<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[ ] 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
</TABLE>
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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(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.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
UPR LOGO
UNION PACIFIC RESOURCES GROUP INC.
- --------------------------------------------------------------------------------
JACK L. MESSMAN
Chairman and Chief Executive Officer
March 26, 1999
Dear Shareholders:
1998 was an extremely difficult year as record low crude oil and gas prices
rocked the industry and no oil and gas company, including Union Pacific
Resources, was spared.
We have taken many actions in response to the current low price
environment. We are in the midst of an aggressive, Company-wide cost-cutting and
restructuring program affecting both field and headquarter operations. We are on
track to complete our deleveraging program which, as we announced in April of
last year, is designed to strengthen our balance sheet and reduce our debt by
about $2 billion.
To assist our efforts to operate profitably in this environment, included
in this Proxy Statement for your consideration are proposals to amend two of the
Company's benefit plans, which the Compensation and Corporate Governance
Committee and the Board of Directors have approved subject to shareholder
approval.
The first includes an increase in the number of shares available for grant
under the Company's 1995 Stock Option and Retention Stock Plan, and an increase
in the limit on the number of shares that can be granted to an individual
participant under that plan. The Compensation and Corporate Governance Committee
and the Board believe that these amendments are necessary for the Company to
continue to use the plan to recruit and retain first-rate employees and
executives.
The second proposal is to increase the number of shares that may be issued
under the 1995 Directors Stock Incentive Plan. This increase in the number of
shares is consistent with a trend toward providing a larger portion of total
director compensation in the form of equity.
We value your vote and urge you to vote FOR each of these proposals. I hope
you will join us for our Annual Meeting on May 18, 1999.
Sincerely,
JACK L. MESSMAN
<PAGE> 3
UPR LOGO
UNION PACIFIC RESOURCES NOTICE OF ANNUAL MEETING
GROUP INC. OF SHAREHOLDERS
777 Main Street
Fort Worth, TX 76102
March 26, 1999
To the Shareholders:
You are hereby notified that the 1999 Annual Meeting of Shareholders (the
"Annual Meeting") of Union Pacific Resources Group Inc., a Utah corporation (the
"Company"), will be held at the Worthington Hotel, 200 Main Street (Grand
Ballroom), Fort Worth, Texas 76102, at 10:00 A.M., CDT, on Tuesday, May 18,
1999, 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;
2) to amend the 1995 Stock Option and Retention Stock Plan (the "1995
Plan") to increase the number of shares available for grants of stock
options and stock appreciation rights and awards of retention stock from
16,000,000 to 23,000,000 shares of Common Stock, and to increase the
maximum percentage of available shares that can be granted or awarded to
an individual participant from 10% of the shares available under the
1995 Plan to 25% of such shares;
3) to increase the number of shares that may be issued under the 1995
Directors Stock Incentive Plan from 1,000,000 to 1,500,000 shares of
Common Stock;
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 9, 1999, 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.
LASALA SIGNATURE
/s/ JOSEPH A. LASALA, JR.
Vice President, General Counsel and
Secretary
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, SHAREHOLDERS ARE
URGED TO DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING 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 ACCOMPANYING RETURN ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.)
<PAGE> 4
UNION PACIFIC RESOURCES GROUP INC.
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 18, 1999
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 of the Company (the "Board")
for use at the Annual Meeting of Shareholders (the "Annual Meeting") to be held
on May 18, 1999, for the purpose of considering and voting upon the matters set
forth in the accompanying notice of the Annual Meeting.
The first date on which this Proxy Statement and the enclosed proxy are
being sent to shareholders of the Company is March 26, 1999.
COMMON STOCK OUTSTANDING
The close of business on March 9, 1999 (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 252,153,930 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 on
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. The eleven nominees receiving the highest number of votes
cast 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 such matter exceed the votes cast opposing the 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 for
action at the Annual Meeting, 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 soliciting costs. Arrangements will be
made with brokerage houses and other custodians, nominees and fiduciaries for
the forwarding of proxy soliciting materials to the beneficial owners of Common
Stock held of record by such persons, and the Company may reimburse such
custodians, nominees and fiduciaries for
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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 M & A Incorporated, 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.
