Water Street, New York, NY 10005
to aid in the solicitation of proxies at an anticipated fee of $12,000 plus
reasonable expenses.
SHAREHOLDER PROPOSALS
Shareholders desiring to submit a proposal for consideration for inclusion
in the Proxy Statement and form of proxy relating to the 1998 Annual Meeting of
Shareholders must advise the Secretary of the Company of such proposal and
provide any statement in support thereof in writing by November 26, 1997.
1. ELECTION OF DIRECTORS
Ten directors are to be elected at the Annual Meeting (which number
constitutes the entire Board of the Company). Each director shall serve until
the earlier of his or her successor being elected or his or her death,
resignation or removal. It is intended that all proxies received from
shareholders of the Company, in the absence of contrary instructions, will be
voted at the Annual Meeting for the election of the ten nominees for director
named herein, all of whom are presently directors of the Company. If any nominee
for director for any reason should become unavailable for election, it is
intended that discretionary authority will be exercised by Jack L. Messman or
Mark S. Knouse, the persons designated in the enclosed proxy as agents, in
respect of the election of such other person as the Board shall nominate. The
Board is not aware of any circumstances likely to cause any nominee for director
to become unavailable for election at the Annual Meeting. The ten nominees for
director receiving the highest number of votes cast at the Annual Meeting will
be elected.
The following table sets forth certain information regarding the nominees
for director.
NAME AND PRINCIPAL OCCUPATION
OR EMPLOYMENT
- - --------------------------------------------------------------------------------
H. Jesse Arnelle2,4
Partner, Arnelle, Hastie, McGee, Willis & Greene, law firm, San Francisco,
California. Director, Armstrong World Industries Inc., Eastman Chemical
Co., FPL Group, Inc., Textron Inc., Wells Fargo & Co., Inc., Wells Fargo
Bank, N.A., WMX Technologies, Inc. Chairman, Board of Trustees of the
Pennsylvania State University. Age 63. Director since November 1995.
Lynne V. Cheney2,3
Distinguished Fellow, the American Enterprise Institute for Public Policy
Research, Washington, D.C. Director, FPL Group, Inc., IDS Mutual Fund
Group, Lockheed Martin Corporation, Reader's Digest Association. Age 55.
Director since November 1995.
Preston M. Geren III2,4
Public Policy Consultant, Public Strategies, Inc., a public policy consulting
firm, Austin, Dallas and Ft. Worth, Texas. Director, Overton Bank and
Trust, National Taxpayers Union. Age 45. Director since February 1997.
2
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NAME AND PRINCIPAL OCCUPATION
OR EMPLOYMENT
- - -------------------------------------------------------------------------------
Lawrence M. Jones1,3,4
Retired Chairman and Chief Executive Officer, The Coleman Company, Inc.,
manufacturer of home and recreational products, Wichita, Kansas. Director,
The Coleman Company, Inc., Fleming Companies, Inc. Age 65. Director since
November 1995.
Drew Lewis1, 3
Former Chairman, the Company, and Former Chairman, Chief Executive Officer and
Director, Union Pacific Corporation ('UPC'), a transportation company,
Bethlehem, Pennsylvania. Director, American Express Company, Ford Motor
Company, FPL Group, Inc., Gannett Co., Inc., Lucent Technologies Inc.,
Gulfstream Aerospace Corporation, Dal-Tile International, Inc. Age 65.
Director since August 1995.
Claudine B. Malone2,3
President, Financial & Management Consulting, Inc., management consulting
firm, McLean, Virginia. Director, Dell Computer Corporation, Hannaford
Brothers, Co., Hasbro, Inc., Houghton Mifflin Company, Lafarge Corporation,
The Limited, Inc., Lowe's Companies, Mallinckrodt Group Inc., S.A.I.C. Age
60. Director
since November 1995.
Jack L. Messman1,3
Chairman and Chief Executive Officer, the Company, Ft. Worth, Texas. Director,
Novell, Inc., Safeguard Scientifics, Inc., Tandy, Inc., Cambridge
Technology Partners (Massachusetts), Inc., USDATA Corporation. Age 57.
Director since September 1991.
John W. Poduska, Sr., Ph.D.2,4
Chairman, Advanced Visual Systems, Inc., provider of visualization software,
Boston, Massachusetts. Director, Cambridge Technology Partners
(Massachusetts), Inc., Safeguard Scientifics, Inc., XLVision, Inc.,
MultiGen, Inc. Age 59. Director since November 1995.
3
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NAME AND PRINCIPAL OCCUPATION
OR EMPLOYMENT
- - -------------------------------------------------------------------------------
Samuel K. Skinner2,4
President and Director, Unicom Corporation and Commonwealth Edison Company, a
wholly owned subsidiary of Unicom Corporation and an electric utility
company, Chicago, Illinois. Director, ANTEC Corporation, LTV Corporation.
Member, Advisory Board of The Broken Hill Proprietary Company Limited. Age
58. Director since October 1996.
James R. Thompson1,3,4
Partner, Chairman and Chairman of the Executive Committee, Winston & Strawn,
law firm, Chicago, Illinois, New York, NY, Washington, D.C., Paris, France
and Geneva, Switzerland. Director, American National Can Co., FMC
Corporation, Jefferson Smurfit Corporation, Prime Retail, Inc., Hollinger
International Inc. Member, International Advisory Council of the Bank of
Montreal. Age 60. Director since November 1995.
- - ------------
1 Member of the Executive Committee.
2 Member of the Audit Committee.
3 Member of the Finance Committee.
4 Member of the Compensation and Corporate Governance Committee.
- - ------------
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR EACH OF THE
FOREGOING DIRECTORS.
Except for the directors listed below, each of the directors named in the
preceding tables has held the indicated office or position in his or her
principal occupation for at least five years. Unless otherwise indicated, each
of the directors listed below held the earliest office or position indicated as
of five years ago.
Lynne V. Cheney was Chairperson of the National Endowment for the
Humanities from 1986 through 1992. Additionally, Mrs. Cheney is an author, and
lecturer and television commentator on public policy issues. Lawrence M. Jones
held the position of Chairman and Chief Executive Officer of The Coleman
Company, Inc. through December 1993. Preston M. Geren III was the Congressman
for the Twelfth Congressional District of the U.S. House of Representatives from
1989 to 1997. Drew Lewis was Chairman, President and Chief Executive Officer of
UPC through May 1994 and Chairman and Chief Executive Officer of UPC through
December 1996. Jack L. Messman has been the Chairman and Chief Executive Officer
of the Company since October 1996. Prior to such time and since August 1995, Mr.
Messman was the President and Chief Executive Officer of the Company. From May
1991 through October 1995, Mr. Messman was the President and Chief Executive
Officer of Union Pacific Resources Company. John W. Poduska, Sr., Ph.D. has been
the Chairman of Advanced Visual Systems, Inc., since January 1992. Samuel K.
Skinner has been President of Unicom Corporation and Commonwealth Edison Company
since February 1993. Mr. Skinner was General Chairman of the Republican National
Committee from August 1992 to February 1993, Chief of Staff to the President of
the United States from December 1991 to August 1992 and Secretary of the United
States Department of Transportation from February 1989 to December 1991. James
R. Thompson was Governor of Illinois during the period 1977-1991. Since January
1991, Mr. Thompson has been a partner in and Chairman of the Executive Committee
of Winston & Strawn and, since January 1993, he has been Chairman of such firm.
4
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THE BOARD OF DIRECTORS AND ITS COMMITTEES
The management of the Company is under the direction of the Board. The
Executive, Audit, Finance, and Compensation and Corporate Governance Committees,
were established by the Board to assist it in the discharge of its
responsibilities, as described below. The footnotes to the preceding table of
information on the nominees for director identifies committee memberships held
by each director.
EXECUTIVE COMMITTEE
The Executive Committee consists of four members, three of whom are
non-employee directors. The Executive Committee has all the powers of the Board,
when the Board is not in session, to direct and manage all of the business and
affairs of the Company in all cases in which specific directions have not been
given by the Board. The Executive Committee did not meet in 1996.
AUDIT COMMITTEE
The Audit Committee consists of six non-employee directors. The Audit
Committee meets regularly with financial management, the internal auditors and
the independent auditors to review financial reporting and accounting and
financial controls of the Company. The Audit Committee reviews fees and
non-audit engagements of the independent auditors. Both the independent auditors
and the internal auditors have unrestricted access to the Audit Committee and
meet regularly with the Audit Committee, without financial management
representatives present, to discuss the results of their examinations and their
opinions on the adequacy of internal controls and quality of financial
reporting. The Audit Committee also reviews the scope of audits as well as the
annual audit plan. In addition, the Audit Committee reviews the administration
of the Company's Statement of Policy Concerning Business Conduct and policies
concerning environmental management, use of corporate aircraft and officers'
travel and business expenses. Each year the Audit Committee recommends to the
Board the selection of a firm of independent auditors to audit the accounts and
records of the Company and its consolidated subsidiaries. The Audit Committee
met six times in 1996.
FINANCE COMMITTEE
The Finance Committee consists of six directors, five of whom are
non-employee directors. The Finance Committee is responsible for broad oversight
of the Company's financial strategy and policy and reviews and recommends
actions to the Board with respect to the Company's capital structure and cash
flow, financing plans and programs, banking arrangements, tax management, risk
management and insurance arrangements, dividend policies and actions,
derivatives policy and practices and other related matters. The Finance
Committee also will review the investment of assets held by the Company's
pension and other funded employee benefit programs. The Finance Committee met
six times in 1996.
COMPENSATION AND CORPORATE GOVERNANCE COMMITTEE
The Compensation and Corporate Governance Committee (the 'Compensation
Committee') consists of six non-employee directors who are ineligible to
participate in any of the Company's executive compensation plans. The
Compensation Committee makes recommendations to the Board with respect to
compensation for the Board and certain employees whose salary exceeds an amount
set forth in the By-Laws. The Compensation Committee administers the Company's
Executive Incentive Plan and 1995 Stock Option and Retention Stock Plan and
determines the amounts of, and the individuals to whom, awards to executives
shall be made thereunder. See pages 8-10 for the Compensation Committee's Report
on Executive Compensation. The Compensation Committee is responsible for
recommending and reviewing all the material amendments to the Company's pension,
thrift and employee stock ownership plans. The Compensation Committee also
periodically reviews the Company's vacation, life insurance, medical and dental
benefit plans and the matching gifts program to ensure that these benefit plans
remain competitive. The Compensation Committee has the responsibility of
assisting management with respect to matters of succession, reviewing the
qualifications of candidates for the position of director and recommending
candidates to the Board as nominees for director for election at the annual
meetings of shareholders or to fill such Board vacancies as may occur during the
year. The Compensation Committee met six times in 1996.
5
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ATTENDANCE
The Board held eight meetings in 1996. No director attended less than 75
percent of the aggregate of the Board and committee meetings.
DIRECTOR NOMINATIONS
The Compensation Committee will consider candidates suggested by directors
and shareholders of the Company. A shareholder desiring to suggest a candidate
should advise the Secretary of the Company in writing by December 31 of the year
preceding the annual meeting of shareholders of the Company and include the
nominee's name, sufficient biographical material and other information to permit
an appropriate evaluation. In considering a candidate for director, the
Compensation Committee seeks individuals who have demonstrated outstanding
management or professional ability and who have attained a position of
leadership in their chosen careers. Shareholders who desire to nominate
directors should contact the Secretary of the Company for the specific
requirements prescribed by the By-Laws.
ANSCHUTZ SHAREHOLDERS' RIGHT TO DESIGNATE A DIRECTOR
The Company is party to an agreement (the 'Shareholders' Agreement') with
The Anschutz Corporation, Anschutz Foundation and Mr. Philip Anschutz
(collectively, the 'Anschutz Shareholders') which continues until October 15,
2004, subject to early termination under certain circumstances (the 'Standstill
Period'). The Shareholders' Agreement, as amended, among other things, provides
the Anschutz Shareholders with the right to designate a single director during
the Standstill Period to serve on the Board until the next annual meeting of
shareholders, provided the Anschutz Shareholders advise the Company in writing
concerning their designation and comply with all other relevant provisions of
the Shareholders' Agreement. During the Standstill Period, the Company also has
agreed to (i) permit the Anschutz Shareholders to thereafter include their
designee in the Board's slate of director nominees for election at the Company's
annual meeting and (ii) recommend to the Company's shareholders that such
designee be elected as a director of the Company.
COMPENSATION OF DIRECTORS
The Company currently compensates its directors who are not employees of
the Company ('outside directors') using (i) a cash retainer of $60,000, of which
$30,000 is deferred into a Stock Unit Account (as described below) under the
Directors Stock Unit Grant and Deferred Compensation Plan, and (ii) annual
grants of 1,000 options to purchase Common Stock (as described below) under the
1995 Directors Stock Option Plan. In addition, Chairpersons or Co-Chairpersons
receive additional annual retainers of $5,000 each paid in cash (unless deferred
under the Directors Stock Unit Grant and Deferred Compensation Plan). Retainers
are paid quarterly to outside directors and at the end of a calendar quarter
with the fourth quarter payment forfeited if attendance at the Board and
Committee meetings for the year is below 75%. Directors receive no additional
meeting fees but are reimbursed for travel expenses incurred in conjunction with
their attendance at Board and Committee meetings.
The Company has provided a contributory health and dental insurance plan
for the benefit of Claudine B. Malone similar to the Company sponsored
contributory health and dental plan. Medical and dental benefits are paid only
after payment of benefits under any other plan in which Ms. Malone participates.
Directors Stock Unit Grant and Deferred Compensation Plan. During 1996,
outside directors received an annual retainer of $60,000, of which $30,000 was
automatically deferred (the 'Initial Mandatory Deferral') to a Stock Unit
Account (based on the value of Common Stock on the first business day after the
quarter for which payment is made) under the Directors Stock Unit Grant and
Deferred Compensation Plan and $30,000 was paid in cash (unless voluntarily
deferred pursuant to the Directors Stock Unit and Deferred Compensation Plan as
described below). In addition to the amounts deferred automatically under the
Stock Unit Account, a Director could elect by December 31 of the preceding
fiscal year to defer all or a portion of the compensation for services as an
outside director other than the Initial Mandatory Deferral (the 'Elective
Deferral') to the Stock Unit Account or a Fixed Income Account ('Fixed Income
Account'). The Fixed Income Account earns interest compounded annually at a rate
determined by the Treasurer of the Company in January of each year. The Stock
Unit Account fluctuates in value based on changes in the price of Common Stock,
and equivalents to cash dividends paid on the Common Stock are deemed to be
reinvested in the Stock Unit Account.
6
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For amounts in the Stock Unit Account, payment in cash of such deferred
compensation is to be made beginning in the January following termination of
service as a director. For amounts in the Fixed Income Account, payment in cash
of deferred compensation is to be made at the election of the director either at
such time or beginning in the January following retirement from the director's
principal occupation. Subject to the foregoing conditions, deferred compensation
may be paid, at the election of the director, in either a lump sum or in up to
10 annual installments. Account balances are unsecured and unfunded obligations
of the Company. During 1996, $245,000 was deferred in Stock Unit Accounts for
the benefit of the directors under the Directors Stock Unit Grant and Deferred
Compensation Plan. No amounts were deferred to the Fixed Income Account by the
directors under the Directors Stock Unit Grant and Deferred Compensation Plan.
Directors Stock Option Plan. The Company adopted the 1995 Directors Stock
Option Plan for outside directors. The 1995 Directors Stock Option Plan provides
for the annual grant, on a fixed date, to each outside director of options to
purchase 1,000 shares of Common Stock at an option price equal to 100% of the
fair market value of Common Stock on the date of grant. During 1996, each
outside director received options to purchase 1,000 shares of Common Stock at an
option price of $25.82 per share, the fair market value per share of Common
Stock as of the date of grant. The options will expire, unless exercised, upon
the earlier of ten years after the date of grant or five years after the date of
termination of service on the Board, and will not be exercisable prior to the
first anniversary of the date of grant. Any options not exercisable at the time
a director terminates his or her service on the Board will be forfeited. The
number of shares of Common Stock initially reserved for issuance under the 1995
Directors Stock Option Plan is 200,000. No member of the Board, or any executive
officer or other employee of the Company, has any control or discretion with
respect to grants under the 1995 Directors Stock Option Plan.
The Board has unanimously recommended that such plan be amended and
approved by the shareholders of the Company. (See Proposal 4)
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the individuals serving on the Compensation Committee during 1996
has ever been an officer or employee of the Company or its subsidiaries. None of
such individuals has ever been or is to be a party to or has ever had a direct
or indirect material interest in any transactions or series of transactions to
which the Company or its subsidiaries was or is to be a party.
REPORTS OF OWNERSHIP--SECTION 16(A) REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's executive officers and directors to file initial reports of ownership
and reports of changes in ownership with the Securities and Exchange Commission
and the New York Stock Exchange. Executive officers and directors are required
by SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that none of its executive officers and
directors failed to comply with Section 16(a) reporting requirements in 1996
except for John W. Poduska, Sr., Ph.D., who inadvertently had one late filing
relating to one stock purchase.
7
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EXECUTIVE COMPENSATION
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for administering the executive
compensation and stock ownership programs for the Company. Such programs,
consisting of two elements, annual and long-term compensation, are designed to
provide payment for performance of assigned accountabilities and achievement of
predetermined goals which contribute to Company earnings, thereby enhancing
shareholder value. The Compensation Committee believes that superior performance
by the executive and management team of the Company is essential to maximizing
shareholder value. Such performance will be achieved only if the Company is able
to attract outstanding talent, motivate its executive and management team
through incentives tied to the creation of shareholder value, and retain and
reward such executives through a competitive compensation program. The
Compensation Committee offers the following report on its decisions concerning
compensation for 1996.
Annual Compensation. Total annual compensation consists of two components:
base salary and at-risk annual incentive pay. Depending on performance and the
level of the executive, an amount equal to between 20% and 150% of an
executive's base pay will be at risk. The Compensation Committee reviews each
executive officer's salary, taking into consideration the executive's
performance, Company performance, the executive's position and responsibility in
the organization, the executive's experience and expertise, salaries for
comparable positions at comparable companies and internal pay equity. In making
salary and incentive pay recommendations or decisions, the Compensation
Committee exercises subjective judgment using no specific weights for the above
factors. The Compensation Committee does not target total executive compensation
or any component thereof to any particular point within, or outside, the range
for comparable companies; however, the Compensation Committee believes that base
salaries at or near the median and total compensation at or near the 75th
percentile are generally appropriate for the Committee to use as a framework for
compensation decisions. Specific compensation for individual executives will
vary from these levels as a result of subjective judgment of the Committee. The
base salaries for the Company's executives for which comparable data is
available generally do not exceed the median for comparable companies.
