<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. __)
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
UNION PACIFIC RESOURCES GROUP INC.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[LOGO]
UNION PACIFIC RESOURCES GROUP INC.
- --------------------------------------------------------------------------------
JACK L. MESSMAN
Chairman and Chief Executive Officer
March 26, 1998
Dear Shareholders:
Union Pacific Resources achieved outstanding results in a number of areas
in 1997. In our first full year as an independent public company, the Company's
discretionary cash flow increased by 18% to $1,226 million, producing property
sales volumes increased by 10% over 1996 levels, net income increased by 4% to
$333 million, percentage of production replacement increased to 199% of 1997
production, and oil and gas reserves increased by 17%. For the sixth consecutive
year, Union Pacific Resources was the number one driller in the United States.
Although it was a record year for the Company in 1997, our achievements
were not reflected in the stock price. In the fourth quarter, commodity prices
began to fall to levels not seen for the last four years causing energy industry
stock prices to decline. Prior to the fourth quarter, our stock was stalled due
to uncertainty surrounding our five month public effort to acquire Pennzoil
Company.
In January, we announced the acquisition of Norcen Energy Resources
Limited, a premier exploration and production company with operations in western
Canada, the Gulf of Mexico, Guatemala and South America. We closed the
transaction in early March.
The benefits of the Norcen acquisition are very significant. The combined
company will create a North American mega-independent with significant
international opportunities. The Norcen properties fit well with our North
American drillsite strategy and create new core areas. In addition, Norcen
generally owns high working interests and operates a high percentage of its
properties, thereby enabling us to apply our business model.
Our focus for 1998 will be on increasing shareholder value by increasing
producing property sales volumes, replacing production, assimilating Norcen into
our operations, and deleveraging our balance sheet with asset sales. We look
forward to meeting these challenges and we appreciate your continued interest in
Union Pacific Resources. I hope that many of you will join us for our Annual
Meeting.
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
March 26, 1998
To the Shareholders:
You are hereby notified that the 1998 Annual Meeting of Shareholders
('Annual Meeting') of Union Pacific Resources Group Inc., a Utah corporation,
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
20, 1998 for the following purpose:
1) to elect eleven directors, each to serve until the earlier of his or her
successor being elected or his or her death, resignation or removal; and
2) 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 16, 1998 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/ Joseph A. Lasala, Jr.
JOSEPH A. LASALA, JR.
Vice President, General Counsel and
Secretary
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, EACH SHAREHOLDER
IS URGED TO DATE, SIGN AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE ENCLOSED
ENVELOPE, WHETHER OR NOT SUCH SHAREHOLDER EXPECTS TO ATTEND THE ANNUAL MEETING
IN PERSON. A SHAREHOLDER'S 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 20, 1998
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 20, 1998 for the purpose of considering and voting upon the matters set
forth in the accompanying Notice of Annual Meeting of Shareholders.
The first date on which this Proxy Statement and the accompanying form of
proxy are being sent to shareholders of the Company is March 26, 1998.
COMMON STOCK OUTSTANDING
The close of business on March 16, 1998 (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 251,043,100 shares of common stock of the Company (the '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 eleven nominees receiving the highest number of
votes will be elected. Accordingly, abstentions and broker non-votes will not
affect the outcome of the election. 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 Joseph A. LaSala, Jr. 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 Joseph A.
LaSala, Jr., 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.
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 Innisfree, 501 Madison Avenue, 20th Floor, New York,
New York 10022 to aid in the solicitation of proxies at an anticipated fee of
$10,000 plus reasonable expenses.
1
<PAGE>
SHAREHOLDER PROPOSALS
Shareholders desiring to submit a proposal for consideration for inclusion
in the Proxy Statement and form of proxy relating to the 1999 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 25, 1998.
1. ELECTION OF DIRECTORS
Eleven 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 eleven 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
Joseph A. LaSala, Jr., 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 eleven 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 Arnelle(2),(4)
Of Counsel, Womble, Carlyle, Sandridge & Rice, law firm, Winston-Salem,
North Carolina. Director, Armstrong World Industries, Inc., Eastman
[PHOTO] Chemical Co., FPL Group, Inc., Textron Inc., Wells Fargo & Co., Inc.,
Wells Fargo Bank, N.A., WMX Technologies, Inc. Age 64. Director since
November 1995.