SHAREHOLDER PROPOSALS
A shareholder desiring to submit a proposal for inclusion in the Proxy
Statement and proxy relating to the 2000 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, 1999. In order to be included in
the Proxy Statement and proxy relating to the 2000 Annual Meeting of
Shareholders, the shareholder proposal must meet the requirements of Securities
and Exchange Commission Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
In addition, a shareholder desiring to raise a matter, including nominating
an individual for election as a director, at the 2000 Annual Meeting of
Shareholders, where the shareholder has not sought inclusion of the matter in
the Proxy Statement and proxy relating to such meeting, must comply with the
advance notification provisions in the Company's Bylaws. Such provisions require
that shareholder matters to be raised at an annual meeting of shareholders be
submitted to the Secretary of the Company not less than 60 days, nor more than
90 days, prior to the anniversary date of the immediately preceding annual
meeting of shareholders. Such shareholder matters to be raised at the 2000
Annual Meeting of Shareholders must be received by the Company no sooner than
February 18, 2000, and no later than March 19, 2000. A shareholder who desires
to raise such matters should contact the Secretary of the Company for the
specific requirements prescribed by the Bylaws.
1. ELECTION OF DIRECTORS
Eleven directors are to be elected at the Annual Meeting (which number
constitutes the entire Board). Each director will 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, including the office or positions held by the nominee in his or
her principal occupation or employment since January 1994:
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION
OR EMPLOYMENT AND COMMITTEE MEMBERSHIP
<S> <C>
[PHOTO] H. Jesse Arnelle
Of Counsel, Womble, Carlyle, Sandridge & Rice, law
firm, Winston-Salem, North Carolina, since January
1998. Partner, Arnelle, Hastie, McGee, Willis & Greene,
law firm, through October 1997. Director, Armstrong
World Industries Inc., Eastman Chemical Co., FPL Group,
Inc., Gannett Co., Inc., Textron Inc., Waste Management
Inc. Director since November 1995. Member of the
Compensation and Corporate Governance Committee until
July 1998. Currently, and throughout 1998, a member of
the Audit Committee. Age 65.
</TABLE>
2
<PAGE> 6
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION
OR EMPLOYMENT AND COMMITTEE MEMBERSHIP
<S> <C>
[PHOTO] Lynne V. Cheney
Distinguished Fellow, the American Enterprise Institute
for Public Policy Research, Washington, D.C., since
1993. Author and lecturer on public policy issues.
Director, IDS Mutual Fund Group, Lockheed Martin
Corporation, Reader's Digest Association. Director
since November 1995. Member of the Finance Committee
until July 1998. Currently, and throughout 1998, a
member of the Audit Committee. Age 57.
[PHOTO] Preston M. Geren III
Attorney-at-law, Fort Worth, Texas, since August 1998.
From January 1997 through August 1998, public policy
consultant for Public Strategies, Inc. Congressman for
the Texas Twelfth Congressional District of the U.S.
House of Representatives from January 1989 to January
1997. Director since February 1997. Member of the Audit
Committee until July 1998. Currently, and throughout
1998, a member of the Compensation and Corporate
Governance Committee. Age 47.
[PHOTO] Lawrence M. Jones
Retired Chairman and Chief Executive Officer, The
Coleman Company, Inc., manufacturer of home and
recreational products, Wichita, Kansas, since January
1994. Director since November 1995. Member of the
Compensation and Corporate Governance Committee until
July 1998. Currently, and throughout 1998, a member of
the Executive and Finance Committees. Chairperson of
Finance Committee. Age 67
[PHOTO] Drew Lewis
Former Chairman of the Company, and Former Chairman,
Chief Executive Officer and Director of Union Pacific
Corporation ("UPC"), a transportation company, Dallas,
Texas. Chairman and Chief Executive Officer of UPC from
May 1994 through December 1996. Chairman, President and
Chief Executive Officer of UPC through May 1994.