Information with respect to at-risk annual incentive pay for 1996 is currently
not available from such comparable companies. However, at-risk annual incentive
pay data for 1995 is available. If one compared 1996 base salary and 1995
at-risk annual incentive pay of the Company's executives with comparable data
(using 1996 base salary and 1995 at-risk annual incentive pay) from comparable
companies, total compensation for the Company's executives is generally at or
near the 75th percentile except for the Company's most senior executives whose
total compensation is in the highest quartile. Comparable companies include a
majority of those in the line of business index in the Performance Graph on page
15 of this Proxy Statement, as well as a number of other companies of various
sizes in similar lines of business with which the Company competes for
first-rate executive talent.
Annual incentive pay is awarded under the Executive Incentive Plan ('EIP').
The EIP is a bonus program designed to tie executive at-risk incentive pay
specifically to Company performance. The EIP is administered by the Compensation
Committee and the performance criteria set forth therein are subject to the
approval of the Compensation Committee.
The EIP established an unfunded incentive reserve account (the 'Incentive
Reserve Account') which may be credited annually by the Board of Directors. The
EIP's incentive reserve funding formula provides that the Board of Directors may
credit the Incentive Reserve Account each year with such amount as it may
determine, subject to a maximum amount for any year of 0.25% of earnings before
interest, taxes, depreciation, depletion and amortization, and expensed
exploration costs excluding exploration overhead ('Incentive Income') when the
Incentive Income Return on Average Annual Assets ('Incentive Return') is 16.0%,
and 0.5% of Incentive Income when the Incentive Return is 20.0% or more. At
intermediate levels of Incentive Return (between 16.0% and 20.0%), the maximum
percentage of Incentive Income that may be credited to the Incentive Reserve
Account will increase 0.0125% for each incremental 0.2% increase in the
Incentive Return ('Intermediate Returns'). 'Average Annual Assets' for purposes
of computing Incentive Return is calculated as the average of (1) total assets
as shown on the consolidated financial statements of the Company at the
beginning of each year and (2) total assets as shown on the consolidated
financial statements of the Company at the end of such year. Incentive Income is
determined in accordance with generally accepted accounting principles, before
giving effect
8
<PAGE>
to any provision for amounts to be credited to the Incentive Reserve Account.
Incentive Income excludes results of discontinued operations and the effects of
changes in accounting principles.
As soon as practicable at the end of each year, the Compensation Committee
may grant awards not exceeding the unawarded credit balance in the Incentive
Reserve Account to executives in such dollar amounts as the Compensation
Committee shall determine. The amount of an individual award will depend upon
the evaluation of each executive's performance as described above. The maximum
annual award which could have been made during 1996 to executives whose
compensation was subject to Section 162(m) of the Internal Revenue Code of 1986,
as amended (the 'Code'), was 0.125% of covered income for the Chief Executive
Officer and 0.0625% of covered income for other covered executive officers
(generally the four highest compensated officers other than the Chief Executive
Officer). Covered income is defined as the greater of Incentive Income for the
year or Incentive Income for the first eleven months of the year. Any amounts
credited to the Incentive Reserve Account which are not awarded may be carried
forward and be awarded by the Compensation Committee to executives in future
years during which the EIP remains in effect.
In 1996, a total of $4,570,200 was awarded to 34 executives under the EIP,
including $460,000 which was awarded to Drew Lewis, who was Chairman of the
Board through September 30, 1996.
Long-Term Compensation. The Compensation Committee believes that long-term
compensation should comprise a substantial portion of each executive's total
compensation. Long-term compensation provides incentives which encourage the
executives to own and hold Common Stock and tie their long-term economic
interests directly to those of the shareholders.
Stock Options. Stock options are a key element in the Company's long-term
compensation program. Stock options generally are granted annually, with the
magnitude of the grant based on the executive's position, experience and
performance, without giving particular weight to any one factor. The number of
options held by an executive is not a factor considered in connection with a
grant of additional options to an executive. Stock options are granted with an
option price equal to the fair market value of the Common Stock on the date of
the grant and, when vested, are exercisable up to ten years from the date of the
grant.
In anticipation of the Distribution, a total of 1,328,900 stock options
were granted to 33 executives as part of a three-year retention award. The stock
options will vest in increments over the following three year period.
Retention Stock. Retention stock are shares of Common Stock that are
subject to forfeiture if the executive terminates employment before the vesting
period lapses ('Retention Stock'). Awards of Retention Stock are made for the
purposes of retaining executives, providing incentive for long-term performance
and aligning an executive's interests with other shareholders of the Company.
In anticipation of the Distribution, a total of 423,880 shares of Retention
Stock were awarded to 33 executives. Of these shares, 243,880 were part of a
three-year retention award which will vest in equal increments each year over
the following three year period. The additional 180,000 shares of Retention
Stock were awarded to three executives. Such Retention Stock will vest in equal
increments in the fourth and fifth year following the date of the award.
Stock Ownership Guidelines. The Company has established stock ownership
guidelines for all executives to align the financial interests of those
executives with those of the shareholders. These executives are expected to make
continuing progress toward compliance with these guidelines. The guidelines
range from two times salary for first level executives, to four to seven times
salary for senior executives. Until the minimum ownership amount is achieved,
executives are expected to retain the Common Stock received upon exercise of
options, net of taxes and cost of exercise.
CEO Compensation. In 1996, the Company's most highly compensated officer
was Jack L. Messman, Chairman and Chief Executive Officer. The Compensation
Committee reviewed Mr. Messman's performance for 1996 and approved an annual
incentive award for him based on the factors previously outlined. In 1996, Mr.
Messman received 438,500 stock options as part of the Company's three-year
retention award which will vest in increments over the following three year
period and 150,000 shares of Retention Stock, 60,000 of which will vest in equal
increments each year over the following three year period and 90,000 of which
will vest in equal increments in the fourth and fifth year following the date of
the award.
9
<PAGE>
In addition, Mr. Messman received an increase in base pay reflected in the
Summary Compensation Table on page 11 as the result of his newly appointed
position as Chairman of the Board. Mr. Messman's base pay, with this increase,
is slightly below the 75th percentile of salary for comparable positions of
comparable companies in the market. Mr. Messman's total compensation is in the
highest quartile for comparable positions of comparable companies, on the basis
described under the caption 'Annual Compensation.'
During 1996, under Mr. Messman's leadership, the Company became a stand
alone public company. Additionally, Mr. Messman has put in place a number of
initiatives and programs that have contributed to significant major improvements
in the Company's performance and competitiveness, including the reengineering of
several major information systems, initiating the change of the Company's
culture to a more adaptive culture and becoming the Company of Choice. In 1996,
the Company reported net income of $321 million. Net income on a Pro Forma basis
in 1995 was $316 million which included a $78.5 million gain from the Columbia
Gas Transmission Company bankruptcy settlement. Discretionary cash flow
increased by 18% to $1,036 million in 1996 from $880 million in 1995. Once
again, the Company was the most active driller in the United States in 1996, a
position it has held for the last five years. Production volumes and reserves
for 1996 were up 7.5% and 7%, respectively, versus 1995 levels.
As a result of Mr. Messman's contributions, he received the EIP incentive
payment reflected in the Summary Compensation Table below.
THE COMPENSATION AND CORPORATE GOVERNANCE COMMITTEE
H. Jesse Arnelle
Preston M. Geren III
Lawrence M. Jones
John W. Poduska, Sr., Ph.D.
Samuel K. Skinner
James R. Thompson
10
<PAGE>
SUMMARY COMPENSATION TABLE
The following table provides a summary of compensation during the last
three calendar years for the Company's Chief Executive Officer and the other
four most highly compensated executive officers.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM COMPENSATION AWARDS
COMPENSATION ----------------------------------------------
------------------------------------- SECURITIES
OTHER RETENTION UNDERLYING
NAME AND PRINCIPAL ANNUAL (RESTRICTED) OPTIONS/SARS ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION1 STOCK AWARDS2 GRANTS3 COMPENSATION4
- - --------------------- ---- -------- -------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack L. Messman, 1996 $606,250 $965,000 $ 673 $ 4,143,750 438,500 $50,985
Chairman & CEO 1995 498,750 770,000 4,856 0 0 41,260
1994 460,000 685,000 6,475 1,895,000 150,000 37,653
George Lindahl III, 1996 280,000 450,000 192 2,762,500 190,000 20,021
President & COO 1995 222,375 268,000 448 0 0 15,917
1994 205,000 235,750 661 568,500 60,000 14,752
V. Richard Eales, 1996 230,000 275,000 1,689 464,100 84,000 24,110
Executive Vice 1995 204,345 352,000 1,866 0 0 20,295
President 1994 190,500 195,000 921 511,650 54,000 15,203
Donald W. Niemiec, 1996 211,750 225,000 91 1,381,250 80,000 15,402
Vice President- 1995 171,050 175,725 31 0 0 12,474
Marketing 1994 162,625 150,000 0 369,525 39,000 11,753
Morris B. Smith, 1996 212,500 175,000 318 375,700 68,000 13,700
Vice President and 1995 175,042 130,000 23 60,683 15,664 9,000
CFO 1994 162,687 89,250 0 260,563 22,500 5,865
</TABLE>
- - ------------------
1 Other Annual Compensation includes reimbursements for Medicare tax on
supplemental pension and thrift plans, above market interest on deferred
compensation and amounts reimbursed for payment of other taxes. Perquisites
and other personal benefits for each of the five most highly compensated
executive officers did not exceed the lesser of $50,000 or 10% of the
aggregate salary and bonus reported for any executive officer in the reported
years and have been omitted.
2 The values of the Retention Stock that are presented in the table are based
on the value of Common Stock as of the date granted for 1996. For 1995 and
1994, the values of the retention stock in the table are based on the value
of the common stock of UPC ('UPC Common Stock') as of date of grant. Such
retention stock of UPC was exchanged for Retention Stock ('Rollover Retention
Stock') based on the ratio of the fair market value of UPC Common Stock at
commencement of the initial public offering ('IPO') ($64.56 per share) and
the offering price for Common Stock in the IPO ($21 per share). Mr. Smith's
shares of Retention Stock were converted on July 1, 1996 using a price of
$71.125 per share for UPC Common Stock and a price of $27.25 per share for
Common Stock. As of December 31, 1996, the aggregate number of shares of
Retention Stock and Rollover Retention Stock held and the value thereof were:
Mr. Messman, 365,210 shares, $10,591,090; Mr. Lindahl, 136,893 shares,
$3,969,897; Mr. Eales, 50,004 shares, $1,450,116; Mr. Niemiec, 73,981 shares,
$2,145,449; and Mr. Smith, 30,565 shares, $886,385. The foregoing Retention
Stock is subject to the vesting condition described in Report on Executive
Compensation. The foregoing Rollover Retention Stock was performance
retention stock, except for Mr. Messman's. The performance criteria for such
Rollover Retention Stock has been achieved. Dividends on the Retention Stock
and Rollover Retention Stock are payable at the same rate as dividends on
Common Stock unless otherwise specified by the Compensation Committee.
3 For 1996, the number represents options to purchase shares of Common Stock.
For 1995 and 1994, the number represents options to purchase UPC Common Stock
('UPC Options'). All UPC Options were converted to options to purchase Common
Stock at the time of the IPO or Distribution. Such UPC Options were exchanged
for options to purchase Common Stock ('Rollover Options') based on the ratio
described above or based on the ratio of the fair market value of UPC Common
Stock at the Distribution and the offering price for Common Stock in the IPO.
(Footnotes continued on next page)
11
<PAGE>
(Footnotes continued from previous page)
4 All Other Compensation in 1996 consists of Company matched thrift plan
contributions (Mr. Messman, $36,375; Mr. Lindahl, $16,800; Mr. Eales,
$13,800; Mr. Niemiec, $12,705; Mr. Smith, $9,750) and executive life
insurance premiums (Mr. Messman, $14,610; Mr. Lindahl, $3,221; Mr. Eales,
$10,310; Mr. Niemiec, $2,697; Mr. Smith, $3,950).
OPTION/SAR GRANTS TABLE
The following table sets forth information concerning individual grants of
stock options during 1996 to the Company's Chief Executive Officer and the other
four most highly compensated executive officers. Stock appreciation rights were
not granted in 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS GRANT DATE
OPTION/SARS GRANTED TO EXERCISE OR EXPIRATION PRESENT
NAME GRANTED EMPLOYEES BASE PRICE DATE VALUE(1)
- - ------------------------------------------- ----------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Jack L. Messman 438,500 30% $ 27.81 10/01/06 $4,012,275
George Lindahl III 190,000 13 27.81 10/01/06 1,738,500
V. Richard Eales 84,000 6 27.81 10/01/06 768,600
Donald W. Niemiec 80,000 5 27.81 10/01/06 732,000
Morris B. Smith 68,000 5 27.81 10/01/06 622,200
</TABLE>
- - ------------------
1 Calculated in accordance with the Black-Scholes option pricing model. The
assumptions used in such option pricing model are: expected volatility, 26%;
expected dividend yield, 0.7%; expected option term, five years; and risk-free
rate of return, 6.3%.
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth individual exercises of stock options during
1996 and the year-end values of options held by the Chief Executive Officer and
the other four most highly compensated executive officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
YEAR-END YEAR-END
SHARES --------------- ---------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- - ------------------------------------------------------ ----------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Jack L. Messman 0 $ 0 612,601 $ 7,485,252
591,304 2,712,689
George Lindahl III 214 10,066 326,220 4,351,315
251,514 1,116,616
V. Richard Eales 0 0 203,025 2,515,968
138,381 856,532
Donald W. Niemiec 0 0 127,249 1,586,253
119,002 637,292
Morris B. Smith 0 0 78,402 675,235
97,971 344,047
</TABLE>
12
<PAGE>
DEFINED BENEFIT PLANS
Pensions are provided through the Pension Plan for Salaried Employees of
Union Pacific Resources Group Inc. ('Basic Plan'), and the Supplemental Pension
Plan for Exempt Salaried Employees of Union Pacific Resources Group Inc. and
Affiliates ('Supplemental Plan'). The amount of the annual pension benefit from
all sources is based upon average annual compensation for the 36 consecutive
months of highest regular compensation (including up to three cash incentive
payments within the 36-month period) within the 120-month period immediately
preceding retirement ('final average earnings'). Regular compensation for this
purpose is the aggregate amount reflected in the salary and bonus columns of the
Summary Compensation Table on page 11. The credited years of service for each of
the five individuals named in the Summary Compensation Table are as follows: Mr.
Messman 16, Mr. Lindahl 9, Mr. Eales 6, Mr. Niemiec 14, and Mr. Smith 20.
The Supplemental Plan is an unfunded non-contributory plan which provides,
unlike the Basic Plan, for the grant of additional years of employment and
deemed age to officers or managers, for the inclusion of earnings in excess of
the limits contained in the Code, and deferred incentive compensation in the
calculation of final average earnings and for any benefit in excess of the
limitations provided for under the Code. Messrs. Messman, Lindahl, Eales,
Niemiec and Smith have accrued benefits under the Supplemental Plan.
The Company has purchased annuities to satisfy certain unfunded obligations
under the Supplemental Plan to executives and certain other former employees and
has paid the Federal and state taxes on behalf of such persons imposed in
connection with these purchases. These purchases reduce the Company's
obligations under the Supplemental Plan. The benefits in the following Pension
Plan Table will be reduced for any employee for whom an annuity was purchased by
an amount calculated so that the expected aggregate amount received by the
employee from the annuity and the Supplemental Plan net of Federal taxes will be
the same as the amount that would have been received from the Supplemental Plan
net of Federal taxes if the annuity had not been purchased.
The estimated annual benefits payable under the Basic Plan and Supplemental
Plan at normal retirement at age 65 based upon final average earnings and years
of employment are illustrated in the following table:
<TABLE>
<CAPTION>
PENSION PLAN TABLE
--------------------------------------------------------------------------------
FINAL 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
AVERAGE OF OF OF OF OF OF
EARNINGS EMPLOYMENT EMPLOYMENT EMPLOYMENT EMPLOYMENT EMPLOYMENT EMPLOYMENT
- - ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 200,000 $ 47,760 $ 63,680 $ 79,600 $ 95,500 $104,750 $114,000
400,000 97,770 130,360 162,950 195,500 214,750 234,000
600,000 147,780 197,040 246,300 295,500 324,750 354,000
800,800 197,790 263,720 329,650 395,500 434,750 474,000
1,000,000 247,800 330,400 413,000 495,500 544,750 594,000
1,200,000 297,810 397,080 496,350 595,500 654,750 714,000
1,400,000 347,820 463,760 579,700 695,500 764,750 834,000
1,600,000 397,830 530,440 663,050 795,500 874,750 954,000
</TABLE>
The benefits in the foregoing Pension Plan Table would be paid in the form
of a life annuity with a 50% surviving spouse benefit and reflect offsets for
Social Security.
CHANGE IN CONTROL ARRANGEMENTS FOR SENIOR EXECUTIVES
The Board has approved change in control arrangements, consisting of
individual written agreements, for the following executives: Jack L. Messman,
George Lindahl III, V. Richard Eales, Anne M. Franklin, Mark S. Knouse, Joseph
A. LaSala, Jr., Donald W. Niemiec, Morris B. Smith and John B. Vering. In the
event of a 'change in control' (as hereinafter defined) and in the event any of
the foregoing executive officers is involuntarily terminated or terminates
employment for 'good reason' (as hereinafter defined) within 36 months following
the change in control, such executive officers will receive severance
compensation.
Jack L. Messman, as the Chairman of the Board and Chief Executive Officer,
is entitled to receive severance compensation equal to three times his base
salary and the average of his bonuses for the preceding two years. Each of
George Lindahl III and V. Richard Eales, as President and Chief Operating
Officer and Executive Vice President respectively, is entitled to receive
severance compensation equal to two and one-half times their base
13
<PAGE>
salary and the average of their respective bonuses for the preceding two years.
Each of Anne M. Franklin, Mark S. Knouse, Joseph A. LaSala, Jr., Donald W.
Niemiec, Morris B. Smith and John B. Vering, in each of their respective roles
as Vice Presidents, is entitled to receive severance compensation equal to two
times their base salary and the average of each of their respective bonuses for
the preceding two years.