Lynne V. Cheney(2),(3)
Distinguished Fellow, the American Enterprise Institute for Public
[PHOTO] Policy Research, Washington, D.C. Director, IDS Mutual Fund Group,
Lockheed Martin Corporation, Reader's Digest Association. Age 56.
Director since November 1995.
Preston M. Geren III(2),(4)
Public Policy Consultant, Public Strategies, Inc., a public policy
[PHOTO] consulting firm, Austin, Texas. Director, Overton Bank and Trust. Age
46. Director since February 1997.
Lawrence M. Jones(1),(3),(4)
Retired Chairman and Chief Executive Officer, The Coleman Company,
Inc., manufacturer of home and recreational products, Wichita, Kansas.
[PHOTO] Director, The Coleman Company, Inc., Fleming Companies, Inc. Age 66.
Director since November 1995.
Drew Lewis(1),(3)
Former Chairman, the Company, and Former Chairman, Chief Executive
Officer and Director of Union Pacific Corporation ('UPC'), a
[PHOTO] transportation company, Dallas, Texas. Director, American Express
Company, FPL Group, Inc., Gannett Co., Inc., Lucent Technologies Inc.,
Gulfstream Aerospace Corporation, AmTec, Inc. Age 66. Director since
August 1995.
2
<PAGE>
NAME AND PRINCIPAL OCCUPATION
OR EMPLOYMENT
- ------------------------------------------------------------------------------
Claudine B. Malone(2),(3)
President, Financial & Management Consulting, Inc., management
consulting firm, McLean, Virginia. Director, Dell Computer Corporation,
[PHOTO] Hannaford Brothers Co., Hasbro, Inc., Houghton Mifflin Company, Lafarge
Corporation, The Limited, Inc., Lowe's Companies, Mallinckrodt Group
Inc., S.A.I.C. Age 61. Director since November 1995.
Jack L. Messman(1),(3)
Chairman and Chief Executive Officer, the Company, Fort Worth, Texas.
Director, Novell, Inc., Safeguard Scientifics, Inc., Tandy, Inc.,
[PHOTO] Cambridge Technology Partners (Massachusetts), Inc., USDATA
Corporation. Age 58. 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
[PHOTO] Partners (Massachusetts), Inc., Safeguard Scientifics, Inc., XLVision,
Inc., MultiGen, Inc. Age 60. Director since November 1995.
Michael E. Rossi(1),(3),(4)
Former Vice Chairman BankAmerica Corporation, a financial institution,
[PHOTO] San Francisco, California. Director, Del Webb Corporation. Age 53.
Director since June 1997.
Samuel K. Skinner(2),(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
[PHOTO] Corporation, LTV Corporation, Midwest Express Holdings, Inc. Member,
Advisory Board of The Broken Hill Proprietary Company Limited. Age 59.
Director since October 1996.
James R. Thompson(1),(3),(4)
Partner, Chairman and Chairman of the Executive Committee, Winston &
Strawn, law firm, Chicago, Illinois. Director, American National Can
[PHOTO] Co., FMC Corporation, Jefferson Smurfit Group (PLC) Dublin, Prime Group
Realty Trust, Hollinger International, Inc., Prime Retail Inc. Age 61.
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.
3
<PAGE>
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.
H. Jesse Arnelle, a partner in the law firm of Arnelle, Hastie, McGee,
Willis & Greene, retired from such firm in October, 1997. As of January 1, 1998,
Mr. Arnelle joined Womble, Carlyle, Sandridge & Rice as of counsel to such law
firm. Lynne V. Cheney is an author and lecturer 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 a
member of the United States 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. 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.
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 five members, four 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 1997.
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 has oversight responsibility
for the administration of the Compliance Program, including the Company's
Statement of Policy Concerning Business Conduct and other substantive policies.
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 1997.
FINANCE COMMITTEE
The Finance Committee consists of seven directors, six of whom are
non-employee directors. The Finance Committee is responsible for 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 reviews the investment of assets held by the Company's pension
and other funded employee benefit programs. The Finance Committee met six times
in 1997.
4
<PAGE>
COMPENSATION AND CORPORATE GOVERNANCE COMMITTEE
The Compensation and Corporate Governance Committee (the 'Compensation
Committee') consists of seven 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 Stock Option and Retention Stock Plan and
determines the amounts of, and the individuals to whom, grants or 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 1997.
ATTENDANCE
The Board held nine meetings in 1997. No director attended less than 75
percent of the aggregate of the meetings of the Board and the Committees on
which he or she served.