Director, Aegis Communications Group Inc., American
Express Company, FPL Group, Inc., Gannett Co., Inc.,
Gulfstream Aerospace Corporation, Lucent Technologies
Inc., Millennium Bank. Director since August 1995.
Currently, and throughout 1998, a member of the
Executive and Finance Committees. Chairperson of
Executive Committee. Age 67.
[PHOTO] Claudine B. Malone
President, Financial & Management Consulting, Inc.,
management consulting firm, McLean, Virginia, since
1984. 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. Director
since November 1995. Member of the Finance Committee
until July 1998. Currently, and throughout 1998, a
member of the Audit Committee. Chairperson of Audit
Committee. Age 62.
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION
OR EMPLOYMENT AND COMMITTEE MEMBERSHIP
<S> <C>
[PHOTO] Jack L. Messman
Chairman and Chief Executive Officer of the Company,
Fort Worth, Texas, since October 1996. President and
Chief Executive Officer of the Company from August 1995
until October 1996. From May 1991 through October 1995,
President and Chief Executive Officer of Union Pacific
Resources Company. Director since September 1991.
Director, Novell, Inc., Metallurg, Inc., Safeguard
Scientifics, Inc., Tandy, Inc., Cambridge Technology
Partners (Massachusetts), Inc., USDATA Corporation.
Currently, and throughout 1998, a member of the
Executive and Finance Committees. Age 59.
[PHOTO] John W. Poduska, Sr., Ph.D.
Chairman, Advanced Visual Systems Inc., provider of
visualization software, Boston, Massachusetts, since
January 1992. Director, Cambridge Technology Partners
(Massachusetts), Inc., Safeguard Scientifics, Inc.,
XLVision, Inc., MultiGen, Inc. Director since November
1995. Member of the Audit Committee until July 1998.
Currently, and throughout 1998, a member of the
Compensation and Corporate Governance Committee. Age
61.
[PHOTO] Michael E. Rossi
Chairman, Shorestein Realty Service, a realty company,
San Francisco, California, since November 1998. From
August 1993 through June 1997, Vice Chairman of
BankAmerica Corporation. Director, Del Webb
Corporation. Director since June 1997. Currently, and
throughout 1998, a member of the Executive, Finance and
Compensation and Corporate Governance Committees. Age
54.
[PHOTO] Samuel K. Skinner
Co-Chairman and Partner, Hopkins and Sutter, law firm,
Chicago, Illinois, since November 1998. From February
1993 through April 1998, President of Unicom
Corporation and Commonwealth Edison Company, a wholly
owned subsidiary of Unicom Corporation. General
Chairman of the Republican National Committee from
August 1992 through February 1993. Director, ANTEC
Corporation, Everen Securities, LTV Corporation,
Midwest Holdings Corporation, Stimsonite Corporation.
Director since October 1996. Member of the Compensation
and Corporate Governance Committee until July 1998.
Currently, and throughout 1998, a member of the Audit
Committee. Age 60.
[PHOTO] James R. Thompson
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, for more than five years.
Governor of Illinois from 1977 through 1991. Director,
American National Can Co., FMC Corporation, Hollinger
International Inc., Jefferson Smurfit Group (PLC)
Dublin, Metzler Group, Inc., Prime Group Realty Trust,
Prime Retail, Inc. Member, International Advisory
Council of the Bank of Montreal. Director since
November 1995. Member of the Finance Committee until
July 1998. Currently, and throughout 1998, a member of
the Executive and Compensation and Corporate Governance
Committees. Chairperson of Compensation and Corporate
Governance Committee. Age 62.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR EACH OF THE
FOREGOING DIRECTORS.
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<PAGE> 8
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 preceding biographies identify
Committee memberships held by each nominee for director and the Chairperson of
each Committee.
EXECUTIVE COMMITTEE
The Executive Committee consists of five members, four of whom are not
employees of the Company ("outside directors"). The Executive Committee has all
of 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 the
Board has not given specific directions. The Executive Committee did not meet in
1998.