In such circumstances, in addition to the monetary compensation described
above, the executives (1) are entitled to receive an acceleration of the vesting
of all unvested stock options and lapsing of all restrictions on Retention Stock
awards, (2) are entitled to receive continuation of all life, disability,
accident, and health insurance for 24 to 36 months following termination and (3)
shall be deemed to have an additional 24 to 36 months of benefit credit under
the supplemental pension and thrift plans either as part of the benefit
otherwise payable or in a lump sum. Additionally, there is a gross-up provision
for excise taxes and no requirement for the executives to mitigate the Company's
obligation to pay benefits by seeking other employment, nor will benefits be
reduced as result of compensation from subsequent employers. Section 280G of the
Code denies a deduction to a corporation making an 'excess parachute payment' to
a 'disqualified person'. A 'disqualified person' includes, among other
individuals, any officer of the corporation. The term 'excess parachute payment'
means a payment equal to the excess of any 'parachute payment' over the relevant
'base amount'. A 'parachute payment' is any payment (in cash, property or fringe
benefits) in the nature of compensation (i.e., in recognition of services) to a
disqualified person which (i) is made contingent on a change in control and,
(ii) equals or exceeds three times the disqualified person's base amount (i.e.,
average total compensation paid over a five-year period). Thus, for example, if
an officer's base amount were $100,000, then a change-in-control payment of
$300,000 would be deemed a parachute payment and $200,000 would be the 'excess'
portion of the parachute payment (i.e., the amount by which the parachute
payment exceeds the base amount). In such case, the corporation would not be
entitled to deduct the $200,000 excess amount and the disqualified person would
be subject to a 20% excise tax on such amount, in addition to the ordinary
income tax rate which would apply to such payment (39.6% if the person is in the
highest tax bracket). The gross-up provision essentially negates the impact of
the 20% excise tax. The Company will reimburse the executives for all legal fees
and expenses incurred in connection with the enforcement of agreements.
Change in control is defined as the occurrence of any one of the following
events, (1) any 'person' or persons acting together as an entity become
beneficial owners (as defined in Rule 13d-3 under the Exchange Act) of 15% or
more of the Company's voting shares, (2) certain specified majority changes in
Board composition, (3) the approval by shareholders of a merger or consolidation
resulting in the Company shareholders failing to hold at least 50% of the voting
shares of the surviving entity and (4) the approval by shareholders of a plan of
complete liquidation of the Company. Further, the executive has 36 months after
a change of control event within which he or she shall be provided such
severance package. During such 36 months, the executive will receive the
compensation described above if (i) the executive is involuntarily terminated by
the Company or its successor organization or (ii) the executive determines that
he or she has 'good reason' for which to terminate employment. Good reason
consists of (a) a reduction in total compensation (i.e., sum of base salary and
bonus), (b) a diminution of job duties and responsibilities, (c) a relocation of
more than a specified number of miles, (d) a failure to pay any previously
deferred compensation, (e) a failure to provide equivalent or reasonably
equivalent benefits (e.g., health insurance) compared to those that were in
place prior to the change in control or (f) a failure by the Company to honor
all the terms and provisions of the executive's change in control agreement.
After a period of one year following a change in control, the executive
will have 30 days to elect to leave the Company for reasons other than good
reason and be entitled to receive 50% of the monetary compensation and other
benefits described above. After such 30-day period, if the executive is
terminated from the Company due to discharge for cause, retirement, death or
voluntary termination, the executive would not be eligible for such compensation
described above. Termination under these events shall be subject to the
Company's normal policies regarding such events and any compensation awards
subject thereto.
The Board determined that the Company would gain several advantages from
the change in control arrangements. The arrangements, which reflect competitive
practices, will provide some degree of economic security to a limited number of
key executives, thereby enabling top management to remain objective and
responsive to shareholder interests in the event that a change in control
transaction opportunity occurs.
14
<PAGE>
PERFORMANCE GRAPH
The graph set forth below provides an indicator of cumulative total
shareholder returns on an investment of $100 in shares of Common Stock as
compared to an initial investment of $100 in the S&P 500 Stock Index and a 'peer
group' index over the period from October 10, 1995, the first trading date of
the Common Stock in connection with the IPO, through December 31, 1996. Total
shareholder returns assume dividend reinvestment. The peer group consists of
Anadarko Petroleum Corporation, Apache Corporation, Burlington Resources, Inc.,
Enron Oil & Gas Company, Louisiana Land and Exploration Company, Noble
Affiliates, Inc. and Vastar Resources, Inc.
COMPARISON OF CUMULATIVE RETURN
COMPANY, S&P 500 AND PEER GROUP INDEX
(FROM OCTOBER 10, 1995 TO DECEMBER 31, 1996)
LEGEND
Symbol 10/10/95 12/29/95 12/31/96
- - ------ -------- -------- --------
/diamond/ Company $100.00 $121.07 $139.41
/triangle/ S&P 500 100.00 107.21 131.83
/square/ Peer Group Index 100.00 111.74 137.82
15
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN EXECUTIVES, DIRECTORS AND BENEFICIAL OWNERS
DIRECTORS AND CERTAIN EXECUTIVES
The following table summarizes (A) the beneficial ownership of the Common
Stock as of March 3, 1997 by the (i) Chief Executive Officer, (ii) other four
most highly compensated executive officers and (iii) directors and (B) the
number of whole stock units attributable to each outside director under the
Stock Unit Grant and Deferred Compensation Plan (a 'Stock Unit') as of March 3,
1997. None of the individual or collective holdings listed below exceeds 1% of
any class of equity securities of the Company.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK STOCK UNITS
BENEFICIALLY ATTRIBUTED TO
NAME OWNED1 OUTSIDE DIRECTORS2
- - ---------------------------------------------------------------- ---------------------- ------------------
<S> <C> <C>
Jack L. Messman 1,042,643 --
George Lindahl III 477,226 --
V. Richard Eales 260,283 --
Donald W. Niemiec 208,731 --
Morris B. Smith 114,995 --
H. Jesse Arnelle 772 1,389
Lynne V. Cheney 5,338 1,389
Preston M. Geren III 4,000 --
Lawrence M. Jones 6,094 1,389
Drew Lewis3 100,000 260
Claudine B. Malone 2,380 1,389
John W. Poduska, Sr., Ph.D. 2,846 2,778
Samuel K. Skinner 1,000 260
James R. Thompson 2,000 3,010
</TABLE>
- - ------------------
1 Included in the number of shares of Common Stock beneficially owned by
Messrs. Messman, Lindahl, Eales, Niemiec and Smith are 612,601; 326,220;
203,025; 127,249 and 78,402 shares of Common Stock, respectively, which such
persons have the right to acquire within 60 days pursuant to stock options.
Also included in the number of shares of Common Stock owned by Messrs.
Messman, Lindahl, Eales, Niemiec and Smith are 365,210; 136,893; 50,004;
73,981 and 30,565 shares of Common Stock, respectively, which are shares of
Retention Stock awarded under the 1995 Stock Option and Retention Stock Plan.
2 The outside directors participate in the Stock Unit Grant and Deferred
Compensation Plan in which they defer all or a portion of cash compensation
for services as a director. Stock Unit Accounts are credited with such amount
and the value of such Stock Unit Accounts fluctuate based on changes in the
price of the Common Stock (assuming reinvestment of dividends in such Stock
Unit Account). The Stock Unit Accounts are unsecured and unfunded obligations
of the Company. During 1996, each of the outside directors received an
aggregate credit of an amount of whole Stock Units equal to the value of
1,126 shares of Common Stock plus cash in lieu of any fractional Stock Unit
resulting from such calculation. Messrs. Poduska and Thompson deferred
additional compensation for services as a director to the Stock Unit Account.
3 Mrs. Drew Lewis beneficially owns 1,000 shares of Common Stock in a Keogh
account. Mr. Lewis disclaims any beneficial interest in such shares. An
additional 5,280 shares of Common Stock are owned by a Foundation in which
Mr. Lewis is a Director and Treasurer.
16
<PAGE>
CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to any person who
is known to the Company to be the beneficial owner of more than five percent of
the Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
NAME AND ADDRESS OF COMMON STOCK PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
- - -------------------------------------------------- ------------------ ----------
<S> <C> <C>
FMR Corp. and certain of its affiliates 14,141,872 5.66%1
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- - ------------------
1 Information presented is based upon Schedule 13G filing, which presents
beneficial ownership information as of December 31, 1996.
17
<PAGE>
2. APPROVAL OF COMPANY'S 1995 STOCK OPTION AND RETENTION STOCK PLAN, AS AMENDED
AND RESTATED
At the Annual Meeting, shareholders will be asked to approve the Company's
amended and restated 1995 Stock Option and Retention Stock Plan, which was
originally adopted in September 1995 and provides for the grant of non-qualified
stock options, incentive stock options, stock appreciation rights ('SARs') and
awards of Retention Stock. Subject to shareholder approval of the amendments
described below, this plan will be amended and restated in its entirety and
designated as the 'Amended and Restated 1995 Stock Option and Retention Stock
Plan' (the 'Amended and Restated 1995 Stock Option Plan').
AMENDMENTS
The amendments relate to two features of the Amended and Restated 1995
Stock Option Plan: the transferability of stock options (the 'Transferability
Amendment'), which would allow the Company's officers, with the prior approval
from the Compensation Committee (or its designee), to transfer stock options to
members of their immediate families; and the 10% limitation applicable to stock
option grants and Retention Stock awards (the '10% Limitation Amendment'), which
would exclude Rollover Options and Rollover Retention Stock from the calculation
of the 10% limitation applicable to stock option grants and Retention Stock
awards to individual participants. A summary of these changes is set forth
below.
The Transferability Amendment. The Board decided to amend Section 6.1(g)
of the Amended and Restated 1995 Stock Option Plan by adding a provision which
permits officers, with the prior approval of the Compensation Committee (or its
designee), to transfer their stock options to members of their immediate
families, either directly or through trusts or similar vehicles. This change is
being made in response to recent amendments to Rule 16b-3 under the Securities
Exchange Act of 1934 (the 'Exchange Act').
The 10% Limitation Amendment. This amendment would exclude Rollover
Options and Rollover Retention Stock from the calculation of the 10% limitation
applicable to the grant of stock options and awards of Retention Stock to
individual participants. In order to comply with Code Section 162(m), the
Amended and Restated 1995 Stock Option Plan imposes a 'per person' limitation on
the number of stock option grants and Retention Stock awards. The Amended and
Restated 1995 Stock Option Plan provides that no more than 10% of the reserved
shares of Common Stock can be granted to any participant in the form of stock
options or Retention Stock over the term of the Amended and Restated 1995 Stock
Option Plan. Prior to the amendment, stock options were defined to include
Rollover Options and awards of Retention Stock were defined to include Rollover
Retention Stock. Rollover Options are options which were granted by the Company
to an individual participant in exchange for options to purchase UPC Common
Stock which the participant held under compensation plans of UPC (the 'UPC
Plans'). Similarly, Rollover Retention Stock awards are awards which the Company
granted to an individual participant in exchange for UPC Retention Stock which
the participant already held under the UPC Plans. Since the Rollover Options and
Rollover Retention Stock relate to UPC Plan grants and awards that preceded the
adoption of the Amended and Restated 1995 Stock Option Plan, the Board believes
that counting such shares against the 10% limitation would impose an
unreasonable restriction on the Compensation Committee's discretion to grant
stock options and award Retention Stock.
DESCRIPTION OF AMENDED AND RESTATED 1995 STOCK OPTION PLAN
The Board believes that attracting, motivating and retaining employees of
superior ability is essential to the Company's growth and success. The Board
believes that the long-term success of the Company is enhanced by a compensation
program which includes long-term incentives relating to stock ownership, because
such incentives more closely align the interests of employees with those of the
Company's shareholders by relating compensation to increases in shareholder
value. Accordingly, stock options and, to a lesser extent, Retention Stock have
been and are expected to continue to be a key element of compensation for the
Company's officers and employees. The Amended and Restated 1995 Stock Option
Plan is being submitted to shareholders to meet the Code's requirement for
shareholder approval.
The following is a brief description of the material features of the
Amended and Restated 1995 Stock Option Plan.
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Administration. The Amended and Restated 1995 Stock Option Plan generally
will be administered by the Compensation Committee. Only directors who are not
employees of the Company or its subsidiaries may serve on the Compensation
Committee. If any member of the Compensation Committee does not qualify as a
'Non-Employee Director' under Rule 16b-3 or an 'outside director' under Code
Section 162(m), the Compensation Committee may function through a subcommittee
composed solely of two or more qualifying members, or the non-qualifying member
of the Compensation Committee may abstain or recuse himself or herself from
actions that would be affected by his or her non-qualifying status.
Shares Subject to the Amended and Restated 1995 Stock Option Plan and
Per-Person Limitations. Under the Amended and Restated 1995 Stock Option Plan,
the total number of shares of Common Stock that may be issued pursuant to all
awards is 16,000,000, and over its term (i.e., through September 27, 2005), no
participant may receive grants of stock options (excluding Rollover Options) or
awards of Retention Stock (excluding Rollover Retention Stock) aggregating more
than 10% of the shares of the Common Stock available under the Amended and
Restated 1995 Stock Option Plan (or 1.6 million shares, subject to adjustment,
as described below). Shares subject to a grant or an award that is canceled,
forfeited, or expires or terminates without delivery of shares will again be
available for grants or awards under the Amended and Restated 1995 Stock Option
Plan, except that shares to which an SAR relates will be counted against the
Amended and Restated 1995 Stock Option Plan limits when the SAR is exercised.
Shares of Common Stock issued under the Amended and Restated 1995 Stock Option
Plan may be either authorized and unissued shares or shares controlled by the
Company.
Adjustments and Extraordinary Corporate Events. The Board, upon
recommendation of the Compensation Committee, is authorized to make equitable
adjustments in (1) the number or kind of shares subject to the aggregate share
limitations and per-person limitations under the Amended and Restated 1995 Stock
Option Plan and subject to outstanding awards, (2) the option price of
outstanding stock options, and (3) the number or kind of shares or other
securities or property subject to stock option grants or outstanding Retention
Stock awards in the event of a recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation, rights offering,
separation, spinoff, reorganization or liquidation, or any other change in the
corporate structure or capital stock of the Company.
Eligibility. Employees of the Company and its subsidiaries, including
executive officers, are eligible to be granted stock options and awarded
Retention Stock under the Amended and Restated 1995 Stock Option Plan. At
present, approximately 1,544 persons are considered to be eligible for grants
and awards under the Amended and Restated 1995 Stock Option Plan. Stock option
grants and Retention Stock awards have already been granted under the Amended
and Restated 1995 Stock Option Plan to a total of 1,476 participants.
Stock Options. The Compensation Committee is authorized to grant stock
options, including both incentive stock options ('ISOs') which can result in
potentially favorable tax treatment to optionees and non-qualified stock options
(i.e., options not qualifying as ISOs). The option price per share subject to a
stock option (other than a Rollover Option) will in each case equal at least
100% of the fair market value of a share of Common Stock on the date of grant.
As of March 3, 1997, the fair market value of a share of Common Stock was
$24.13. Rollover Options generally were granted with an option price that
preserved the aggregate gain or loss implicit in the UPC Stock Options
surrendered in exchange for such Rollover Options. No further Rollover Options
will be granted. Stock options in no event shall be exercisable subsequent to
the tenth anniversary of the date on which the stock option is granted. In
general, the shares of Common Stock covered by a stock option may not be
exercised prior to the first anniversary of the date on which the stock option
is granted or, in the case of Rollover Options, prior to the date of exercise of
the UPC Stock Option for which the Rollover Option was exchanged, or such longer
period or periods, and subject to such conditions, as the Compensation Committee
may determine. Stock options may be exercised by payment of the option price in
cash or, at the discretion of the Committee, shares of Common Stock having a
fair market value equal to the option price. The Compensation Committee may also
permit the option price to be paid in the form of withheld shares of Common
Stock otherwise distributable to the optionee on exercise. ISOs are subject to
certain additional limitations in order to qualify for favorable tax treatment.
SARs. The Compensation Committee is authorized to grant SARs in connection
with non-qualified options. Each SAR shall entitle the optionee to receive from
the Company, in exchange for the surrender of the SAR and the unexercised
related option, an amount equal to the excess of the fair market value of one
share of Common Stock over the option price per share times the number of shares
covered by the option, or portion
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thereof, which is surrendered. Payment shall be made in shares of Common Stock
valued at fair market value, or in cash, or partly in shares of Common Stock and
partly in cash, all as shall be determined by the Compensation Committee.
Retention Stock. The Compensation Committee is authorized to award
Retention Stock. Retention Stock is an award of shares which may not be sold or
disposed of, and which may be forfeited in the event of termination of
employment or upon failure to meet specified performance objectives, prior to
the end of a restricted period specified by the Compensation Committee. The
restricted period for Retention Stock not subject to performance objectives may
not be less than one year, except for Rollover Retention Stock, in which case
such restrictions shall not terminate prior to three years after the date of
award of the UPC Retention Stock for which such Rollover Retention Stock was
exchanged. A participant awarded Retention Stock generally has all of the rights
of a shareholder of the Company, including the right to vote and receive
dividends and distributions with respect to the Common Stock subject to the
award.
Other Terms of Awards. Awards under the Amended and Restated 1995 Stock
Option Plan generally are awarded without a requirement that the participant pay
consideration in the form of cash or property for the award (as distinguished
from payment associated with the exercise of a stock option).
Amendment and Termination. The Board may at any time terminate the Amended
and Restated 1995 Stock Option Plan with respect to any shares of Common Stock
not at that time subject to outstanding stock options or Retention Stock, and
may from time to time alter or amend the Amended and Restated 1995 Stock Option
Plan or any part thereof, provided that no change with respect to any stock
options or Retention Stock theretofore granted or awarded may be made which
would impair the rights of an optionee or participant without the consent of
such optionee or participant. Furthermore, the Amended and Restated 1995 Stock
Option Plan requires the Board to seek shareholder approval for any amendment
designed to (i) increase the maximum number of shares of Common Stock subject to
the Amended and Restated 1995 Stock Option Plan, (ii) extend the term of the
Amended and Restated 1995 Stock Option Plan, (iii) change the class of eligible
persons who may receive options or awards of Retention Stock under the Amended
and Restated 1995 Stock Option Plan or (iv) increase the limitation on the
maximum number of shares that any participant may receive under the Amended and
Restated 1995 Stock Option Plan. The Amended and Restated 1995 Stock Option Plan
provides that no stock options or Retention Stock may be granted or awarded
after September 27, 2005, but grants or awards of stock options and Retention
Stock theretofore granted or awarded may extend beyond that date and the terms
and conditions of the Amended and Restated 1995 Stock Option Plan will continue
to apply thereto.
FEDERAL INCOME TAX IMPLICATIONS
ISOs. The grant of an ISO will create no tax consequences for the
optionee. An optionee will not have taxable income upon exercising an ISO,
except that the alternative minimum tax may apply. Generally, the difference
between the fair market value of Common Stock purchased by exercise of an ISO
(generally measured as of the date of exercise) and the amount paid for that
Common Stock upon exercise of the ISO gives rise to an adjustment to income for
purposes of the alternative minimum tax. An alternative minimum tax adjustment
applies unless a disqualifying disposition (described below) occurs in the same
calendar year as the exercise of the ISO. The alternative minimum tax (imposed
to the extent it exceeds the taxpayer's regular tax) currently is 26% to 28% of
an individual taxpayer's alternative minimum taxable income. Alternative minimum
taxable income is determined by adjusting regular taxable income for certain
items, increasing that income by certain tax items and reducing this amount by
the applicable exemption amount.