DIRECTOR NOMINATIONS
The Compensation Committee will consider candidates for director suggested
by directors and shareholders of the Company. A shareholder desiring to suggest
a candidate for director 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 STOCKHOLDERS' 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. The Anschutz Shareholders have
designated Michael E. Rossi to serve on the Board and to be included in the
Board's slate of director nominees for election at the Annual Meeting.
COMPENSATION OF DIRECTORS
Cash Compensation. Effective June 1, 1997, the Company reduced its cash
compensation to its directors who are not employees of the Company ('outside
directors') to an annual retainer of $40,000 from $60,000. In addition,
Chairpersons or Co-Chairpersons receive additional annual retainers of $5,000
each paid in cash (unless deferred under the 'Directors Deferred Compensation
Plan', formerly referred to as 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
5
<PAGE>
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.
Prior to June 1, 1997, outside directors were paid a cash retainer of
$60,000 of which $30,000 was automatically deferred (the 'Mandatory Deferral')
to a Stock Unit Account under the Directors Deferred Compensation Plan (based on
the value of Common Stock on the first business day after the quarter for which
payment is made) and $30,000 was paid in cash, unless voluntarily deferred
pursuant to such Directors Deferred Compensation Plan.
Amended and Restated 1995 Directors Stock Option Plan. As approved at the
last annual meeting of shareholders, the 1995 Directors Stock Option Plan was
amended and restated effective March 5, 1997 ('Amended and Restated 1995
Directors Stock Option Plan'). The amendments included a substantial change in
the manner in which options are granted and become exercisable and allow for the
transfer of options to immediate family members. The Amended and Restated 1995
Directors Stock Option Plan provides for grants to outside directors serving on
the Board as of March 5, 1997, of an option to purchase 52,000 shares of the
Common Stock. The option price of $24.57 was equal to 100% of the fair market
value of the Common Stock on the date of grant on March 5, 1997. Such options
will vest (and become exercisable) at the rate of 5,200 shares per year and the
exercise period commences on the first anniversary of the director's date of
grant and ends on March 5, 2008. Hence, a director who is granted a 52,000-share
option on March 5, 1997 will not be able to exercise the option to purchase
shares of Common Stock until March 5, 1998, and then only to the extent of 5,200
shares. For each year thereafter, another 5,200 shares will 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 will only be
permitted to exercise the vested portion of an option grant as of the date
service is terminated and the unvested portion will 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
such options will 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 date of his or her appointment ('Date of Subsequent
Grant') and will receive a pro rata share of options determined by multiplying
52,000 shares times a fraction. The numerator of the fraction will be the lesser
number of years (including partial years) between the Date of Subsequent Grant
and (A) March 5, 2007, or (B) the date the outside director will be required to
retire from the Board in accordance with the Company's mandatory retirement
policy. The denominator will 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 will 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, a director must
exercise his or her options under the Amended and Restated 1995 Directors Stock
Option Plan within six months of the director's departure, except where the
director is required to retire from the Board in accordance with the Company's
mandatory retirement policy, in which case the director has five years in which
to exercise the then-exercisable options.
The Amended and Restated 1995 Directors Stock Option Plan permits 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.
Prior to June 1, 1997, the 1995 Directors Stock Option Plan provided 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. In lieu of such annual
grant of options to purchase 1,000 shares of Common Stock, the directors were
granted the options described above. Any previous option grants 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.
6
<PAGE>
Directors Deferred Compensation Plan. The Directors Deferred Compensation
Plan is designed to allow directors to defer the receipt of compensation as
directors and consequently defer federal income taxes on their compensation as
directors, provided elections are made timely by the director. Effective June 1,
1997, the Company eliminated the Mandatory Deferrals under the Directors
Deferred Compensation Plan and permitted Elective Deferrals (as hereinafter
defined) under the Directors Deferred Compensation Plan with respect to all cash
compensation for services to either a Stock Unit Account (the 'Stock Unit
Account') or Fixed Income Account (the 'Fixed Income Account'). Under the
Directors Deferred Compensation Plan, the Company will credit an additional 25%
to the account of any director who elects to have his or her cash compensation
invested in a Stock Unit Account for a period of at least three years. The
Company's matching contribution shall remain invested until the director
terminates his or her services as a director of the Company.