AUDIT COMMITTEE
The Audit Committee consists of four outside directors, each of whom is
independent for purposes of service on the Audit Committee, as that term is
defined by the Blue Ribbon Committee on Improving the Effectiveness of Corporate
Audit Committees sponsored by the New York Stock Exchange and the National
Association of Securities Dealers. The Audit Committee adopted its current
charter on February 18, 1998. The Board approved the charter on February 19,
1998. The Audit Committee meets regularly with financial management, the
internal auditors and independent auditors to review financial reporting and
accounting and financial controls of the Company. The Audit Committee reviews,
and gives prior approval for, fees and non-audit engagements of the independent
auditors. Both the internal auditors and independent 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 and approves
the scope of internal and independent audits as well as the annual audit plans.
In addition, the Audit Committee has oversight responsibility for the
administration of the Company's 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 five times in 1998.
FINANCE COMMITTEE
The Finance Committee consists of four directors, three of whom are outside
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 reviews the investment of assets held by the Company's pension
and other funded employee benefit programs. The Finance Committee met five times
in 1998.
COMPENSATION AND CORPORATE GOVERNANCE COMMITTEE
The Compensation and Corporate Governance Committee (the "Compensation
Committee") consists of four outside directors. 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 Bylaws. The
Compensation Committee administers the Company's Executive Incentive Plan, the
Executive Deferred Compensation Plan, the 1995 Stock Option and Retention Stock
Plan and the 1995 Directors Stock Incentive Plan, and is responsible for
recommending and reviewing all material amendments to such plans. The
Compensation Committee also determines the amounts of, and the individuals to
whom, grants or awards will be made under the incentive and option plans. (See
pages 8-11 for the Compensation Committee's Report on Executive Compensation.)
The Compensation Committee is responsible for recommending and reviewing all
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<PAGE> 9
material amendments to the Company's pension, thrift and employee stock
ownership plans. Periodic reviews of the Company's vacation policy, life
insurance, medical and dental benefit plans and matching gifts program are made
by the Compensation Committee to ensure that these benefit plans, policies and
programs 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 1998.
ATTENDANCE
The Board held nine meetings in 1998. No director attended less than 75% of
the aggregate of the Board meetings and Committee meetings for Committees of
which he or she was a member.
DIRECTOR NOMINATIONS
The Compensation Committee will consider candidates suggested by directors
and shareholders of the Company. A shareholder desiring to suggest a candidate
for consideration by the Compensation Committee 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
by the Compensation Committee. In considering candidates 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.
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 September 11,
2003, 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, 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 has agreed to (i) include the Anschutz Shareholders'
designee in the Board's slate of director nominees for election at the Company's
annual meeting of shareholders and (ii) recommend to the Company's shareholders
that such designee be elected as a director of the Company. The Anschutz
Shareholders have elected not to exercise their right to designate a nominee to
be included in the Board's slate of director nominees for election at the Annual
Meeting and terminated their prior designation effective February 4, 1999.
Michael E. Rossi previously served on the Board as the designee of the Anschutz
Shareholders. Mr. Rossi, at the request of the Board, continues to serve as a
director and has been included in the Board's slate of director nominees for
election at the Annual Meeting.
COMPENSATION OF OUTSIDE DIRECTORS
Cash Compensation. During 1998, the cash compensation to outside directors
was an annual retainer of $40,000. In addition, Committee Chairpersons receive
annual retainers of $5,000 each. Retainers are paid at the end of each calendar
quarter to outside directors with the fourth quarter payment forfeited if
attendance at the Board and Committee meetings for the year is below 75%.
Outside directors receive no additional meeting fees but are reimbursed for
travel expenses incurred in conjunction with their attendance at Board and
Committee meetings. Outside directors may defer cash compensation under the
Directors Deferred Compensation Plan as described below.