The optionee will recognize no income upon grant of an ISO and incur no tax
on its exercise unless the optionee is subject to the alternative minimum tax
described above. If the optionee holds the Common Stock acquired upon exercise
of an ISO (the 'ISO Shares') for one year after the date stock the option was
exercised and for two years after the date the stock option was granted, the
optionee generally will realize long-term capital gain or loss (rather than
ordinary income or loss) upon disposition of the ISO Shares. This gain or loss
will be equal to the difference between the amount realized upon such
disposition and the amount paid for the ISO Shares.
If the optionee disposes of ISO Shares prior to the expiration of either of
the above required holding periods (i.e., a disqualifying disposition), the gain
realized upon such disposition, up to the difference between the fair market
value of the ISO Shares on the date of exercise and the option price, will be
treated as ordinary income.
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Any additional gain on disposition of the ISO Shares will be long-term or
short-term capital gain, depending upon whether or not the ISO Shares were held
for more than one year following the date of exercise.
Non-qualified Stock Options. The grant of non-qualified stock options
will create no tax consequences for the optionee. Upon exercise of a
non-qualified stock option, the optionee must recognize ordinary income equal to
the difference between the fair market value of the Common Stock acquired on the
date of exercise and the option price thereof. An optionee's subsequent
disposition of shares of Common Stock acquired upon the exercise of a
non-qualified stock option generally will result in short-term or long-term
capital gain or loss measured by the difference between the sale price and the
optionee's tax basis in such shares (the tax basis generally being the option
price plus any amount previously recognized as ordinary income in connection
with the exercise of the stock option).
SARs. The grant of a SAR will create no tax consequences for the optionee.
Upon exercise of a SAR, the optionee generally must recognize ordinary income
equal to the cash or the fair market value of any shares of Common Stock
received.
Tax Consequences of Options and SARs to the Company. The grant of an
option or a SAR will create no tax consequences for the Company. The Company
generally will be entitled to a tax deduction equal to the amount recognized as
ordinary income by the optionee in connection with the exercise of a stock
option or a SAR. The Company generally is not entitled to a tax deduction
relating to amounts that represent a capital gain to an optionee. Accordingly,
the Company will not be entitled to any tax deduction with respect to an ISO if
the participant holds the ISO Shares for the applicable holding period described
earlier.
Retention Stock. Because Retention Stock awarded under the Amended and
Restated 1995 Stock Option Plan is restricted as to transferability and subject
to a substantial risk of forfeiture for a period of time after awarded, a
participant generally will not be subject to taxation at the time of such award.
The participant generally must recognize ordinary income equal to the fair
market value of the shares of Common Stock at the first time the Retention Stock
becomes transferable or not subject to a substantial risk of forfeiture. A
participant may, however, elect to be taxed at the time of award of Retention
Stock rather than upon lapse of the restriction on transferability or
substantial risk of forfeiture. If a participant makes such an election but
subsequently forfeits the Retention Stock, he or she would not be entitled to
any tax deduction, including as a capital loss, for the value of the shares on
which he or she previously paid tax. In connection with Retention Stock, the
Company generally will be entitled to a deduction in an amount equal to the
ordinary income recognized by the participant (except as limited under Code
Section 162(m), discussed below), in the year in which the participant
recognizes such income.
Section 162(m) of the Code. Section 162(m) of the Code generally disallows
a public company's tax deduction for compensation to certain executive officers,
defined as 'covered employees,' in excess of $1 million in any tax year
beginning on or after January 1, 1994. Compensation that qualifies as
'performance-based compensation' is excluded from the $1 million deductibility
cap, and therefore remains fully deductible even if it exceeds $1 million. As
discussed above, the Company intends that options granted and any
performance-based Retention Stock awarded under the Amended and Restated 1995
Stock Option Plan qualify as such 'performance-based compensation,' so that such
awards will not be subject to the Section 162(m)'s $1 million deductibility cap.
A number of requirements must be met in order for particular compensation to
qualify, however, there can be no assurance that such compensation under the
Amended and Restated 1995 Stock Option Plan will be fully deductible under all
circumstances. In addition, Retention Stock not subject to performance
conditions will not be deductible to the extent that such compensation together
with all other non-performance-based compensation paid to a covered employee
exceeds $1 million in a given year.
The foregoing general discussion is intended for the information of
shareholders considering how to vote and not as tax guidance to optionees.
Different tax rules may apply to specific optionees and transactions, including,
where applicable, in the case of payment of the option price of a stock option
by surrender of previously acquired shares. This discussion does not address the
effects of other Federal taxes (including possible 'golden parachute' excise
taxes) or taxes imposed under state, local, or foreign tax laws. Optionees
should consult a tax advisor as to the tax consequences of participation.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR PROPOSAL 2, TO
APPROVE THE 1995 STOCK OPTION AND RETENTION STOCK PLAN, AS AMENDED AND RESTATED.
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3. APPROVAL OF COMPANY'S EXECUTIVE INCENTIVE PLAN, AS AMENDED AND RESTATED
At the Annual Meeting, shareholders will be asked to approve the Company's
Executive Incentive Plan, as amended and restated. The EIP was adopted in
September 1995, and provides for the award of bonus compensation based on
Company performance. Subject to shareholder approval of the amendments,
described below, the EIP has been amended and restated in its entirety and
designated as the 'Amended and Restated Executive Incentive Plan' (the 'Amended
EIP').
AMENDMENTS
The amendment applies to three features of the EIP: (1) the timing of
participant deferral elections (the 'Deferral Election Amendment'); (2) the
application of specific percentage limitations with respect to awards to certain
executives (the 'Percentage Limitations Amendment'); and (3) the Committee's
right to accelerate the payment of deferral awards in cases of undue hardship
(the 'Undue Hardship Amendment').
The Deferral Election Amendment. For plan administration and tax law
requirements, incentive compensation plans generally provide that deferral
elections be made well in advance of the award date. The EIP, as written prior
to the Deferral Election Amendment, required that a deferral election be made by
a participant prior to September 30 of the year with respect to which the award
was to be made. This deadline was appropriate given the Company's custom of
awarding incentive compensation in December of the same year. The Company is now
considering whether incentive awards under the Amended EIP should be made early
in the year following the year to which the award relates (e.g., March). Hence,
the Board amended the EIP to provide that deferral elections must be made at
least 90 days prior to the grant of an award, but in no event later than the
close of the year with respect to which the award is to be made. This new
'election deadline' will better accommodate the timing of future awards under
the Amended EIP.
The Percentage Limitations Amendment. Section 162(m) of the Code requires
that a performance-based compensation plan which provides for subjective awards
to participants based upon the attainment of specific performance goals include
maximum payout amounts which may be made to the Chief Executive Officer and the
other four highest compensated officers ('Covered Employees'). Accordingly, the
EIP provides that, in the case of the Company's Chief Executive Officer, the
maximum annual award under the EIP is 0.125% of covered Incentive Income for the
relevant year. With respect to each of the Company's other Covered Employees,
the maximum annual award is 0.0625% of covered Incentive Income for the covered
year. The Board believes that these percentage limitations should be adjusted
annually to reflect changes in the Consumer Price Index-Urban. Thus, the Board
amended the EIP to provide for such annual adjustments with the proviso that the
percentage limitations, as so adjusted, not fall outside the following ranges:
0.125%--0.25% for the Chief Executive Officer and 0.0625%--0.125% for any other
Covered Employees. In the event of runaway inflation (or deflation), these
ranges will ensure that the EIP's maximum award limitation for the Chief
Executive Officers and other Covered Employees remains within reasonable bounds.
The Hardship Amendment. The Amended EIP permits the Compensation Committee
to accelerate the payment of deferred awards to an executive who incurs an undue
hardship. However, the Amended EIP does not define this term. Hence, in order to
guide the Compensation Committee and to ensure that deferrals under the EIP
continue to be recognized for tax law purposes, the Board amended the EIP by
adding a definition of undue hardship. Consistent with IRS regulations, this
definition limits undue hardship to an unforeseeable financial emergency which
cannot be addressed by the executive with resources from other personal assets.
DESCRIPTION OF AMENDED EIP
The purpose of the Amended EIP is to provide supplementary annual cash
compensation to the Company's key employees in order to motivate and retain them
and to assist the Company in attaining its financial and strategic objectives.
As of March 3, 1997, 32 key employees of the Company are eligible to participate
in the Amended EIP. The Amended EIP is intended to provide 'performance-based
compensation' that is tax deductible by the Company without the limitation under
Code Section 162(m). The Amended EIP is being submitted to shareholders in order
to meet the Code's requirement for shareholder approval.
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Section 162(m) of the Code provides generally that no deduction will be
allowed to a publicly held corporation for 'applicable employee remuneration'
with respect to a Covered Employee to the extent that the amount of such
remuneration for the taxable year with respect to such employee exceeds $1
million. The term 'applicable employee remuneration' does not include
remuneration payable solely on account of the attainment of one or more
performance goals, but only if (i) the performance goals are determined by a
compensation committee of the Board of the taxpayer corporation which is
comprised solely of two or more outside directors, (ii) the material terms under
which the remuneration is to be paid, including the performance goals, are
disclosed to shareholders and approved by a majority vote of the shareholders in
a separate shareholder vote before the payment of such remuneration, and (iii)
before any payment of such remuneration, the compensation committee certifies
that the performance goals and any other material terms were in fact satisfied.
Compensation paid pursuant to the Amended EIP is intended to be qualified as
'performance-based compensation' under Code Section 162(m). Reference should be
made to 'Executive Compensation--Report on Executive Compensation-- Annual
Compensation' for definitions of terms, and further explanation of provisions,
concerning the Amended EIP.
The Amended EIP is a bonus program designed to tie executive pay
specifically to Company performance. The Amended EIP is administered by the
Compensation Committee of the Board and the performance criteria set forth
therein are subject to the approval of the Compensation Committee. The
Compensation Committee will select those employees of the Company who are to
receive awards for a particular year.
Administration. The Amended EIP is administered by the Compensation
Committee, the members of which are not officers or employees of the Company or
any subsidiary. The Compensation Committee is authorized to select the
executives to whom awards are granted under the Amended EIP and the amounts of
awards payable to such executives out of the Incentive Reserve Account, and are
otherwise responsible for the administration and interpretation of the Amended
EIP. The performance criteria set forth in the Amended EIP are subject to the
approval of the Compensation Committee. The Compensation Committee may delegate
its authority under the Amended EIP to one or more officers or employees of the
Company or a subsidiary. The Amended EIP expressly requires that the
Compensation Committee at all times administer the Amended EIP in a manner
consistent with the requirements of Section 162(m) of the Code.
Performance Criteria. The Amended EIP's Incentive Reserve Account funding
formula provides that the Board of Directors may credit the Incentive Reserve
Account each year with such amount as it may determine, subject to a maximum
amount for any year of: 0.25% of Incentive Income when the Incentive Return is
16%; 0.5% of Incentive Income when the Incentive Return is 20% or more; and
Intermediate Returns at intermediate levels of Incentive Return between 16% and
20%. As soon as practicable at the end of each year, the Compensation Committee
may grant awards not exceeding the unawarded credit balance in the Incentive
Reserve Account to executives in such dollar amounts as the Compensation
Committee shall determine. The amount of an individual award will depend upon
the evaluation of each executive's performance. Any amounts credited to the
Incentive Reserve Account which are not awarded may be carried forward and
awarded to executives in future years during which the Amended EIP remains in
effect. In 1996, a total of $4,570,200 was awarded to 34 executives under the
EIP.
Deferrals. A participating executive may make an election, prior to the
year for which an award may be granted to him or her by the Compensation
Committee, specifying that a percentage (in multiples of 10%) of any award which
may be granted to him or her be in the form of an immediate cash award or a
deferred award in one or more Investment Accounts as may be established from
time to time by the Compensation Committee. Deferred awards are paid after
termination of employment, or if selected by the executive, on a date or dates
specified by the executive. The Compensation Committee is authorized to
accelerate the payment of a deferred award in cases of undue hardship.
Investments. Investment Accounts under the Amended EIP are designed to
mirror the performance of various mutual funds available to employees under the
Company's Thrift Plan, and also include an account based on the performance of
the Common Stock, as well as a fixed rate fund. The amounts credited in all
Investment Accounts represent unfunded general liabilities of the Company and do
not constitute a trust fund or otherwise create any property interest in any
employee or his beneficiary.
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Amendment or Termination. The Board may amend, suspend or terminate the
Amended EIP at any time, subject to the rights of participants concerning
existing awards. The Board may not, however, without shareholder approval, (1)
increase the limitation of the amount of awards which may be granted under the
Amended EIP, (2) extend the period of the Amended EIP, or (3) amend the Amended
EIP in a manner which is material for purposes of the shareholder approval
requirement of Section 162(m) of the Code.
Transferability. Awards under the Amended EIP may not be subject to any
alienation, sale, transfer, assignment, pledge, encumbrance or charge, voluntary
or involuntary. A participant may designate one or more beneficiaries to receive
any amount that is payable in the event of the participant's death.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR PROPOSAL 3, TO
APPROVE THE EXECUTIVE INCENTIVE PLAN, AS AMENDED AND RESTATED.
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4. APPROVAL OF 1995 DIRECTORS STOCK OPTION PLAN, AS AMENDED AND RESTATED
At the Annual Meeting, shareholders will be asked to approve the Company's
1995 Directors Stock Option Plan, as amended and restated. The 1995 Directors
Stock Option Plan was adopted in 1995 and, prior to the amendments, described
below, provided for annual grants, on a fixed date, to each outside director of
options to purchase 1,000 shares of Common Stock at an option price equal to
100% of the fair market value of Common Stock on the date of the grant. Subject
to shareholder approval described below, the 1995 Directors Stock Option Plan,
in conjunction with other proposed changes to the compensation of directors,
will be amended and restated in its entirety and designated as the 'Amended and
Restated 1995 Directors Stock Option Plan' ('Amended and Restated 1995 Directors
Stock Option Plan'). The amendments would (1) increase the number of authorized
shares from 200,000 to 1,000,000 (the 'Shares Increase Amendment'); (2)
substantially change the manner in which options are granted and become
exercisable (the 'Grant Amendment'); and (3) allow for the transfer of options
to immediate family members (the 'Transferability Amendment'). In the event
Proposal 4, the amendments to the 1995 Directors Stock Option Plan are approved,
the Company shall (i) reduce the annual retainer for outside directors from
$60,000 to $40,000, (ii) eliminate the Mandatory Deferral Feature of the
Directors Stock Unit and Deferred Compensation Plan, and (iii) permit Elective
Deferrals under the Directors Stock Unit and Deferred Compensation Plan with
respect to all cash compensation for services as an outside director.
AMENDMENTS
The Share Increase Amendment. The increase in the number of authorized
shares from 200,000 to 1,000,000 is necessitated by the overall change in
director compensation, including the Grant Amendment. If this Proposal 4 is
approved, the Company shall reduce the annual retainer from $60,000 to $40,000
which will be offset by the grant of additional stock options described in the
Grant Amendment.
The Grant Amendment. Shareholder approval of the Amended and Restated
Directors Stock Option Plan would authorize future grants on the terms described
below and ratify the Company's March 5, 1997 grant to each outside director then
serving on the Board, of an option to purchase 52,000 shares of Common Stock.
Such option price, $24.57, is equal to 100% of the fair market value of the
Common stock on the date of grant. Such options would vest (and become
exercisable) at the rate of 5,200 shares per year and the exercise period would
commence on the first anniversary of the director's date of grant and end on
March 5, 2008. Hence, a director who is granted a 52,000-share option on March
5, 1997 would not be able to exercise the option until March 5, 1998, and then
only to the extent of 5,200 shares. For each year thereafter, another 5,200
shares would become available for exercise, with the last 5,200-share segment
becoming exercisable on March 5, 2007. A director who ceases service on the
Board generally would only be permitted to exercise the vested portion of an
option grant as of the date service is terminated and the unvested portion would
be forfeited; provided, however, in the event of a director's death, disability
or mandatory retirement or in the event of a change in control of the Company,
the unvested portion of the such options would vest and become immediately
exercisable.
Individuals who were appointed to the Board as directors after March 5,
1997 will participate in the Amended and Restated 1995 Directors Stock Option
Plan and receive a proportionate grant of options as follows: a new director
will participate as of the March 1st following his or her appointment and will,
as of such date, receive a pro rata share of options determined by multiplying
52,000 shares times a fraction. The numerator of the fraction would be the
number of years (including fractions) between the director's March 1
commencement date and March 5, 2007. The denominator would be 10. Thus, for
example, a director who commences participation in the Amended and Restated
Directors 1995 Stock Option Plan as of March 5, 1999 would receive an option to
purchase 41,600 shares (80% X 52,000) of Common Stock. Consistent with grants
awarded as of March 5, 1997, the stock options will vest at the rate of 5,200
shares per year through March 5, 2007.
All options granted under the Amended and Restated 1995 Directors Stock
Option Plan must be exercised before March 5, 2008. In addition, the Grant
Amendment would change the time during which a person ceasing to be a director
must exercise his or her options under the Amended and Restated 1995 Directors
Stock Option Plan. Currently, options, to the extent exercisable, must be
exercised by the director within five years of departure. Under the Grant
Amendment, the option must be exercised within six months of the director's
departure, except where the director is compelled to retire from the Board in
accordance with the Company's
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mandatory retirement policy, in which case the director has five years in which
to exercise the then-exercisable options.
The Transferability Amendment. The Board amended the Directors Stock
Option Plan to permit directors to transfer options (whether granted before or
after March 5, 1997) to members of their immediate families, either directly or
through a trust or similar vehicle. The reasons underlying this amendment are
the same as those underlying a similar amendment which the Board made to the
Company's Amended and Restated 1995 Stock Option Plan relating to the Company's
officers, with one material exception: whereas, an officer will not be able to
transfer his or her options to family members without prior approval of the
Compensation Committee, the directors may do so without such prior approval.
Under the amendment, a director need only demonstrate to the Committee that the
form of his or her transfer meets the specific requirements of the Amended and
Restated 1995 Directors Stock Option Plan.
DESCRIPTION OF DIRECTORS STOCK OPTION PLAN
The purpose of the Amended and Restated 1995 Directors Stock Option Plan is
to provide stock based compensation to eligible directors of the Company in
order to encourage the highest level of director performance and to promote
long-term shareholder value. The Amended and Restated 1995 Directors Stock
Option Plan will provide such directors with a proprietary interest in the
Company's success and progress through a grant of options to purchase shares of
Common Stock. The primary features of the Amended and Restated 1995 Directors
Stock Option Plan are summarized herein.