Prior to June 1, 1997, the Company required the Mandatory Deferral of a
portion of the directors cash retainer. In addition to the Mandatory Deferral, a
Director could elect by December 31 of the preceding fiscal year to defer all or
a portion of the remaining compensation for services as a director (the
'Elective Deferral') to a Stock Unit Account or a 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.
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 1997, $258,916 and $5,333 were deferred into Stock Unit
Accounts and the Fixed Income Account, respectively, by the directors under the
Directors Deferred Compensation Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the individuals serving on the Compensation Committee during 1997
has ever been an officer or employee of the Company or its subsidiaries. No
officer, director, 5% shareholder of the Company or immediate family member of
any of the foregoing 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
('SEC') 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, directors and 10% shareholders, the Company believes that
none of its executive officers, directors or 10% shareholders failed to comply
with Section 16(a) reporting requirements in 1997.
7
<PAGE>
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 compensation and long-term incentive
compensation, are designed to provide payment for performance of assigned
accountabilities and achievement of predetermined goals which support the
Company's overall objective of enhancing shareholder value. Such performance
will be achieved only if the Company is able to attract outstanding talent that
is able to grow the Company, motivate its executive and management team through
incentives tied to the creation of shareholder value, and most importantly, to
retain and reward such executives through a competitive compensation program.
The Compensation Committee offers the following report on its decisions
concerning compensation for 1997.
ANNUAL COMPENSATION
Annual compensation for executives consists of two components: base salary
and annual incentive pay.
Base Salary. The Compensation Committee reviews each executive's salary
annually, taking into consideration a number of factors including: (i) the
executive's performance, (ii) the Company's performance, (iii) the executive's
position and responsibility in the organization, (iv) the executive's experience
and expertise, (v) salaries for comparable positions at comparable companies and
(vi) internal pay equity. In approving salary recommendations, 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 for comparable companies are generally
appropriate for the Committee to use as a frame of reference for base pay
decisions. Specific compensation for individual executives will vary from these
levels as a result of subjective judgment of the Compensation Committee. The
average base salaries for the Company's executives for which comparable data is
available generally do not exceed the median for comparable companies. The
comparable companies with respect to our executive officers include those
companies in the line of business index on the Performance Graph with comparable
market capitalizations and several other energy companies with comparable market
capitalizations. The comparable companies with respect to other executives
include a majority of those companies in the line of business index on the
Performance Graph and numerous other companies for which the Company competes
for executive talent.
Annual Incentive Pay. 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 the Company's 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 establishes an incentive reserve account (the 'Incentive Reserve
Account') which may be funded annually based upon the funding formula outlined
in the EIP. 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%, and 0.5% of Incentive Income when the Incentive Return is 20.0% or more.
At intermediate levels of Incentive Return (between 16% and 20%), 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
8
<PAGE>
principles, before giving effect 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 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 well as other factors described above. The
Compensation Committee believes that total compensation, including annual
incentive pay, at or near the 75th percentile of the comparable companies, is
appropriate for the Compensation Committee to use as a frame of reference for
compensation decisions. The maximum annual award which could have been made
during 1997 to executives whose compensation was subject to Section 162(m) of
the Code (hereinafter defined), 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 awarded by the Compensation Committee to executives in
future years during which the EIP remains in effect.
For 1997, $5.3 million was awarded to 32 executives under the EIP.
LONG-TERM INCENTIVE 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. The Company's long-term incentives currently include stock options
and retention stock awards. The Company also maintains specific stock ownership
guidelines for its executives.
Stock Options. Stock options are a key element in the Company's long-term
compensation program. Stock options are granted periodically, with the magnitude
of the award based on an executive's position, experience, performance, and
surveys provided by consultants of the Company, without giving particular weight
to any one factor, are used in determining the actual awards. The Compensation
Committee exercises subjective judgment, however, the Compensation Committee
believes that long-term incentive compensation should be based on a factor times
the base salary of an executive. For 1997, such factors were based on a survey
by a consultant of the Company and varied by position of the executive. The
number of options held by an executive is not a factor considered in connection
with an award of options. Stock options are granted with an exercise 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 grant.
For 1997, 88,000 options to purchase Common Stock were granted to three
executives.
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.
For 1997, 120,734 shares of Retention Stock were awarded to 18 executives.
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 one times salary for first level executives, to four times salary for
the Chairman and Chief Executive Officer. 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.