Amended and Restated 1995 Directors Stock Incentive Plan. The Company
adopted the 1995 Directors Stock Incentive Plan (formerly known as the 1995
Directors Stock Option Plan) as a mechanism to provide equity-based compensation
to outside directors (the "1995 Directors Stock Incentive Plan"). As originally
adopted, the 1995 Directors Stock Incentive Plan provided for the automatic
annual grant of options to
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<PAGE> 10
purchase 1,000 shares of Common Stock. On March 5, 1997, the 1995 Directors
Stock Incentive Plan was amended, subject to shareholder approval, to provide
for a one-time grant of an option to purchase 52,000 shares of Common Stock to
outside directors serving on the Board as of March 5, 1997, in lieu of
continuing the automatic annual option grant and in exchange for a reduction in
the annual retainer from $60,000 to $40,000. The 1997 amendments were approved
by the shareholders at the 1997 Annual Meeting of Shareholders. The 1995
Directors Stock Incentive Plan was further amended and restated effective July
14, 1998. The July 1998 amendments granted the Board the discretion to grant
options and award other forms of equity-based compensation to outside directors.
Additional amendments were adopted on January 21, 1999, to further clarify
the Board's discretion with respect to future grants and awards under the 1995
Directors Stock Incentive Plan, to eliminate prospectively the automatic grant
feature adopted in the March 1997 amendments and, subject to shareholder
approval at the Annual Meeting, to increase the number of shares of Common Stock
that may be issued under the 1995 Directors Stock Incentive Plan from 1,000,000
to 1,500,000 shares. (See Proposal 3 discussion starting on page 25.) The
January 1999 amendments also provide that, with respect to any amendment to the
Plan which becomes effective on or after January 21, 1999, if the Company
desires to engage in a transaction which is intended to be accounted for as a
pooling of interests under applicable accounting rules, and if the existence or
operation of any such amendment will be deemed to prevent the pooling of
interests in a transaction that is otherwise eligible to be accounted for as a
pooling of interests, then such amendment will be deemed null and void and any
actions taken in reliance on such amendment will be deemed null and void to the
extent necessary to allow a pooling of interests.
Currently, the outside directors hold the following option grants under the
1995 Directors Stock Incentive Plan. Those directors serving on June 1, 1996,
received a one-time automatic grant of 1,000 shares which vested on the first
anniversary of the grant date. Directors serving on March 5, 1997, received the
automatic 52,000-share option grant vesting over a 10-year period, pursuant to
the March 1997 amendments. Directors elected or appointed to the Board after
March 1997, and prior to January 21, 1999, received a pro-rata portion of the
52,000-share automatic grant. Under the July 1998 amendments, and as further
clarified in the January 1999 amendments, future grants and awards to directors
under the 1995 Directors Stock Incentive Plan will be made at the discretion of
the Board.
In connection with the July 1998 amendments, on July 14, 1998, each outside
director was granted an option to purchase 9,400 shares of Common Stock.
One-half of these options will vest upon the achievement of applicable stock
price objectives on or prior to the third anniversary of the grant date, and the
remaining 50% will vest upon the achievement of applicable stock price
objectives on or prior to the fifth anniversary of the grant date. If an
applicable objective is not met within the time period specified, the options
related to that objective will be forfeited. On March 2, 1999, each outside
director was granted an option to purchase 16,500 shares of Common Stock at an
exercise price of $9.44 per share, which will vest on the first anniversary of
the grant date.
A director who ceases service on the Board generally would only be
permitted to exercise vested options under the 1995 Directors Stock Incentive
Plan as of the date service is terminated, and unvested options would be
forfeited; provided, however, that, in the event of a director's death,
disability or mandatory retirement or in the event of a change in control of the
Company, unvested options would vest and become immediately exercisable (other
than options that become exercisable solely upon the attainment of performance
targets which, at the time of such director's death, disability, retirement or
change in control, have not been met). In addition, a director must exercise his
or her vested options within six months after 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 options. The 1995 Directors Stock Incentive Plan
permits directors to transfer options to members of their immediate families,
either directly or through a trust or similar vehicle.