Participation in the Amended and Restated Directors Stock Option Plan is
limited to Company directors who are not employees of the Company or any of its
subsidiaries. The Amended and Restated 1995 Directors Stock Option Plan is
administered by the Compensation Committee of the Board. There are currently
nine directors eligible to participate in the Amended and Restated 1995
Directors Stock Option Plan. An aggregate of 1,000,000 shares of the Common
Stock is reserved for issuance under the Amended and Restated Directors Stock
Option Plan, subject to adjustment under circumstances similar to those
described under 'Proposal 2--Approval of Company's 1995 Stock Option and
Retention Stock Plan, as Amended and Restated--Description of 1995
Plan--Adjustments and Extraordinary Corporate Events.' The Amended and Restated
1995 Directors Stock Option Plan provides that the option price may be paid in
cash or previously acquired shares of Common Stock.
Amendment or Termination of the Directors Stock Option Plan. The Board may
amend or terminate the Amended and Restated 1995 Directors Stock Option Plan at
any time; provided, however, that the Board is required to seek shareholder
approval with respect to any amendment which would cause the Amended and
Restated 1995 Directors Stock Option Plan, or any grant of options thereunder,
to fail to comply with New York Stock Exchange requirements. The Amended and
Restated 1995 Directors Stock Option Plan is scheduled to expire March 5, 2008
unless otherwise extended by the Board with shareholder approval. In general,
any amendment or termination of the Amended and Restated 1995 Directors Stock
Option Plan shall not, without the grantee's consent, result in the amendment or
termination of any grantee's outstanding grant.
Federal Income Tax Implications. Options granted under the Amended and
Restated 1995 Directors Stock Option Plan are non-qualified stock options for
Federal income tax purposes, and for a summary of such tax consequences, see
'Proposal 2--Approval of Company's 1995 Stock Option and Retention Stock Plan,
as Amended and Restated--Federal Income Tax Implications--Non-qualified Stock
Options.'
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR PROPOSAL 4, TO
APPROVE THE 1995 DIRECTORS STOCK OPTION PLAN, AS AMENDED AND RESTATED.
26
<PAGE>
NEW PLAN BENEFITS
EXECUTIVES
The following table sets forth certain benefits related to Proposals 2, 3
and 4. Future awards under the Amended and Restated 1995 Stock Option Plan and
the Amended EIP are not determinable because specific awards are made at the
discretion of the Compensation Committee, depending upon a variety of factors.
See 'Executive Compensation--Report on Executive Compensation.' For information
concerning awards made under the 1995 Stock Option Plan and the EIP to the
Company's Chief Executive Officer and other four most highly compensated
officers, see 'Executive Compensation--Summary Compensation Table.' The
following table sets forth additional information with respect to fiscal 1996
awards under the Amended and Restated 1995 Stock Option Plan and the Amended
EIP:
<TABLE>
<CAPTION>
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
-------------------------------------------
<S> <C> <C>
NUMBER OF OPTIONS
-------------------------------------------
All executives1 1,328,900
All employees, as a group, excluding executives 136,500
------------
1,465,400
------------
------------
<CAPTION>
AMENDED
EIP
----------
<S> <C> <C>
NUMBER OF SHARES OF
RETENTION STOCK PAYMENTS
------------------------------------------- ----------
All executives1 423,880 $4,570,200
All employees, as a group, excluding executives 180,650 --
------------ ----------
604,530 $4,570,200
------------ ----------
------------ ----------
</TABLE>
- - ------------------------
1 Stock options were granted to 33 executives, Retention Stock was awarded to 33
executives and bonuses under the EIP were awarded to 34 executives.
DIRECTORS
Future benefits payable to existing directors under the Amended and
Restated 1995 Directors Stock Option Plan are determinable as set forth below:
<TABLE>
<CAPTION>
AMENDED AND RESTATED 1996 DIRECTORS STOCK OPTION PLAN
-----------------------------------------------------
<S> <C>
# OF OPTIONS
-----------------------------------------------------
All outside directors, as a group 474,000
</TABLE>
On March 5, 1997, each outside director was granted a stock option to
purchase 52,000 shares of Common Stock at the fair market value option price of
$24.57 per share of Common Stock, subject to (i) receipt of shareholder approval
of the Amended and Restated 1995 Directors Stock Option Plan and (ii)
satisfaction of vesting conditions whereby, in general, stock options become
exercisable as to 5,200 shares of Common Stock on each anniversary of the date
of grant. See 'Proposal 4--Approval of 1995 Directors Stock Option Plan, as
Amended and Restated--Amendments--The Grant Amendment.'
INDEPENDENT AUDITORS
Deloitte & Touche LLP has been selected as the Company's independent
auditors for the 1997 fiscal year. A representative of Deloitte & Touche LLP is
expected to be present at the Annual Meeting. Such representative will have an
opportunity to make a statement if such representative desires to do so and will
be available to respond to appropriate questions from shareholders of the
Company.
OTHER BUSINESS
The only business to come before the meeting of which management is aware
is set forth in this Proxy Statement. If any other business is presented for
action, it is intended that discretionary authority to vote the proxies shall be
exercised in respect thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, SHAREHOLDERS
ARE URGED TO DATE, SIGN AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE
ENCLOSED ENVELOPE.
27
<PAGE>
UNION PACIFIC RESOURCES GROUP INC.
SOLICITED BY BOARD OF DIRECTORS
ANNUAL MEETING MAY 7, 1997
FORT WORTH, TEXAS
The undersigned hereby appoints JACK L. MESSMAN and MARK S. KNOUSE as
Proxies, or either of them, each with the power to appoint a substitute, and
hereby authorizes either of them to represent and to vote all the shares of
UNION PACIFIC RESOURCES GROUP INC. which the undersigned is entitled to vote at
the Annual Meeting of Shareholders to be held on May 7, 1997 or any adjournment
or postponement thereof as indicated in this Proxy upon all matters referred to
on the reverse side and described in the Proxy Statement for the Meeting, and,
in their discretion, upon any other matters that may properly come before the
meeting. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
DIRECTORS, AND FOR APPROVAL OF THE 1995 STOCK OPTION AND RETENTION STOCK PLAN,
AS AMENDED AND RESTATED, THE EXECUTIVE INCENTIVE PLAN, AS AMENDED AND RESTATED
AND THE 1995 DIRECTORS STOCK OPTION PLAN, AS AMENDED AND RESTATED.
The Board of Directors recommends a vote FOR all Proposals.
YOUR VOTE IS IMPORTANT! PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE
SIDE
AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
UNION PACIFIC RESOURCES GROUP INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
UNION PACIFIC RESOURCES GROUP INC. BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
PROPOSALS 1, 2, 3, AND 4
[ ]
<TABLE>
<S> <C> <C>
1. Election of Directors--Nominees: For Withheld For ALL
H. Arnelle, L. Cheney, P. Geren, L. Jones, D.
Lewis, C. Malone, J. Messman, J. Poduska, S. All All Except
Skinner, J. Thompson
(Except nominee(s) written above)
2. Approval of the Company's 1995 Stock Option For Against Abstain
and Retention Stock Plan, as amended and
restated
3. Approval of the Executive Incentive Plan,
as amended and restated For Against Abstain
4. Approval of the 1995 Directors Stock For Against Abstain
Option Plan, as amended and restated
</TABLE>
Dated: ___________________________________________________________________, 1997
________________________________________________________________________________
________________________________________________________________________________
Please sign exactly as name appears herein. Executors, administrators, trustees,
and others signing in representative capacity should indicate the capacity in
which they sign. Where there is more than one owner, each should sign.
..............................................................................
FOLD AND DETACH HERE
If you received more than one set of proxy materials and wish to have it
consolidated, please contact
HARRIS TRUST & SAVINGS BANK
1-800-335-6918
<PAGE>
CONFIDENTIAL VOTING INSTRUCTIONS FOR ANNUAL MEETING MAY 7, 1997
UNION PACIFIC RESOURCES GROUP INC.
- - --------------------------------------------------------------------------------
To the Trustee:
The UNDERSIGNED hereby instructs you to vote, in person or by proxy, all the
shares of Common Stock of Union Pacific Resources Group Inc. (the 'Company')
which were allocated to my accounts as of March 3, 1997, under one or more of
the plans listed below and identified by the four-letter code below and on the
reverse side of this voting instruction card at the Annual Meeting of
Shareholders ('Annual Meeting') to be held on May 7, 1997 or any adjournment or
postponement thereof, as indicated, upon all matters referred to on the reverse
side of this card and described in the Proxy Statement for the Annual Meeting.
This card when properly executed will set forth how the shares of Common Stock
allocated to your account will be voted. If no direction is made, the shares of
Common Stock allocated to your account will be voted FOR all nominees in the
election of Directors and FOR proposals 2 through 4 by the Trustee. If you do
not return your card, the shares of Common Stock allocated to the Union Pacific
Resources Group Inc. ('Company Thrift Plan') Employees' Thrift Plan will be
voted by Independent Fiduciary Services, Inc., as an independent fiduciary. If
you do not return your card, the shares of Common Stockallocated to all the
other plans, except for CompanyThrift Plan and PAYSOP shares, will be voted by
the Trustee in the same proportion as the shares with respect to which voting
instructions are received. The PAYSOP shares will not be voted if you do not
return your card. If you have shares of Common Stockallocated to more than one
of the plans below and wish to vote the shares differently among the plans, you
may contact Harris Trust Savings at 1-800-335-6918 for additional instruction
cards.
Union Pacific Resources Group Inc. Employees' Thrift Plan (RSTP)
Union Pacific Resources Group Inc. Thrift Plan PAYSOP (RSPS)
Union Pacific Corporation Thrift Plan (UPTP)
Union Pacific Agreement Employee 401(k) Retirement Thrift Plan (UPAT)
Union Pacific Fruit Express Company Agreement Employee 401(k) Retirement Thrift
Plan (UPFE)
Union Pacific Motor Freight Company Agreement Employee 401(k) Retirement Thrift
Plan (UPMF)
Skyway Retirement Savings Plan (SRSP)
Southern Pacific Rail Corporation Thrift Plan (SPTP)
Chicago and North Western Railway Company Profit Sharing and Retirement Savings
Program (CNWP)
(Continued and to be signed on reverse side.)
<PAGE>
UNION PACIFIC RESOURCES GROUP INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
UNION PACIFIC RESOURCES GROUP INC. BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
PROPOSALS 1, 2, 3, AND 4
[ ]
<TABLE>
<S> <C> <C>
1. Election of Directors--Nominees: For Withheld For ALL
H. Arnelle, L. Cheney, P. Geren, L. Jones, D.
Lewis, C. Malone, J. Messman, J. Poduska, S. All All Except
Skinner, J. Thompson
(Except nominee(s) written above)
2. Approval of the Company's 1995 Stock Option For Against Abstain
and Retention Stock Plan, as amended and
restated
3. Approval of the Executive Incentive Plan,
as amended and restated For Against Abstain
4. Approval of the 1995 Directors Stock For Against Abstain
Option Plan, as amended and restated
</TABLE>
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders and of the Proxy Statement.
Dated: ___________________________________________________________________, 1997
Signature:______________________________________________________________________
________________________________________________________________________________
..............................................................................
FOLD AND DETACH HERE
<PAGE>
Appendix A
1995
STOCK OPTION AND RETENTION STOCK PLAN
of
UNION PACIFIC RESOURCES GROUP INC.
AS AMENDED AND RESTATED
(EFFECTIVE JUNE 1, 1997)
1995 STOCK OPTION AND RETENTION STOCK PLAN
OF UNION PACIFIC RESOURCES GROUP INC.
<PAGE>
(as amended and restated effective June 1, 1997)
- - --------------------------------------------------------------------------------
1. PURPOSE
This 1995 Stock Option and Retention Stock Plan of Union Pacific Resources Group
Inc. is to promote and closely align the interests of officers and employees
with those of the shareholders of Union Pacific Resources Group Inc. by
providing stock based compensation. The Plan is intended to strengthen Union
Pacific Resources Group Inc.'s ability to reward performance which enhances long
term shareholder value; to increase employee stock ownership through performance
based compensation plans; and to strengthen the company's ability to attract and
retain an outstanding employee and executive team.
- - --------------------------------------------------------------------------------
2. DEFINITIONS
The following terms shall have the following meanings:
"Act" means the Securities Exchange Act of 1934, as amended.
"Approved Leave of Absence" means a leave of absence of definite length
approved by the Vice President - People of the Company, or by any other officer
of the Company to whom the Committee delegates such authority.
"Award" means an award of Retention Shares pursuant to the Plan.
"Beneficiary" means any person or persons designated in writing by a
Participant to the Committee on a form prescribed by it for that purpose, which
designation shall be revocable at any time by the Participant prior to his or
her death, provided that, in the absence of such a designation or the failure of
the person or persons so designated to survive the Participant, "Beneficiary"
shall mean such Participant's estate; and further provided that no designation
of Beneficiary shall be effective unless it is received by the Company before
the Participant's death.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, or the
corresponding provisions of any successor statute.
"Committee" means the Committee designated by the Board to administer
the Plan pursuant to Section 3.
- 2 -
<PAGE>
"Common Stock" means the Common Stock of the Company.
"Company" means Union Pacific Resources Group Inc., a Utah corporation,
or any successor corporation.
"Option" means each non-qualified stock option, incentive stock option
and stock appreciation right granted under the Plan, including a Rollover
Option.
"Optionee" means the Chairman of the Board or any employee of the
Company or a Subsidiary (including directors who are also such employees) who is
granted an Option under the Plan.
"Participant" means the Chairman of the Board or any employee of the
Company or a Subsidiary (including directors who are also such employees) who is
granted an Award under the Plan.
"Plan" means this 1995 Stock Option and Retention Stock Plan of Union
Pacific Resources Group Inc., as amended from time to time.
"Retention Shares" means shares of Common Stock subject to an Award
granted under the Plan, including Rollover Retention Shares.
"Restriction Period" means the period defined in Section 9(a).
"Rollover Option" means an Option granted under the Plan in exchange
for UPC Stock Options.
"Rollover Retention Shares" means shares of Common Stock subject to an
Award granted under the Plan in exchange for UPC Retention Shares.
"Subsidiary" means any corporation, partnership, or limited liability
company of which the Company owns directly or indirectly at least a majority of
the outstanding shares of voting stock or other voting interest.
"UPC" means Union Pacific Corporation, a Utah corporation.
"UPC Plans" mean the 1993 Stock Option and Retention Stock Plan of
Union Pacific Corporation, the 1990 Retention Stock Plan of Union Pacific
Corporation, the 1988 Stock Option and Restricted Stock Plan of Union Pacific
Corporation and the 1982 Stock Option and Restricted Stock Plan of Union Pacific
Corporation.
"UPC Stock Option" means any option granted under any UPC Plan.
"UPC Retention Shares" means shares of common stock of UPC granted and
- 3 -
<PAGE>
subject to restrictions under the UPC Plans.
"Vesting Condition" means any condition to the vesting of Retention
Shares established by the Committee pursuant to Section 9.
- - --------------------------------------------------------------------------------
3. ADMINISTRATION
The Plan shall be administered by the Committee which shall comprise not less
than three persons, who shall be members of the Board, none of whom shall be
employees of the Company or any Subsidiary. Any actions taken with respect to a
"covered employee" within the meaning of Code section 162(m) shall be taken by
two or more "outside directors" as required by Code section 162(m). The
Committee shall (i) grant Options to Optionees and make Awards of Retention
Shares to Participants, and (ii) determine the terms and conditions of such
Options and Awards of Retention Shares, all in accordance with the provisions of
the Plan. The Committee shall have full authority to construe and interpret the
Plan, to establish, amend and rescind rules and regulations relating to the
Plan, to administer the Plan, and to take all such steps and make all such
determinations in connection with the Plan and Options and Awards granted
thereunder as it may deem necessary or advisable. The Committee may delegate its
authority under the Plan to one or more officers or employees of the Company or
a Subsidiary, provided, however, that no delegation shall be made of authority
to take an action which is required by Rule 16b-3 promulgated under the Act to
be taken by "non-employee directors" in order that the Plan and transactions
thereunder meet the requirements of such Rule. Each Option and grant of
Retention Shares shall, if required by the Committee, be evidenced by an
agreement to be executed by the Company and the Optionee or Participant,
respectively, and contain provisions not inconsistent with the Plan. All
determinations of the Committee shall be by a majority of its members and shall
be evidenced by resolution, written consent or other appropriate action, and the
Committee's determinations shall be final. Each member of the Committee, while
serving as such, shall be considered to be acting in his or her capacity as a
director of the Company.
- - --------------------------------------------------------------------------------
4. ELIGIBILITY
To be eligible for selection by the Committee to participate in the Plan an
individual must be an employee of the Company or a Subsidiary, provided, that
the Chairman of the Board shall be eligible to receive Rollover Options.
Directors other than the Chairman of the Board who are not full-time salaried
employees shall not be eligible. In granting Options or Awards of Retention
Shares to eligible persons, the Committee shall take into account their duties,
their present and potential contributions to the success of the Company or a
- 4 -
<PAGE>
Subsidiary, and such other factors as the Committee shall deem relevant in
connection with accomplishing the purpose of the Plan.
- - --------------------------------------------------------------------------------
5. STOCK SUBJECT TO THE PLAN
Subject to the provisions of Section 11 hereof, the maximum number and kind of
shares as to which Options or Retention Shares may at any time be granted under
the Plan are 16 million shares of Common Stock. No Participant may receive
Options (excluding Rollover Options) or Awards (excluding Rollover Retention
Shares) aggregating more than 10% of the shares of Common Stock available under
the Plan. Shares of Common Stock subject to Options or Awards under the Plan may
be either authorized but unissued shares or shares previously issued and
reacquired by the Company. Upon the expiration, termination or cancellation (in
whole or in part) of unexercised Options, shares of Common Stock subject thereto
shall again be available for option or grant as Retention Shares under the Plan.
Shares of Common Stock covered by an Option, or portion thereof, which is
surrendered upon the exercise of a stock appreciation right, shall thereafter be
unavailable for option or grant as Retention Shares under the Plan. Upon the
forfeiture (in whole or in part) of a grant of Retention Shares, the shares of
Common Stock subject to such forfeiture shall again be available for option or
grant as Retention Shares under the Plan if no dividends have been paid on the
forfeited shares, and otherwise shall be unavailable for such an option or
grant.
- - --------------------------------------------------------------------------------
6. TERMS AND CONDITIONS OF NON-QUALIFIED OPTIONS
All non-qualified options under the Plan shall be granted subject to the
following terms and conditions:
(a) Option Price. The option price per share with respect to each
option, other than Rollover Options, shall be determined by the Committee but
shall not be less than 100% of the fair market value of the Common Stock on the
date the option is granted, such fair market value to be determined in
accordance with the procedures to be established by the Committee. Rollover
Options shall each have an option price per share determined by the Committee,
provided that, unless the Committee determines otherwise in a specific case, the
aggregate gain or loss, as determined by the Committee, implicit in the Rollover
Options granted to each Optionee shall be equal to the aggregate gain or loss
implicit in the UPC Stock Options surrendered in exchange for such Rollover
Options.