9
<PAGE>
POLICY REGARDING IRC SECTION 162(M)
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
'Code'), generally limits the corporate deduction to one million dollars for
compensation, except for qualified performance-based compensation, for
compensation paid to a person who on the last day of fiscal years beginning on
or after January 1, 1994, is either the Chief Executive Officer or among the
four most highly compensated officers other than the Chief Executive Officer.
The EIP and stock option plan are believed to qualify as performance-based
compensation under Internal Revenue Service rules; however, the Compensation
Committee does not believe that compensation decisions should be constrained
necessarily by how much compensation is deductible for federal income tax
purposes and as such will not make compensation decisions based solely on the
deductibility of compensation. The awards of Retention Stock are not intended to
qualify as performance-based under the regulations.
CEO COMPENSATION
In 1997, the Company's most highly compensated officer was Jack L. Messman,
Chairman and Chief Executive Officer. His compensation package is designed to
encourage short and long-term performance aligned with the interests of
shareholders. The majority of his compensation is at risk, in the form of an EIP
award and stock options.
Mr. Messman's annual base salary was increased in 1997 by 12.4% to
$800,000. With this increase, Mr. Messman's annual base salary is below the 50th
percentile for comparable companies.
The Compensation Committee reviewed Mr. Messman's performance for 1997 and
approved an annual incentive pay for him of $1,400,000 based on the factors
described herein. Mr. Messman's annual compensation is below the 75th percentile
for comparable companies.
Mr. Messman also received 61,500 options to purchase Common Stock as part
of the Company's retention program which will vest in equal increments each year
over the following two year period.
During 1997, under the guidance of Mr. Messman, the Company continued to be
a leader in the industry. The Company replaced 199% of its production, increased
its overall reserves by 17% and increased its reserve to production ratio from
6.3 to 6.9 years. Once again, the Company was the most active driller in the
United States in 1997, a position it has held for the last six years. In 1997,
the Company reported net income of $333 million. Net income in 1996 was $321
million. Discretionary cash flow increased by 18% to $1,226 million in 1997 from
$1,036 million in 1996. These results were obtained despite increased drilling
costs and operating expenses. Producing property volume growth met the annual
growth objective of 10%. Exploration efforts were expanded which resulted in the
Gomez deep water discovery and aggressive entry into the Cotton Valley Pinnacle
Reef play. In addition to the business results achieved by Mr. Messman, the
Company continues to focus on changing the culture and becoming the Company of
Choice. While the Company's stock has not performed at the level of the
Company's peers in the line of business index in the Performance Graph, the
Compensation Committee believes the Company's stock price does not reflect the
achievements of the Chairman and Chief Executive Officer and the Company in the
last year. The Compensation Committee believes the initiatives and
accomplishments of the Company under the leadership of Mr. Messman will deliver
greater long term shareholder value.
The Compensation and Corporate Governance Committee
H. Jesse Arnelle
Preston M. Geren III
Lawrence M. Jones
John W. Poduska, Sr., Ph.D.
Michael E. Rossi
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>
SECURITIES
OTHER RETENTION UNDERLYING ALL
ANNUAL (RESTRICTED) OPTIONS/SAR OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) STOCK AWARDS(2) GRANTS(3) COMPENSATION(4)
- ------------------------------- ----- -------- ---------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack L. Messman, Chairman & CEO 1997 $713,723 $1,400,000 $ 71,492 $ 464,304 61,500 $63,373
1996 606,250 965,000 673 4,143,750 438,500 50,985
1995 498,750 770,000 4,856 0 0 41,260
George Lindahl III, 1997 403,862 650,000 94,919 124,461 0 30,227
President & COO 1996 280,000 450,000 192 2,762,500 190,000 20,021
1995 222,375 268,000 448 0 0 15,917
V. Richard Eales, 1997 267,195 375,000 105,495 962,520 0 33,601
Executive Vice President..... 1996 230,000 275,000 1,689 464,100 84,000 24,110
1995 204,345 352,000 1,866 0 0 20,295
Donald W. Niemiec, 1997 253,995 295,000 142,110 75,734 0 18,497
Vice President-Marketing..... 1996 211,750 225,000 91 1,381,250 80,000 15,402
1995 171,050 175,725 31 0 0 12,474
Morris B. Smith, 1997 229,605 240,000 72,099 46,750 0 24,989
Vice President and CFO....... 1996 212,500 175,000 318 375,700 68,000 13,700
1995 175,042 130,000 23 60,683 15,664 9,000
</TABLE>
- ------------------
(1) Other Annual Compensation for 1997 includes: the value of the one-time
transfer of country club memberships and associated country club dues prior
to transfer (Mr. Messman, $33,000, Mr. Lindahl, $2,000, Mr. Eales, $2,000,
Mr. Niemiec, $43,708, and Mr. Smith, $33,648); the 25% match on cash
deferrals of salary or bonus in a Stock Unit Account of the Executive's
Deferred Compensation Plan (Mr. Lindahl, $81,250; Mr. Eales, $91,862; Mr.