(b) Duration of Options. Options shall be exercisable at such time or
times and under such conditions as set forth in the written agreement evidencing
such option, but in no event shall any option be exercisable subsequent to the
tenth anniversary of the date on
- 5 -
<PAGE>
which the option is granted or, in the case of Rollover Options, of the date of
grant of the UPC Stock Option for which such Rollover Option was exchanged.
(c) Exercise of Option. Except as provided in Section 6(h), 6(i) or
8(c), the shares of Common Stock covered by an option may not be purchased prior
to the first anniversary of the date on which the option is granted or, in the
case of Rollover Options, prior to the date of exercise of the UPC Stock Option
for which such Rollover Option was exchanged (unless the Committee shall
determine otherwise), or such longer period or periods, and subject to such
conditions, as the Committee may determine, but thereafter may be purchased at
one time or in such installments over the balance of the option period as may be
provided in the option, provided, however, that no option (other than Rollover
Options) shall be exercisable before the earlier of (i) December 31, 1997, or
(ii) one year after UPC no longer owns at least 50% of the voting power of all
shares of the Company entitled to vote generally in the election of directors.
Any shares not purchased on the applicable installment date may, unless the
Committee shall have determined otherwise, be purchased thereafter at any time
prior to the final expiration of the option. To the extent that the right to
purchase shares has accrued thereunder, options may be exercised from time to
time by written notice to the Company stating the number of shares with respect
to which the option is being exercised.
(d) Payment. Shares of Common Stock purchased under options shall, at
the time of purchase, be paid for in full. All, or any portion, of the option
exercise price may, at the discretion of the Committee, be paid by the surrender
to the Company, at the time of exercise, of shares of previously acquired Common
Stock owned by the Optionee, to the extent that such payment does not require
the surrender of a fractional share of such previously acquired Common Stock. In
addition, to the extent permitted by the Committee, the option exercise price
may be paid by authorizing the Company to withhold Common Stock otherwise
issuable on exercise of the option. Such shares previously acquired or shares
withheld to pay the option exercise price shall be valued at fair market value
on the date the option is exercised in accordance with the procedures to be
established by the Committee. A holder of an option shall have none of the
rights of a stockholder until the shares of Common Stock are issued to him or
her. If an amount is payable by an Optionee to the Company or a Subsidiary under
applicable withholding tax laws in connection with the exercise of non-qualified
options, the Committee may, in its discretion and subject to such rules as it
may adopt, permit the Optionee to make such payment, in whole or in part, by
electing to authorize the Company to withhold or accept shares of Common Stock
having a fair market value equal to the amount to be paid under such withholding
tax laws.
(e) Restrictions. The Committee shall determine, with respect to each
option, the nature and extent of the restrictions, if any, to be imposed on the
shares of Common Stock which may be purchased thereunder including restrictions
on the transferability of such shares acquired through the exercise of such
option. Without limiting the generality of the foregoing, the Committee may
impose conditions restricting absolutely or
- 6 -
<PAGE>
conditionally the transferability of shares acquired through the exercise of
options for such periods, and subject to such conditions, including continued
employment of the Optionee by the Company or a Subsidiary, as the Committee may
determine.
(f) Purchase for Investment. The Committee shall have the right to
require that each Optionee or other person who shall exercise an option under
the Plan represent and agree that any shares of Common Stock purchased pursuant
to such option will be purchased for investment and not with a view to the
distribution or resale thereof or that such shares will not be sold except in
accordance with such restrictions or limitations as may be set forth in the
written agreement granting such option.
(g) Non-Transferability of Options. During an Optionee's lifetime, the
option may be exercised only by the Optionee. Options shall not be transferable,
except for exercise by the Optionee's legal representatives or heirs. An officer
of the Company may, with prior approval from the Committee (or its designee) as
to form, transfer an exercisable non-qualified Option or Rollover Option to (a)
a member or members of the officer's immediate family (spouse, children and
grandchildren, including step and adopted children and grandchildren), (b) a
trust, the beneficiaries of which consist exclusively of members of the
officer's immediate family, (c) a partnership, the partners of which consist
exclusively of members of the officer's immediate family, or (d) any similar
entity created for the exclusive benefit of members of the officer's immediate
family. The Committee or its designee must approve the form of any transfer of a
Grant to or for the benefit of any immediate family member or members before
such transfer shall be recognized as valid hereunder. For purposes of the
preceding sentence, any remote, contingent interest of persons other than a
member of the officer's immediate family shall be disregarded. For purposes of
this Section 6(g), the term "officer" shall have the same meaning as that term
is defined in Rule 16a-1(f) of the Act. A person's status as an officer shall be
determined at the time of the intended transfer.
(h) Termination of Employment. Upon the termination of an Optionee's
employment, for any reason other than death, the option shall be exercisable
only as to those shares of Common Stock which were then subject to the exercise
of such option, provided that (I) in the case of disability as described below,
any holding period required by Section 6(c) shall automatically be deemed to be
satisfied and (II) the Committee may determine that particular limitations and
restrictions under the Plan shall not apply, and such option shall expire
according to the following schedule (unless the Committee shall provide for
shorter periods at the time the option is granted):
(i) Retirement. Option shall expire, unless exercised, five
(5) years after the Optionee's retirement from the Company or any
Subsidiary under the provisions of the Company's or a Subsidiary's
pension plan.
(ii) Disability. Option shall expire, unless exercised, five
(5) years after the date the Optionee is eligible to receive disability
benefits under the provisions of the Company's or a Subsidiary's
long-term disability plan.
- 7 -
<PAGE>
(iii) Gross Misconduct. Option shall expire upon receipt by
the Optionee of the notice of termination if he or she is terminated
for deliberate, willful or gross misconduct as determined by the
Company.
(iv) All Other Terminations. Option shall expire, unless
exercised, three (3) months after the date of such termination.
(i) Death of Optionee. Upon the death of an Optionee during his or her
period of employment, the option shall be exercisable only as to those shares of
Common Stock which were subject to the exercise of such option at the time of
his or her death, provided that (I) any holding period required by Section 6(c)
shall automatically be deemed to be satisfied and (II) the Committee may
determine that particular limitations and restrictions under the Plan shall not
apply, and such option shall expire, unless exercised by the Optionee's legal
representatives or heirs, five (5) years after the date of death (unless the
Committee shall provide for a shorter period at the time the option is granted).
In no event, however, shall any option be exercisable pursuant
to Sections 6(h) or (i) subsequent to the tenth anniversary of the date on which
it is granted or, in the case of a Rollover Option, of the date of grant of the
UPC Stock Option(s) for which such Rollover Option was exchanged.
(j) Rollover Options. Rollover Options may be granted only in exchange
for UPC Stock Options and only during the period prior to 90 days after UPC no
longer owns at least 50% of the voting power of all of the shares of the Company
entitled to vote generally in the election of directors. The ratio for such
exchange shall be determined by the Committee, provided that the requirements of
Section 6(a) are met.
- - --------------------------------------------------------------------------------
7. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
(a) General. The Committee may also grant a stock appreciation right in
connection with a non-qualified option, either at the time of grant or by
amendment. Such stock appreciation right shall cover the same shares covered by
such option (or such lesser number of shares of Common Stock as the Committee
may determine) and shall, except for the provisions of Section 6(d) hereof, be
subject to the same terms and conditions as the related non-qualified option.
(b) Exercise and Payment. Each stock appreciation right shall entitle
the Optionee to surrender to the Company unexercised the related option, or any
portion thereof, and to receive from the Company in exchange therefor an amount
equal to the excess of the fair market value of one share of Common Stock over
the option price per share times the number of shares covered by the option, or
portion thereof, which is
- 8 -
<PAGE>
surrendered. Payment shall be made in shares of Common Stock valued at fair
market value, or in cash, or partly in shares and partly in cash, all as shall
be determined by the Committee. The fair market value shall be the value
determined in accordance with procedures established by the Committee. Stock
appreciation rights may be exercised from time to time upon actual receipt by
the Company of written notice stating the number of shares of Common Stock with
respect to which the stock appreciation right is being exercised, provided that
if a stock appreciation right expires unexercised, it shall be deemed exercised
on the expiration date if any amount would be payable with respect thereto. No
fractional shares shall be issued but instead cash shall be paid for a fraction
or, if the Committee should so determine, the number of shares shall be rounded
downward to the next whole share. If an amount is payable by an Optionee to the
Company or a Subsidiary under applicable withholding tax laws in connection with
the exercise of stock appreciation rights, the Committee may, in its discretion
and subject to such rules as it may adopt, permit the Optionee to make such
payment, in whole or in part, by electing to authorize the Company to withhold
or accept shares of Common Stock having a fair market value equal to the amount
to be paid under such withholding tax laws.
(c) Restrictions. The obligation of the Company to satisfy any stock
appreciation right exercised by an Optionee subject to Section 16 of the Act
shall be conditioned upon the prior receipt by the Company of an opinion of
counsel to the Company that any such satisfaction will not create an obligation
on the part of such Optionee pursuant to Section 16(b) of the Act to reimburse
the Company for any statutory profit which might be held to result from such
satisfaction.
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8. TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
(a) General. The Committee may also grant incentive stock options as
defined under section 422 of the Code. All incentive stock options issued under
the Plan shall, except for the provisions of Sections 6(g) (to the extent it
allows the Committee to permit options to be transferred to, or for the benefit
of, the Optionee's immediate family members), 6(h) and (i) and Section 7 hereof,
be subject to the same terms and conditions as the non-qualified options granted
under the Plan, and may be Rollover Options subject to Section 6(j) hereof;
provided, however, that no incentive stock option which is a Rollover Option
shall confer additional benefits (within the meaning of section 424(h)(3) of the
Code) upon the Optionee which the Optionee did not have under the UPC Stock
Option surrendered in exchange therefor. In addition, incentive stock options
shall be subject to the conditions of Sections 8(b), (c), (d) and (e).
(b) Limitation of Exercise. The aggregate fair market value (determined
as of the date the incentive stock option is granted) of the shares of stock
with respect to which incentive stock options are exercisable for the first time
by such Optionee during any calendar year, under this Plan or any other stock
option plans adopted by the Company, its
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Subsidiaries or any predecessor companies thereof, other than Rollover Options
issued in exchange for UPC Options which were exercisable by the Optionee at the
time of exchange, shall not exceed $100,000. If any incentive stock options
become exercisable in any year in excess of the $100,000 limitation, options
representing such excess shall become non-qualified options exercisable pursuant
to the terms of Section 6 hereof and shall not be exercisable as incentive stock
options.
(c) Termination of Employment. Upon the termination of an Optionee's
employment, for any reason other than death, his or her incentive stock option
shall be exercisable only as to those shares of Common Stock which were then
subject to the exercise of such option provided that (I) in the case of
disability as described below, any holding period required by Section 6(c) shall
automatically be deemed to be satisfied and (II) the Committee may determine
that particular limitations and restrictions under the Plan shall not apply, and
such option shall expire as an incentive stock option (but shall become a
non-qualified option exercisable pursuant to the terms of Section 6 hereof less
the period already elapsed under such Section), according to the following
schedule (unless the Committee shall provide for shorter periods at the time the
incentive stock option is granted):
(i) Retirement. An incentive stock option shall expire, unless
exercised, three (3) months after the Optionee's retirement from the
Company or any Subsidiary under the provisions of the Company's or a
Subsidiary's pension plan.
(ii) Disability. In the case of an Optionee who is disabled
within the meaning of section 22(e)(3) of the Code, an incentive stock
option shall expire, unless exercised, one (1) year after the earlier
of the date the Optionee terminates employment or the date the Optionee
is eligible to receive disability benefits under the provisions of the
Company's or a Subsidiary's long-term disability plan.
(iii) Gross Misconduct. An incentive stock option shall expire
upon receipt by the Optionee of the notice of termination if he or she
is terminated for deliberate, willful or gross misconduct as determined
by the Company.
(iv) All Other Terminations. An incentive stock option shall
expire, unless exercised, three (3) months after the date of such
termination.
(d) Death of Optionee. Upon the death of an Optionee during his or her
period of employment, the incentive stock option shall be exercisable as an
incentive stock option only as to those shares of Common Stock which were
subject to the exercise of such option at the time of death, provided that (I)
any holding period required by Section 6(c) shall automatically be deemed to be
satisfied, and (II) the Committee may determine that particular limitations and
restrictions under the Plan shall not apply, and such option shall expire,
unless exercised by the Optionee's legal representatives or heirs, five (5)
years after the date of death (unless the Committee shall provide for a shorter
period at the time the
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option is granted).
(e) Leave of Absence. A leave of absence, whether or not an Approved
Leave of Absence, shall be deemed a termination of employment for purposes of
Section 8.
In no event, however, shall any incentive stock option be
exercisable pursuant to Sections 8(c) or (d) subsequent to the tenth anniversary
of the date on which it was granted or, in the case of a Rollover Option, of the
date of grant of the UPC Stock Option(s) for which such Rollover Option was
exchanged.
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9. TERMS AND CONDITIONS OF AWARDS OF RETENTION STOCK
(a) General. Retention Shares (other than Rollover Retention Shares)
may be granted to reward the attainment of individual, Company or Subsidiary
goals, or to attract or retain officers or other employees of the Company or any
Subsidiary. With respect to each grant of Retention Shares under the Plan, the
Committee shall determine the period or periods, including any conditions for
determining such period or periods, during which the restrictions set forth in
Section 9(b) shall apply, provided that in no event, other than as provided in
Section 9(c), shall such restrictions terminate prior to 1 year after the date
of grant, except for Rollover Retention Shares, in which case such restrictions
shall not terminate prior to 3 years after the date of grant of the UPC
Retention Shares for which such Rollover Retention Shares are exchanged (the
"Restriction Period"), and may also specify any other terms or conditions to the
right of the Participant to receive such Retention Shares ("Vesting
Conditions"). Subject to Section 9(c) and any such Vesting Condition, a grant of
Retention Shares shall be effective for the Restriction Period and may not be
revoked.
(b) Restrictions. At the time of grant of Retention Shares to a
Participant, a certificate representing the number of shares of Common Stock
granted shall be registered in the Participant's name but shall be held by the
Company for his or her account. The Participant shall have the entire beneficial
ownership interest in, and all rights and privileges of a stockholder as to,
such Retention Shares, including the right to vote such Retention Shares and,
unless the Committee shall determine otherwise, the right to receive dividends
thereon, subject to the following: (i) subject to Section 9(c), the Participant
shall not be entitled to delivery of the stock certificate until the expiration
of the Restriction Period and the satisfaction of any Vesting Conditions; (ii)
none of the Retention Shares may be sold, transferred, assigned, pledged, or
otherwise encumbered or disposed of during the Restriction Period or prior to
the satisfaction of any Vesting Conditions; and (iii) all of the Retention
Shares shall be forfeited and all rights of the Participant to such Retention
Shares shall terminate without further obligation on the part of the Company
unless the Participant remains in the continuous employment of the Company or a
Subsidiary for the entire Restriction Period, except as provided by Sections
9(a) and 9(c),
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<PAGE>
and any applicable Vesting Conditions have been satisfied. Any shares of Common
Stock or other securities or property received as a result of a transaction
listed in Section 11 shall be subject to the same restrictions as such Retention
Shares unless the Committee shall determine otherwise.
(c) Termination of Employment.
(i) Disability and Retirement. Unless the Committee shall
determine otherwise at the time of grant of Retention Shares, if (A) a
Participant ceases to be an employee of the Company or a Subsidiary
prior to the end of a Restriction Period, by reason of disability under
the provisions of the Company's or a Subsidiary's long-term disability
plan or retirement under the provisions of the Company's or a
Subsidiary's pension plan either (i) at age 65 or (ii) prior to age 65
at the request of the Company or a Subsidiary, and (B) all Vesting
Conditions have been satisfied, the Retention Shares granted to such
Participant shall immediately vest and all restrictions applicable to
such shares shall lapse. A certificate for such shares shall be
delivered to the Participant in accordance with the provisions of
Section 9(d).
(ii) Death. Unless the Committee shall determine otherwise at
the time of grant of Retention Shares, if (A) a Participant ceases to
be an employee of the Company or a Subsidiary prior to the end of a
Restriction Period by reason of death, and (B) all Vesting Conditions
have been satisfied, the Retention Shares granted to such Participant
shall immediately vest in his or her Beneficiary, and all restrictions
applicable to such shares shall lapse. A certificate for such shares
shall be delivered to the Participant's Beneficiary in accordance with
the provisions of Section 9(d).
(iii) All Other Terminations. If a Participant ceases to be an
employee of the Company or a Subsidiary prior to the end of a
Restriction Period for any reason other than death, disability or
retirement as provided in Section 9(c)(i) and (ii), the Participant
shall immediately forfeit all Retention Shares then subject to the
restrictions of Section 9(b) in accordance with the provisions thereof,
except that the Committee may, if it finds that the circumstances in
the particular case so warrant, allow a Participant whose employment
has so terminated to retain any or all of the Retention Shares then
subject to the restrictions of Section 9(b) and all restrictions
applicable to such retained shares shall lapse. A certificate for such
retained shares shall be delivered to the Participant in accordance
with the provisions of Section 9(d).
(iv) Vesting Conditions. Unless the Committee shall determine
otherwise at the time of grant of Retention Shares, if a Participant
ceases to be an employee of the Company or a Subsidiary for any reason
prior to the satisfaction of any Vesting Condi tions, the Participant
shall immediately forfeit all Retention Shares then subject to the
restrictions of Section 9(b) in accordance with the provisions thereof,
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<PAGE>
except that the Committee may, if it finds that the circumstances in
the particular case so warrant, allow a Participant whose employment
has so terminated to retain any or all of the Retention Shares then
subject to the restrictions of Section 9(b) and all restrictions
applicable to such retained shares shall lapse. A certificate for such
retained shares shall be delivered to the Participant in accordance
with the provisions of Section 9(d).
(d) Payment of Retention Shares. At the end of the Restriction Period
and after all Vesting Conditions have been satisfied, or at such earlier time as
provided for in Section 9(c) or as the Committee, in its sole discretion, may
otherwise determine, all restrictions applicable to the Retention Shares shall
lapse, and a stock certificate for a number of shares of Common Stock equal to
the number of Retention Shares, free of all restrictions, shall be delivered to
the Participant or his or her Beneficiary, as the case may be. If an amount is
payable by a Participant to the Company or a Subsidiary under applicable
withholding tax laws in connection with the lapse of such restrictions, the
Committee, in its sole discretion, may permit the Participant to make such
payment, in whole or in part, by authorizing the Company to transfer to the
Company Retention Shares otherwise deliverable to the Participant having a fair
market value equal to the amount to be paid under such withholding tax laws.