Niemiec, $72,265; and Mr. Smith, $30,000); reimbursements for Medicare tax
on supplemental pension plans (Mr. Messman, $817, Mr. Lindahl, $360, Mr.
Eales, $422, Mr. Niemiec, $127, and Mr. Smith, $274); above market interest
on deferred compensation and other amounts reimbursed for payment of taxes.
Other perquisites or other personal benefits included under Other Annual
Compensation for 1997 not exceeding 25% of value of all perquisites or other
personal benefits are not identified. Other Annual Compensation for 1996 and
1995 includes reimbursements for Medicare tax on supplemental pension and
thrift plans, above market interest on deferred compensation and other
amounts reimbursed for payment of other taxes. Perquisites and other
personal benefits
for 1996 and 1995 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,
therefore, have not been disclosed.
(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 1997 and 1996. For
1995, 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, 1997, the aggregate number of
shares of Retention Stock and Rollover Retention Stock held and the value
thereof were: Mr. Messman, 382,913 shares, $9,285,640; Mr. Lindahl, 141,917
shares, $3,441,487; Mr. Eales, 51,200 shares, $1,241,600; Mr. Niemiec,
77,047 shares, $1,868,390; and Mr. Smith, 32,455 shares, $787,034. 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. The Retention (Restricted) Stock Awards for 1997
includes an additional 10% of the number of shares of Retention Stock
granted to such officers, in consideration of the deferral in 1997 of the
vesting of such Retention Stock for one year (Mr. Messman, 14,298 shares;
Mr. Lindahl, 5,024 shares; Mr. Niemiec, 3,066 shares; Mr. Smith, 1,890
shares).
(3) For 1997 and 1996, the number represents options to purchase shares of
Common Stock. For 1995, 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 of Common Stock by UPC
to its shareholders (the '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.
(4) All Other Compensation in 1997 consists of Company matched thrift plan
contributions (Mr. Messman, $42,823; Mr. Lindahl, $24,232; Mr. Eales,
$26,751; Mr. Niemiec, $14,776; Mr. Smith, $20,737) and executive life
insurance premiums (Mr. Messman, $20,550; Mr. Lindahl, $5,995; Mr. Eales,
$6,850; Mr. Niemiec, $3,721; Mr. Smith, $4,252).
11
<PAGE>
OPTION/SAR GRANTS TABLE
The following table sets forth information concerning individual grants of
stock options during 1997 to the Company's Chief Executive Officer and the other
four most highly compensated executive officers. Stock appreciation rights were
not granted in 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS EXERCISE OR GRANT DATE
OPTION/SARS GRANTED TO BASE EXPIRATION PRESENT
NAME GRANTED EMPLOYEES PRICE DATE VALUE(1)
- ---------------------------------- ----------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Jack L. Messman 61,500 10% $ 29.44 06/03/97 $587,325
George Lindahl III 0 0% 0 0
V. Richard Eales 0 0% 0 0
Donald W. Niemiec 0 0% 0 0
Morris B. Smith 0 0% 0 0
</TABLE>
- ------------------
(1) Calculated in accordance with the Black-Scholes option pricing model. The
assumptions used in such option pricing model are: expected volatility, 28%;
expected dividend yield, 0.8%; expected option term, five years; and
risk-free rate of return, 5.6%.