(e) Rollover Retention Shares. Rollover Retention Shares may be granted
only in exchange for shares of UPC Retention Stock granted and subject to
restrictions under a UPC Plan and only during the period prior to 90 days after
UPC no longer owns at least 50% of the voting power of all of the shares of the
Company entitled to vote generally in the election of directors. Unless the
Committee shall determine otherwise in a specific case, the Rollover Retention
Shares shall, on the date of exchange, have the same value, as determined by the
Committee, as the shares of UPC surrendered in exchange for such Rollover
Retention Shares.
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10. REGULATORY APPROVALS AND LISTING
The Company shall not be required to issue to an Optionee, Participant or a
Beneficiary, as the case may be, any certificate for any shares of Common Stock
upon exercise of an option or for any Retention Shares granted under the Plan
prior to (i) the obtaining of any approval from any governmental agency which
the Company, in its sole discretion, shall determine to be necessary or
advisable, (ii) the admission of such shares to listing on any stock exchange on
which the Common Stock may then be listed, and (iii) the completion of any
registration or other qualification of such shares under any state or Federal
law or rulings or regulations of any governmental body which the Company, in its
sole discretion, shall determine to be necessary or advisable.
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<PAGE>
- - --------------------------------------------------------------------------------
11. ADJUSTMENT IN EVENT OF CHANGES IN CAPITALIZATION
In the event of a recapitalization, stock split, stock dividend, combination or
exchange of shares, merger, consolidation, rights offering, separation,
spin-off, reorganization or liquida tion, or any other change in the corporate
structure or shares of the Company, the Board, upon recommendation of the
Committee, may make such equitable adjustments as it may deem appropriate in the
number and kind of shares authorized by the Plan, in the option price of
outstanding Options, and in the number and kind of shares or other securities or
property subject to Options or covered by outstanding Awards.
- - --------------------------------------------------------------------------------
12. TERM OF THE PLAN
No Options or Retention Shares shall be granted pursuant to the Plan after
September 27, 2005 but grants of Options and Retention Shares theretofore
granted may extend beyond that date and the terms and conditions of the Plan
shall continue to apply thereto.
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13. TERMINATION OR AMENDMENT OF THE PLAN
The Board may at any time terminate the Plan with respect to any shares of
Common Stock not at that time subject to outstanding Options or Awards, and may
from time to time alter or amend the Plan or any part thereof (including, but
without limiting the generality of the foregoing, any amendment deemed necessary
to ensure that the Company may obtain any approval referred to in Section 10 or
to ensure that the grant of Options or Awards, the exercise of Options or
payment of Retention Shares or any other provision or the Plan complies with
Section 16(b) of the Act), provided that no change with respect to any Options
or Retention Shares theretofore granted may be made which would impair the
rights of an Optionee or Participant without the consent of such Optionee or
Participant and, further, that without the approval of stockholders, no
alteration or amendment may be made which would (i) increase the maximum number
of shares of Common Stock subject to the Plan as set forth in Section 5 (except
by operation of Section 11), (ii) extend the term of the Plan, (iii) change the
class of eligible persons who may receive Options or Awards of Retention Shares
under the Plan or (iv) increase the limitation set forth in Section 5 on the
maximum number of shares that any Participant may receive under the Plan.
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<PAGE>
14. LEAVE OF ABSENCE
Unless the Committee shall determine otherwise, a leave of absence other than an
Approved Leave of Absence shall be deemed a termination of employment for
purposes of the Plan. An Approved Leave of Absence shall not be deemed a
termination of employment for purposes of the Plan (except for purposes of
Section 8), but the period of such Leave of Absence shall not be counted toward
satisfaction of any Restriction Period or any holding period described in
Section 6(c).
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15. GENERAL PROVISIONS
(a) Neither the Plan nor the grant of any Option or Award nor any
action by the Company, any Subsidiary or the Committee shall be held or
construed to confer upon any person any right to be continued in the employ of
the Company or a Subsidiary. The Company and each Subsidiary expressly reserve
the right to discharge, without liability but subject to his or her rights under
the Plan, any Optionee or Participant whenever in the sole discretion of the
Company or a Subsidiary, as the case may be, its interest may so require.
(b) All questions pertaining to the construction, regulation, validity
and effect of the Plan shall be determined in accordance with the laws of the
State of Utah, without regard to conflict of laws doctrine.
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16. EFFECTIVE DATE
The Plan shall become effective June 1, 1997, upon prior approval of the
stockholders of the Company. All Options and Awards granted under the Plan as
written prior to June 1, 1997 shall be subject to the terms and conditions of
such prior Plan and grant; provided, however, that an officer of the Company may
transfer exercisable Options and Rollover Options, granted to him or her prior
to June 1, 1997, to or for the benefit of immediate family members pursuant to
Section 6(g).
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Appendix B
EXECUTIVE INCENTIVE PLAN
OF
UNION PACIFIC RESOURCES GROUP INC.
AND SUBSIDIARIES
-----------------------------
Amended and Restated
Effective June 1, 1997
<PAGE>
EXECUTIVE INCENTIVE PLAN OF UNION PACIFIC RESOURCES GROUP INC.
AND SUBSIDIARIES
Amended and Restated
Effective June 1, 1997
- - --------------------------------------------------------------------------------
PURPOSE OF PLAN
The Committee establishes this Plan and the performance of goals hereunder for
the purpose of promoting the success of Union Pacific Resources Group Inc. and
Subsidiaries by providing the incentive of additional compensation for services
rendered during any year by key executives who contribute in a significant
manner to the operations and business of the Company and such Subsidiaries.
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1. DEFINITIONS
Section 1.01. The following terms shall have the following meanings:
"Accountholder" means any person who has received a Deferred Award.
"Beneficiary" means any person or persons designated in writing by an
Accountholder to the Committee on a form prescribed by it for that purpose,
which designation shall be revocable at any time by the Accountholder prior to
his or her death, provided that, in the absence of such a designation or the
failure of the person or persons so designated to survive the Accountholder,
payments or distributions shall be made to the Accountholder's estate and
provided further that no payment or distribution shall be made during the
lifetime of the Accountholder to his or her Beneficiary.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, or the corresponding
provisions of any successor statute.
"Committee" means the Committee provided for in Section 2.01.
"Company" means Union Pacific Resources Group Inc., a Utah corporation, or any
successor corporation.
"Company Stock" means Common Stock of the Company.
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<PAGE>
"Deferred Award" means an award under the Plan which an Executive to whom the
award is made shall have elected to defer in accordance with Section 4.01 and
which until paid shall, subject to paragraph (1) of Section 7.01, be represented
by Investment Accounts maintained for such Executive in accordance with Section
5.01.
"Executive" means the Chairman of the Board and any person who was a regular
employee of the Company or a Subsidiary (including directors who are also such
employees) for all or part of the Year in respect of which awards are made under
the Plan and who, in the judgment of the Committee, contributed in a significant
manner to the operations and business of the Company or a Subsidiary for such
Year.
"Immediate Cash Award" means an award under the Plan payable in cash pursuant to
Section 4.02 as promptly as practicable after the close of the Year for which
the award is made or, in the sole discretion of the Committee, in December of
the year for which the award is made.
"Incentive Reserve Account" means the account established by the Company
pursuant to Section 3.01.
"Investment Account" means one of the accounts established by the Company
pursuant to Section 5.01.
"Plan" means this Executive Incentive Plan as amended from time to time.
"Prior Plan" means the Plan as written prior to June 1,1997. All awards made
under the Prior Plan shall remain subject to the terms and conditions of the
Prior Plan unless otherwise provided herein.
"Subsidiary" means any corporation of which the Company owns directly or
indirectly at least a majority of the outstanding shares of voting stock and
which by action of its board of directors has adopted the Plan.
"Termination" means termination of employment with the Company and its
Subsidiaries, for any reason, including retirement and death.
"Undue Hardship" means a severe financial hardship to the Executive resulting
from a sudden and unexpected illness or accident of the Executive or of a
dependent (as defined in Code section 152(a)) of the Executive, loss of the
Executive's property due to casualty, or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the control of
the Executive. The circumstances that will constitute an Undue Hardship will
depend upon the facts of each case, but, in any case, payment may not be made
to the extent that such hardship is or may be relieved through reimbursement or
compensation by insurance or otherwise, by liquidation of the Executive's
assets, to the
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<PAGE>
extent the liquidation of such assets would not itself cause severe financial
hardship, or by cessation of deferrals under the Plan. An Undue Hardship shall
not include the need to send an Executive's child to college or the desire to
purchase a home.
"Valuation Date" means the last business day of each calendar quarter and each
other interim date on which the Committee determines that a valuation of
Investment Accounts shall be made.
"Year" means a calendar year.
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2. ADMINISTRATION OF THE PLAN
Section 2.01. The Plan shall be administered by a Committee which shall consist
of at least three members designated by the Board to serve at its pleasure. Such
members shall be members of the Board and shall not be officers or employees of
the Company or any Subsidiary. The Committee shall determine the Executives to
whom awards are granted under the Plan and the amounts of awards payable to such
Executives out of the Incentive Reserve Account, and shall otherwise be
responsible for the administration and interpretation of the Plan. The Committee
shall supervise and be responsible for the maintenance of the various accounts
under the Plan and for determining the amounts and, subject to Sections 4.02 and
6.01, the times of payments or distributions of awards. The Committee may
delegate its authority under the Plan to one or more officers or employees of
the Company or a Subsidiary. All determinations of the Committee shall be by a
majority of its members, and its determinations shall be final. Each member of
the Committee, while serving as such, shall be considered to be acting in his or
her capacity as a Director of the Company. Notwithstanding the foregoing, the
Plan shall at all times be administered in a manner consistent to meet the
requirements of Section 162(m) of the Code.
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3. INCENTIVE RESERVE ACCOUNT
Section 3.01. The Company shall establish an Incentive Reserve Account to which
amounts available for awards to Executives shall be credited and which shall be
debited as such awards are made by the Committee. The Board may cause to be
credited to such Incentive Reserve Account such amount for each Year, beginning
with 1995, during which the Plan remains in effect as it, in its discretion, may
determine provided that the amount so credited for any Year shall not exceed the
following limitation: The maximum amount that may be credited to the Incentive
Reserve Account for any Year is 0.25% of earnings before interest, taxes,
depreciation, depletion and amortization and expensed exploration costs
excluding exploration overhead
4
<PAGE>
("Incentive Income") when the Incentive Income Return on Average Annual Assets
("Incentive Return") is 16.0%, and 0.5% of Incentive Income when the Incentive
Return is 20.0% or more. At intermediate levels of Incentive Return (between
16.0% and 20.0%), the maximum percentage of Incentive Income that may be
credited to the Incentive Reserve Account will increase 0.0125% for each
incremental 0.2% increase in the Incentive Return. Average Annual Assets is
calculated as the average of (i) total assets as shown on the consolidated
financial statements of the Company at the beginning of each year and (ii) total
assets as shown on the consolidated financial statements of the Company at the
end of such year. Incentive Income is determined in accordance with generally
accepted accounting principles, before giving effect to provision for amounts to
be credited to the Incentive Reserve Account. Incentive Income excludes results
of discontinued operations and the cumulative effects of changes in accounting
principles. The amount of Incentive Income and the Incentive Return shall be
computed and reported to the Board and the Committee at the end of each Year by
the Company. The Committee shall certify to the Board, based upon a report from
the Company's independent certified public accountants stating that the
computation of the amount credited to the Incentive Reserve Account at the end
of the Plan Year was made in accordance with the provisions of the Plan and
their report shall be final and binding. Any amounts credited to the Incentive
Reserve Account which are not awarded with respect to such Year may, on
direction of the Committee, be awarded in future Years during which the Plan
remains in effect. An initial credit of $3.5 million shall be made to the
Incentive Reserve Account on the effective date of this Plan.
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4. AWARDS UNDER THE PLAN
Section 4.01. At least 90 days prior to the grant of an award, but in no event
later than the close of the year with respect to which an award is to be made
(the "Election Deadline"), an Executive shall file with the Committee an
election on a form prescribed by the Committee for such purpose specifying the
percent in multiples of 10% of any award which may be granted to him or her with
respect to such Year and later Years to be in the form of an Immediate Cash
Award or a Deferred Award in one or more Investment Accounts. Deferral and
investment elections shall be continuing elections for all awards under the Plan
except that:
(i) Deferral elections shall be subject to change on or before the
Election Deadline on a form prescribed by the Committee for such
purpose with respect to any awards which may be granted to him or her
for such Year and later Years; and
(ii) an Accountholder, whether or not currently employed by the Company
or a Subsidiary, may elect to convert, in multiples of 10%, the value
of his or her account, if any, in any Investment Account to equivalent
value accounts in any other Investment Accounts as of a Valuation Date,
provided that the Committee has received such notice of the conversion
as the Committee may require, and provided further that, unless the
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<PAGE>
Committee shall in its sole discretion determine otherwise, an
Accountholder may make conversions only in such amounts and at such
times as are allowable for changes in investment elections under the
terms of the Union Pacific Resources Company Employees' Thrift Plan.
The Committee shall cause such conversions to be effected by
transferring equivalent amounts from the one such account to the other,
all as of such Valuation Date; otherwise, such deferral and investment
elections, and such changes therein, shall be irrevocable.
In addition, an Executive may also specify on a form prescribed by the Committee
for such purpose whether he or she wishes payment of Deferred Awards to be made
on the earlier of either (i) date or dates certain in any year or years prior to
Termination (but in no event more often than once in each such year or years),
such payment to be in full in cash on such date or dates, or (ii) upon
Termination in accordance with the provisions of Sections 6.01 through 6.04.
Elections made as to dates for the payment of Deferred Awards shall be subject
to change by such Executive on or before the Election Deadline on a form
prescribed by the Committee for such purpose with respect to any awards made for
such Year and later Years; otherwise such elections, and such changes therein,
shall be irrevocable.
Designation, election or change in election shall not entitle an Executive to
any award for any Year but the form of award, if any, for any Year to such
Executive shall be in accordance with such election. If an Executive has not
been so designated as eligible for Deferred Awards, or an election for Deferred
Awards is not in effect for him, any award granted to him or her for any Year
shall be in the form of an Immediate Cash Award.
Section 4.02. As soon as practicable after the close of each Year, or in
December of any Year if so determined by the Committee, the Committee may grant
awards payable out of the Incentive Reserve Account to such Executives in such
dollar amounts as it in its sole discretion shall determine, subject to Section
4.03, and the amount of each such award shall be debited to the Incentive
Reserve Account. Except to the extent that Deferred Awards are elected pursuant
to Section 4.01, any award under the Plan granted to an Executive for any Year
shall be paid to him or her or to his or her Beneficiary in a lump sum in cash
as promptly as practicable after such award is granted.
Section 4.03. No Covered Executive shall receive an award for any Year in excess
of (i) .125% of Covered Incentive Income for such Year, in the case of the Chief
Executive Officer of the Company, or (ii) 0.0625% of Covered Incentive Income
for such Year, in the case of any other Covered Executive. Covered Executive
means an Executive whose compensation is subject to the limitations on
deductibility set forth in Section 162(m) of the Code. Covered Incentive Income
for a Year is the greater of (a) Incentive Income for such Year or (b) such
Incentive Income for the first eleven months of such Year. The .125% and 0.0625%
limitations (the "Percentage Limitations") shall be adjusted annually to reflect
changes in the Consumer Price Index for all Urban Consumers (U.S. City Average
for All Items); provided, however, that the Percentage Limitations, as so
adjusted, shall never fall outside the following ranges: 0.125% -
6
<PAGE>
0.25% for the Chief Executive Officer of the Company and 0.0625% - 0.125% for
any other Covered Executive.
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5. DEFERRED AWARDS
Section 5.01. (1) The Company shall from time to time establish on its books one
or more Investment Accounts. In the case of each Executive, if and when a
Deferred Award is granted to him, the Committee shall credit to an account
maintained for him or her in one or more Investment Accounts the equivalent
amount of such award in accordance with his or her election. Each Investment
Account shall have such name, and be charged or credited pursuant to such
method, as the Committee shall determine upon establishment of such Investment
Account, provided such method is consistent with the requirements of Section
162(m) of the Code for performance-based compensation. The Committee may change
such names or methods for any Investment Account, but no such change shall
reduce any amount previously accrued in an Accountholder's account. The
Committee shall cause each Investment Account to be valued as of each Valuation
Date by such person or persons as it in its sole discretion shall determine and
such valuation shall be conclusive for all purposes of the Plan. The value of
any Investment Account for the purpose of making payment of a Deferred Award
shall be the value of such Investment Account as of the Valuation Date last
preceding such payment. Compensation paid in respect of any Investment Account
shall result in corresponding reduction in the value of such accounts. The
amounts credited in Investment Accounts shall represent general liabilities of
the Company and shall not constitute a trust fund or otherwise create any
property interest in any Accountholder or his or her Beneficiary.
(2) The Plan will accept a transfer of an Investment Account
from the Executive Incentive Plan of Union Pacific Corporation and Subsidiaries
(the "UP EIP") of an Executive or his or her Beneficiary who was an
Accountholder under the UP EIP. The Plan will assign each transferred Investment
Account to a like investment option as that investment option which had been
elected under the UP EIP. Such amount shall be subject to the terms and
conditions of this Plan.
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6. PAYMENT OR DELIVERY OF DEFERRED AWARDS
Section 6.01. Upon Termination of an Executive, the Committee shall cause cash
in respect of any balances in the accounts maintained for such Executive in any
Investment Account to be paid or delivered to him or her or his or her
Beneficiary in the sole discretion of the Committee as follows:
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<PAGE>
(i) in a single distribution, an amount in cash equal to the
value of the accounts maintained for him or her in all Investment Accounts, all
such cash being paid in the Year of his or her Termination or in January of the
following Year, as determined by the Committee; or
(ii) over such number of Years as are fixed by the Committee
but not exceeding fifteen, in annual installments of an aggregate amount of cash
equal in value at the time of each installment payment to the value of the
accounts maintained for him or her in all Investment Accounts at the Valuation
Date next preceding payment divided by the remaining number of such annual
installments, the first of such installments to be paid or delivered in the
month following the month of his or her termination, or at the discretion of the
Committee not later than 12 months following the date of Termination and
subsequent installments to be paid or delivered in January of each subsequent
Year; or
(iii) in the event of retirement or death of a currently
employed Executive, at a specified future date not to exceed 15 years from the
date of such retirement or death in a single distribution, an amount of cash
equal to the value of the accounts maintained for him or her in all Investment
Accounts. Income in respect of Investment Accounts would be paid in cash
quarterly to such Executive or his or her Beneficiary commencing with the first
day of the month subsequent to such Executive's retirement or death. In the case
of retirement, the single distribution referred to above will be paid on the
date specified or upon death, whichever occurs first.
All payments or distributions attributable to each Deferred Award of an
Executive after his or her Termination shall be made by the Company on its
behalf or on behalf of the Subsidiary or Subsidiaries by which he or she was
employed during the Year in which such Deferred Award was earned. The Subsidiary
shall reimburse the Company in the amount of such paid Deferred Awards.
Section 6.02. Deferred Awards elected to be paid on a date or dates certain in
any year or years prior to Termination shall be paid to the Executive in full in
cash on such date or dates.
Section 6.03. At any time before or after Termination of an Executive who shall
have elected to receive one or more Deferred Awards, the Committee, if it finds
in its sole discretion that continued deferral of such Awards would result in
undue hardship to such Executive or his or her Beneficiary, may accelerate and
pay in cash all or any part of such Deferred Award or Deferred Awards by
converting the value of the accounts maintained for him or her in Investment
Accounts into the cash equivalent thereof on the same basis as if a payment in
cash were being made as provided in Section 6.01. On the death of an Executive
after his or her Termination, the Committee, in its sole discretion, may
accelerate one or more installments, and change the form of payment or
distribution in accordance with Section 6.01, of any balance of his or her
Deferred Awards and, in the event of relevant changes in the Federal income tax
laws, regulations and rulings or on termination of the Plan, the Committee may,
in its sole discretion, so accelerate or change the form of payment or
distribution of any or all Deferred Awards.
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<PAGE>
Section 6.04. The provisions of Sections 6.01, 6.02, and 6.03 shall be subject
to provisions to paragraph (1) of Section 7.01.
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7. GENERAL PROVISIONS
Section 7.01. (1) Anything in the Plan otherwise to the contrary
notwithstanding, the Board may at any time under such circumstances as it in its
sole discretion may determine, convert all the accounts of Accountholders in the
Investment Accounts into cash credits, with future credits to the accounts of
Accountholders being made solely in cash. Accounts shall be so converted on the
basis of the value thereof as of the last preceding Valuation Date. Any such
cash credits to the accounts of Accountholders shall, after such conversion,
solely bear interest until paid to the Accountholder or his or her Beneficiary
compounded annually at such annual rate of interest as may be fixed by the
Board. The granting and payment of Deferred Awards in respect of such cash
credits shall otherwise be in accordance with the other provisions of the Plan
with such adjustments therein as the Committee may deem appropriate.
(2) Neither the Plan nor the payment of benefits hereunder nor
any action by the Company, any Subsidiary or the Committee shall be held or
construed to confer upon any person any right to be continued in the employ of
the Company or of a Subsidiary and the Company and each Subsidiary expressly
reserves the right to discharge, without liability, any Executive whenever in
its sole discretion its interest may so require.
(3) No member of the Board or the Board of Directors of any
Subsidiary or of the Committee or any person to whom the Committee has delegated
its authority hereunder shall be liable for any action, or action hereunder,
whether of commission or omission, except in circumstances involving his or her
bad faith, for anything done or omitted to be done by himself.
(4) The Company or any Subsidiary shall not be required to
segregate cash for any Investment Account.
(5) Notwithstanding the fact that an Investment Account may
use Company Stock to determine amounts credited or debited thereto, no Executive
shall have voting or other rights with respect to shares of such Company Stock.
(6) The Company or any Subsidiary shall not, by virtue of any
provisions of this Plan or by any action by any person hereunder, be deemed to
be a trustee or other fiduciary of any property for any Accountholder or any
Beneficiary of an Accountholder and the liabilities of the Company or of any
Subsidiary to any Accountholder or his or her Beneficiary pursuant to the Plan
shall be those of a debtor only pursuant to such contractual obligations as are
created by the Plan, and no such obligation of the Company or of any Subsidiary
shall be deemed to be secured by any pledge or other encumbrance on any property
of the Company or of any Subsidiary.
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<PAGE>
(7) Except to the extent of the rights of the Beneficiary of
an Accountholder, no benefit payable under, or interest in, the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and any such attempted action shall be void; and
no such benefit or interest shall be in any manner liable for or subject to the
debts, contracts, liabilities, engagements or torts of any Accountholder, former
Accountholder or his or her Beneficiary. If any Accountholder, former
Accountholder or Beneficiary shall become bankrupt or shall attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any
benefit payable under, or interest in, the Plan, then the Committee in its
discretion may hold or apply such benefit or interest or any part thereof to or
for the benefit of such Accountholder, former Accountholder, or his or her
Beneficiary, his or her spouse, children, blood relatives or other dependents,
or any of them, in such manner and in such proportions as the Committee may
consider proper.
(8) The Company shall on its behalf and on behalf of its
Subsidiaries withhold from payment of distribution of the Awards the required
amounts of income and other taxes.
(9) No member of the Committee shall be eligible for an award
under the Plan.
(10) All questions pertaining to the construction, regulation,
validity and effect of the Plan shall be determined in accordance with the laws
of the State of Texas.
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8. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
Section 8.01. The Board may from time to time amend, suspend or terminate the
Plan in whole or in part, and, if suspended or terminated, may reinstate any of
or all of its provisions, except that without the consent of the Executive, or,
if he or she is not living, his or her Beneficiary, no amendment, suspension or
termination of the Plan shall be made which materially adversely affects his or
her rights with respect to awards previously made to him or her and except that
the limitations set forth in Section 3.01 with respect to the amount of awards
which may be granted under the Plan may be increased only with the approval of a
majority of the stockholders of the Company present, in person or by proxy, at a
meeting of such stockholders at which a quorum is present. In the absence of
action by the stockholders of the Company, no awards shall be made under the
Plan with respect to years after the calendar year 2005 and the Plan shall
automatically terminate after all Deferred Awards made prior thereto shall have
been paid or distributed. Notwithstanding the foregoing, no amendment which is
material for purposes of the shareholder approval requirement of Section 162(m)
of the Code shall be effective in the absence of action by the stockholders of
the Company.
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Appendix C
UNION PACIFIC RESOURCES GROUP INC.
1995 DIRECTORS STOCK OPTION PLAN
--------------------------------
(amended and restated effective March 5, 1997)
The purposes of the Union Pacific Resources Group Inc. 1995 Directors Stock
Option Plan, as amended and restated effective March 5, 1997, (the "Plan") are
to foster and promote the long term financial success of Union Pacific Resources
Group Inc. (the "Company") by (a) attracting and retaining directors who are not
employees of the Company or any of its subsidiaries ("Non-Employee Directors")
of outstanding ability by providing for the grant of nonqualified stock options;
(b) providing Non-Employee Directors with compensation opportunities which are
competitive with other corporations; and (c) enabling such Directors to
participate in such financial success of the Company by encouraging them to
become owners of the common stock of the Company. The Company believes that the
Plan will cause the participants to contribute materially to the growth of the
Company, thereby benefitting the Company's stockholders, and will align the
economic interests of the participants with those of the stockholders.
1. Administration.
Administration of this Plan is intended to be self-executing in
accordance with the express terms and conditions of the Plan. However,
to the extent that determinations are required with respect to matters
under the Plan, such determinations shall be made by the Compensation
and Corporate Governance Committee (the "Committee") consisting of not
less than three persons appointed by the Board of Directors of the
Company. Subject to the foregoing, the Committee's interpretations of
the Plan, including factual determinations and all determinations made
by the Committee pursuant to the powers vested in it hereunder shall be
conclusive and binding.
2. Eligibility for Participation.
Only Non-Employee Directors shall be eligible to participate in the
Plan ("Participants").
3. Grants.
Incentives under the Plan shall consist of nonqualified stock options
("Grants"). All Grants shall be subject to the terms and conditions set
forth herein and to those other terms and conditions consistent with
this Plan as the Committee deems appropriate and as are specified in
writing by the Committee to the Participant (the "Grant Letter"). The
Committee shall approve the form and provisions of each Grant Letter to
each Participant; provided, however, that Grants to Participants shall
be made only in accordance with the provisions of Section 5.
4. Shares Subject to the Plan.
(a) Subject to the adjustment specified below, the aggregate number of
shares of
<PAGE>
common stock of the Company ("Company Stock") that have been or may
be issued or transferred under the Plan is 1,000,000 shares. The
shares may be authorized but unissued shares of Company Stock or
reacquired shares of Company Stock, including shares repurchased by
the Company on the open market. If and to the extent options
granted under the Plan terminate, expire, or are canceled without
having been exercised, the shares subject to such option shall
again be available for purposes of the Plan.
(b) In the event of a recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation, rights
offering, separation, spin-off, reorganization or liquidation, or
any other change in the corporate structure or shares of the
Company, the Board, upon recommendation of the Committee, shall
make such equitable adjustments as it may deem appropriate in the
number and kind of shares authorized by the Plan, in the option
price of outstanding Grants, and in the number and kind of shares
or other securities or property subject to Grants or covered by
outstanding Grants.
5. Grants to Participants.
(a) Number of Shares.
(i) Initial Grant -- Each Non-Employee Director who is a
Participant as of March 5, 1997, (the "Date of Initial Grant")
shall receive a Grant to purchase 52,000 shares of Company
stock.
(ii) Subsequent Grants -- Each Non-Employee Director who becomes a
Participant subsequent to the Date of Initial Grant shall
receive as of the date he or she is elected to the Board (the
"Date of Subsequent Grant"), a Grant to purchase shares of
Company Stock in an amount equal to the product (rounded to
the nearest full share) of 52,000 shares multiplied by a
fraction. The numerator of the fraction shall be the lesser
number of years (including partial years) between the
Participant's Date of Subsequent Grant and (A) March 5, 2007,
or (B) the date the Non-Employee Director would be required to
retire from the Board in accordance with the Company's
retirement policy for Directors. The denominator of the
fraction shall be 10. The number of years in the numerator
shall be determined by counting the number of full and partial
12-month periods between the Participant's Date of Subsequent
Grant and the relevant date in (A) or (B), with any partial
12-month period determined by rounding any partial month to a
full month.
(iii) Date of Grant -- With respect to a Grant made to an
individual Participant, the date as of which such Grant was
made shall, for purposes of this Plan, be considered the
Participant's "Date of Grant".
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<PAGE>
(b) Option Price and Option Exercise Period. The purchase price of
Company Stock subject to such Grants shall be the fair market value
of a share of such stock as of the Participant's Date of Grant (the
"Option Price"). The "fair market value" of Company Stock shall be
the average of the high and low trading prices of a share of
Company Stock on that date as reported in The Wall Street Journal
listing for consolidated trading for New York Stock Exchange
issues. Each Grant shall have an exercise period commencing with
the Participant's Date of Grant and ending with March 5, 2008 (the
"Option Exercise Period").
(c) Vesting of Options.
(i) (A) With respect to Participants who received options on the
Date of Initial Grant, their Grants shall vest (and the
options thereunder shall become exercisable) at the rate
of 5,200 shares per year, commencing with the first
anniversary of the Initial Date of Grant.
(B) With respect to a Participant who received options on a
Date of Subsequent Grant, the Grant shall vest (and the
options thereunder shall become exercisable) as follows:
The first vesting date with respect to such Grant shall
be the second March 5th following the Participant's Date
of Subsequent Grant and, on such date, the Participant
shall be entitled to exercise options on the following
number of shares: the sum of (I) 5,200 plus (II) the
product (rounded to full shares) of 433.33 shares
multiplied by the number of months (rounding any partial
month to a full month) between his or her Date of
Subsequent Grant and the March 5th immediately following
his or her Date of Subsequent Grant. Thereafter, on each
March 5th subsequent to the Participant's first vesting
date, the Participant's Grant shall vest at the rate of
5,200 shares per year.
(ii) Notwithstanding (c)(i), the following special exceptions shall
apply: A Participant's Grant shall immediately vest (and the
options thereunder shall become exercisable) if any of the
following occurs while the Participant is a member of the
Board: the Participant dies, the Participant suffers a major
disability which results in his or her departure or removal
from the Board, the Company undergoes a change of control (as
defined in the Participant's Grant Letter), or the Participant
is required to retire from the Board in accordance with the
Company's retirement policy for directors.
(d) Manner of Exercise. A Participant may exercise a Grant by
delivering a notice
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<PAGE>
of exercise to the Secretary of the Company with accompanying
payment of the Option Price. Such notice may instruct the Company
to deliver shares of Company Stock due upon the exercise of the
Grant to any registered broker or dealer designated by the grantee
("Designated Broker") in lieu of delivery to the grantee. Such
instruction must designate the account into which the shares are to
be deposited.
(e) Satisfaction of Option Price. A Participant shall pay the Option
Price in cash or previously acquired Company Stock. Shares of
Company Stock shall not be issued or transferred upon exercise of a
Grant until the Option Price is fully paid.
(f) Termination of Relationship With the Company or Death.
(i) In the event a Participant ceases to serve as a Non-Employee
Director for any reason other than death or major disability,
any Grant made pursuant to this Section which is otherwise
exercisable by the Participant shall terminate, unless
exercised within 180 days (or, if the Participant is required
to retire from the Board in accordance with the Company's
retirement policy for Directors, five years) of the date on
which the Participant ceases to serve as a Non-Employee
Director, but in any event no later than the date of
expiration of the Option Exercise Period. All other Grants
shall be immediately forfeited.
(ii) In the event of the death or major disability of the
Participant while serving as a Non-Employee Director, any
Grant made pursuant to this Section which was otherwise
exercisable by the Participant at the date of death or major
disability may be exercised by the individual's personal
representative at any time prior to the expiration of five
years from the date of death or major disability, but in any
event no later than the date of expiration of the Option
Exercise Period. In the event of the death of the Participant
after the date on which the individual ceases to be a Non-
Employee Director, any Grant made pursuant to this Section
which was otherwise exercisable by the Participant at the date
of death may be exercised by the individual's personal
representative at any time prior to the expiration of the
remainder of the applicable period set forth in Section
5(f)(i) above.
(iii) In the event a Participant suffers a major disability which
results in his or her departure or removal from the Board, any
Grant made pursuant to this Section which was otherwise
exercisable by the Participant at the date of such disability
may be exercised by the Participant (or, if the Participant is
not legally competent, by his or her personal representative)
at any time prior to the expiration of five years from the
date of such disability, but in
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<PAGE>
any event no later than the date of expiration of the Option
Exercise Period. In the event the Participant suffers a major
disability after the date on which the individual ceases to be
a Non-Employee Director, any Grant made pursuant to this
Section which was otherwise exercisable by the Participant at
the date of such disability may be exercisable by the
Participant (or, if the Participant is not legally competent,
by his or her personal representative) at any time prior to
the expiration of the remainder of the applicable period set
forth in Section 5(f)(i) above.
6. Transferability of Options.
Only a Participant or the Participant's authorized legal representative
may exercise rights under a Grant. Such persons may not transfer those
rights except by will or by the laws of descent and distribution or, if
permitted under Rule 16b-3 of the Exchange Act and if permitted in any
specific case by the Committee in their sole discretion, pursuant to a
domestic relations order as defined under the Code or Title I of ERISA
or the regulations thereunder. When a Participant dies, the personal
representative or other person entitled to succeed to the rights of the
Participant (a "Successor Grantee") may exercise such rights. A
Successor Grantee must furnish proof satisfactory to the Company of his
or her right to receive the Grant under the Participant`s will or under
the applicable laws of descent and distribution. Notwithstanding the
foregoing, a Participant shall be permitted to transfer a Grant of
options (whether or not then exercisable) to (a) any member or members
of his or her immediate family (spouse, children or grandchildren,
including step and adopted children and grandchildren), (b) a trust,
the beneficiaries of which consist exclusively of members of the
Participant's immediate family, (c) a partnership, the partners of
which consist exclusively of the Participant's immediate family, or (d)
any similar entity created for the exclusive benefit of the
Participant's immediate family. For purposes of the preceding sentence,
any remote, contingent interests of persons other than members of the
Participant's immediate family shall be disregarded. The Committee or
its designee must approve the form of any transfer of a Grant to or for
the benefit of any immediate family member or members before such
transfer shall be recognized as valid hereunder.
7. Amendment and Termination of the Plan.
(a) Amendment. The Board of Directors of the Company, by written
resolution, may amend or terminate the Plan at any time; provided,
however, that the Board of Directors shall not amend the Plan
without the approval of the stockholders of the Company, if such
amendment would cause the Plan or any Grant, or the
(b) Termination of Plan. The Plan shall terminate on March 5, 2008,
unless
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<PAGE>
terminated earlier by the Board of Directors of the Company
or unless extended by the Board.
(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the Plan that occurs after a Grant is made shall not
result in the termination or amendment of the Grant unless the
grantee consents or unless the Committee acts under Section 13(a).
The termination of the Plan shall not impair the power and
authority of the Committee with respect to an outstanding Grant.
Whether or not the Plan has terminated, an outstanding Grant may be
terminated or amended under Section 13(a) or may be amended by
agreement of the Company and the grantee consistent with the Plan.
8. Funding of the Plan.
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation
of assets to assure the payment of any Grants under this Plan. In no
event shall interest be paid or accrued on any Grant, including unpaid
installments of Grants.
9. Rights of Non-Employee Directors.
Nothing in this Plan shall entitle any individual or other person to
any claim or right to a Grant under this Plan. Neither this Plan nor
any action taken hereunder shall be construed as giving any individual
any rights to be retained by or in the employ of the Company.
10. Requirements for Issuance of Shares.
No Company Stock shall be issued or transferred upon exercise of any
Grant hereunder unless and until all legal requirements applicable to
the issuance or transfer of such Company Stock have been complied with
to the satisfaction of the Committee. The Committee shall have the
right to condition any Grant made to any Non-Employee Director
hereunder on such Director's undertaking in writing to comply with such
restrictions on subsequent disposition of such shares of Company Stock
as the Committee shall deem necessary or advisable as a result of any
applicable law, regulation or official interpretation thereof, and
certificates representing such shares may be legended to reflect any
such restrictions.
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<PAGE>
11. Headings.
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the
Section shall control.
12. Effective Date.
Subject to the approval of the Company's stockholders, this Plan shall
be effective as of March 5, 1997 (the "Effective Date"). All Grants
issued under the Plan as written prior to the Effective Date shall
remain subject to the terms and conditions of such prior Plan;
provided, however, that options covered by Grants under such prior Plan
may be transferred to or for the benefit of the optionee's immediate
family members pursuant to Section 6.
13. Miscellaneous.
(a) Compliance with Law. The Plan, the exercise of Grants and the
obligations of the Company to issue or transfer shares of Company
Stock under Grants shall be subject to all applicable laws and to
approvals by a governmental or regulatory agency as may be
required. With respect to persons subject to Section 16 of the
Exchange Act, it is the intent of the Company that the Plan and all
transactions under the Plan comply with all applicable provisions
of Rule 16b-3 or its successors under the Exchange Act. The
Committee may revoke any Grant if it is contrary to law or modify a
Grant to bring it into compliance with any valid and mandatory
government regulation. The Committee may, in its sole discretion,
agree to limit its authority under this Section.
(b) Ownership of Stock. A grantee or Successor Grantee shall have no
rights as a stockholder with respect to any shares of Company Stock
covered by a Grant until the shares are issued or transferred to
the grantee or Successor Grantee on the stock transfer records of
the Company.
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