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth individual exercises of stock options during
1997 and the year-end values of options to purchase Common Stock held by the
Chief Executive Officer and the other four most highly compensated executive
officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTION/SARS
AT YEAR-END AT YEAR-END
SHARES ------------ -------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- -------- ------------ -------------
<S> <C> <C> <C> <C>
Jack L. Messman 0 $ 0 932,072 $ 5,625,928
333,333 0
George Lindahl III 0 0 451,068 3,197,394
126,666 0
V. Richard Eales 0 0 285,406 1,924,054
56,000 0
Donald W. Niemiec 6,146 89,056 186,772 1,186,731
53,333 0
Morris B. Smith 0 0 125,819 404,351
50,554 0
</TABLE>
EXECUTIVE'S DEFERRED COMPENSATION PLAN
The Executive's Deferred Compensation Plan is designed to allow executives
to defer receipt of certain compensation and consequently defer federal income
taxes. Executives are permitted to defer up to 100% of such executives' annual
bonus. Executive officers are permitted to defer up to 100% of their base salary
in excess of $160,000, gains on options to purchase Common Stock and awards of
Retention Stock. For such deferrals to be effective, the executives must make
timely elections. Under the Executive's Deferred Compensation Plan, the Company
will credit an additional 25% to the account of any executive officer who elects
to have his or her salary or bonus invested in the Stock Unit Account for a
period of at least three years. The Company's matching contribution shall remain
invested until the executive officer terminates employment with the Company.
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 17, Mr. Lindahl 10, Mr. Eales 7, Mr. Niemiec 15, and Mr. Smith 21.
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
1,800,000 447,840 597,120 746,400 895,500 984,750 1,074,000
2,000,000 497,850 663,800 829,750 995,500 1,094,750 1,194,000
</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 EXECUTIVE OFFICERS
The Board has approved change in control arrangements, consisting of
individual written agreements, for the following executive officers: Jack L.
Messman, George Lindahl III, V. Richard Eales, Anne M. Franklin, Joseph A.
LaSala, Jr., Donald W. Niemiec, Morris B. Smith, Jr., 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 are involuntarily terminated or terminate their
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
13
<PAGE>
President, respectively, is entitled to receive severance compensation equal to
two and one-half times their base salary and the average of their respective
bonuses for the preceding two years. Each of Anne M. Franklin, 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 executive officers (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 executive officers for all legal fees and expenses incurred in connection
with the enforcement of such 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 officer's change in control
agreement.
After a period of one year following a change in control, the executive
officer 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 officer 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 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, 1997. Total
shareholder returns assume dividend reinvestment. The peer group consists of
Anadarko Petroleum Corporation, Apache Corporation, Burlington Resources,
Inc.(1), Enron Oil & Gas 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, 1997)
[LINE GRAPH]
<TABLE>
<CAPTION>
Symbol 10/10/95 12/29/95 12/31/96 12/31/97
- -------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Company $100.00 $121.07 $139.41 $117.48
S&P 500 100.00 107.21 131.83 175.81
Peer Group Index 100.00 111.31 137.10 123.49
</TABLE>
- ------------------
(1) Burlington Resources, Inc. merged with Louisiana Land and Exploration
Company; therefore, Louisiana Land and Exploration Company has been removed
from the peer group reflected in the Performance Graph as of October 10,
1995.
15
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN EXECUTIVE OFFICERS, DIRECTORS AND BENEFICIAL OWNERS
The following table summarizes (A) the beneficial ownership of the Common
Stock as of March 16, 1998 by the (i) Chief Executive Officer, (ii) other four
most highly compensated executive officers, (iii) directors and (iv) all
executive officers and directors as a group, and (B) the number of whole stock
units (a 'Stock Unit') attributable to each executive officer, outside director
and all executive officers and directors as a group under the Executive's
Deferred Compensation Plan and Directors Deferred Compensation Plan as of March
16, 1998. None of the individual or collective holdings listed below exceeds 1%
of any class equity securities of the Company.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK STOCK UNITS
BENEFICIALLY ATTRIBUTED TO
NAME OWNED(1) DIRECTORS AND OFFICERS(2)
- ------------------------------------------------------------------- ------------ -----------------------
<S> <C> <C>
Jack L. Messman.................................................... 1,380,674 0
George Lindahl III................................................. 607,768 16,617
V. Richard Eales................................................... 367,303 19,561
Donald W. Niemiec.................................................. 274,084 14,779
Morris B. Smith.................................................... 165,126 6,163
H. Jesse Arnelle................................................... 6,972 1,884
Lynne V. Cheney.................................................... 11,538 2,403
Preston M. Geren III............................................... 9,200 482
Lawrence M. Jones.................................................. 12,294 1,884
Drew Lewis(3)...................................................... 104,456 746
Claudine B. Malone................................................. 8,580 1,884
John W. Poduska, Sr................................................ 11,046 4,807
Michael E. Rossi................................................... 500 203
Samuel K. Skinner.................................................. 6,200 746
James R. Thompson.................................................. 8,200 5,251
All directors and executive officers as a group (19 persons)....... 3,301,907 99,349
</TABLE>
- ------------------
(1) Included in the number of shares of Common Stock Beneficially Owned by
Mr. Messman, 932,072; Mr. Lindahl, 451,068; Mr. Eales, 285,406; Mr. Niemiec,
186,772; Mr. Smith, 125,819; Mr. Arnelle, 6,200; Mrs. Cheney, 6,200; Mr.
Geren, 5,200; Mr. Jones, 6,200; Mr. Lewis, 5,200; Ms. Malone, 6,200; Mr.
Poduska, 6,200; Mr. Skinner, 5,200; Mr. Thompson, 6,200; are shares of
Common Stock, respectively, for which such persons have the right to acquire
within 60 days of March 16, 1998 pursuant to options to purchase such Common
Stock. Also included in the number of shares of Common Stock owned by
Messrs. Messman, Lindahl, Eales, Niemiec and Smith are 382,913; 141,917;
51,200; 77,047 and 32,455 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 Directors Deferred Compensation
Plan in which they may defer all or a portion of compensation for services
as a director. The executive officers of the Company participate in the
Executive's Deferred Compensation Plan in which they may defer a portion of
their compensation for services as an officer. Directors and executive
officers making deferrals beginning with the fourth quarter of 1997,
received a 25% match on cash deferrals into a Stock Unit Account. Stock Unit
Accounts are credited with such amount deferred. 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. Mrs.
Cheney and Messrs. Poduska and Thompson deferred compensation for services
as a director into the Stock Unit Account. As a result of the 25% match on
cash deferrals into Stock Unit Accounts, Mrs. Cheney and Messrs. Poduska and
Thompson were attributed 51, 103 and 116 Stock Units.
(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.
16
<PAGE>
CERTAIN BENEFICIAL OWNERS
There is no shareholder who is known to the Company to be the beneficial
owner of more than five percent of the Common Stock, the only class of the
Company's voting securities outstanding.
INDEPENDENT AUDITORS
Arthur Andersen LLP has been selected as the Company's independent auditors
for the 1998 fiscal year. Deloitte & Touche LLP ('D&T') was the Company's
independent auditors for the 1997 fiscal year. Representatives of Arthur
Andersen LLP and D&T are expected to be present at the Annual Meeting. Such
representatives will have an opportunity to make a statement if such
representatives desire to do so and will be available to respond to appropriate
questions from shareholders of the Company.
On December 4, 1997, the Company, with the approval of the Audit Committee
of the Company's Board of Directors, dismissed D&T as its independent auditors
effective upon D&T's completion of its audit of the Company's financial
statements for the fiscal year ended December 31, 1997. The reports of D&T on
the financial statements of the Company for either of the two most recent fiscal
years did not contain an adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting principle.
During such years and during the period between December 31, 1996 and the date
on which D&T was dismissed, there was no disagreement between the Company and
D&T on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of D&T, would have caused D&T to make reference to the
subject matter of such disagreement in connection with its report on the
Company's financial statements. On December 4, 1997, the Company engaged Arthur
Andersen LLP as its new independent auditor effective January 1, 1998.
2. 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.
17
<PAGE>
PROXY PROXY
UNION PACIFIC RESOURCES GROUP INC.
Solicited by the Board of Directors
Annual Meeting May 20, 1998
Fort Worth, Texas
The undersigned hereby appoints JACK L. MESSMAN and JOSEPH A. LASALA, JR.
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 20, 1998 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.
The Board of Directors recommends a vote FOR the election of Directors.
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
proposal 1.
1. Election of Directors--Nominees:
H. Jesse Arnelle, Lynne V. Cheney, Preston M. Geren, III, Lawrence M. Jones,
Drew Lewis, Claudine B. Malone, Jack L. Messman, John W. Poduska, Sr.,
Michael E. Rossi, Samuel K. Skinner, James R. Thompson
For Withhold For All
All All Except
/ / / / / /
---------------------------------------------------
(Except nominee(s) written above.)
Dated: _________________________, 1998
Signature(s)__________________________
______________________________________
This proxy must be signed exactly as name
appears hereon. Executors,
administrators, trustees, etc., should
give full title as such. If the signer is
a corporation, please sign full
corporate name by duly authorized
officer.
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
[LOGO]