Directors Deferred Compensation Plan. The Directors Deferred Compensation
Plan is designed to allow outside 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. Under the
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<PAGE> 11
Directors Deferred Compensation Plan, an outside director may defer all or any
portion of the cash compensation received for services to either a Stock Unit
Account or Fixed Income Account. The Company will credit an additional 25% to
the account of any director who elects to have his or her cash compensation
invested in the Stock Unit Account for a period of at least three years. The
Company's matching contribution will remain invested in the Stock Unit Account
until the director terminates his or her service as a director of the Company.
The Fixed Income Account earns interest compounded annually at a rate
determined by the Treasurer of the Company in January of each year based on
utility and corporate bond yields. The Stock Unit Account fluctuates in value
based on changes in the price of the Common Stock, and equivalents to cash
dividends paid on the Common Stock are deemed to be reinvested in additional
stock units.
For amounts in the Stock Unit Account, payment in cash of such deferred
compensation is to be made beginning in January following termination of service
as a director. For amounts in the Fixed Income Account, payment in cash of such
deferred compensation is to be made at the election of the director either at
the time of termination 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 1998, outside directors deferred
$250,000 to Stock Unit Accounts and $20,000 to Fixed Income Accounts under the
Directors Deferred Compensation Plan.
EXECUTIVE COMPENSATION
REPORT ON EXECUTIVE COMPENSATION
The Compensation and Corporate Governance Committee (the "Compensation
Committee") is responsible for administering the executive officer compensation
and stock ownership programs of the Company. These programs consist of two
elements, annual compensation and long-term incentive compensation. They are
designed to provide payment for performance of assigned responsibilities and
achievement of predetermined goals that support the Company's overall objective
of enhancing shareholder value. We believe that this objective will be achieved
only if the Company is able to attract and retain outstanding talent and,
through a competitive compensation program, provide incentives tied to the
creation of shareholder value.
This Report on Executive Compensation describes the application of this
philosophy to the Compensation Committee's decisions concerning compensation for
1998.
ANNUAL COMPENSATION
Annual compensation for executive officers consists of two components: base
salary and annual incentive pay.
Base Salary. The Compensation Committee reviews each executive officer's
salary annually, taking into consideration a number of factors, including: (i)
the executive officer's individual performance, (ii) the Company's performance,
(iii) the executive officer's position and responsibility, (iv) the executive
officer'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 to the above factors. However, the Compensation Committee
believes that base salaries that average at or near the median for the
comparable companies are generally appropriate as a frame of reference for base
pay decisions. The average base salaries for the Company's executive officers
for which comparable data is available generally exceed the median for the
comparable companies, but approximate the average base salaries for such
comparable companies. Specific compensation for individual executive officers
will vary from these levels as a result of the subjective judgment of the
Compensation Committee. The comparable companies that we reference with respect
to compensation for our executive officers include most of those companies in
the peer group on the Performance Graph, as well as several other energy
companies
8
<PAGE> 12
similar in size with which the Company competes for executive talent. The
companies were selected with the assistance of an independent consulting firm.
Annual Incentive Pay. Annual incentive pay is awarded under the Executive
Incentive Plan ("EIP"). The EIP is a bonus program designed to tie an executive
officer's 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. Under the EIP's incentive reserve funding formula, the Compensation
Committee may, at its discretion, credit the Incentive Reserve Account each year
with such amount as it may determine, subject to a maximum amount for any year
based on a specified percentage (from 0.25% to 0.5%) of earnings before
interest, taxes, depreciation, depletion and amortization, and expensed
exploration costs excluding exploration overhead ("Incentive Income"). The
actual percentage of Incentive Income that may be credited is based upon a
calculation of the Incentive Income Return on Average Annual Assets ("Incentive
Return"). However, no contribution may be made to the Incentive Reserve Account
if the Incentive Return does not meet a specified minimum. "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 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. Any amounts
credited to the Incentive Reserve Account which are not awarded may be carried
forward and awarded by the Compensation Committee to executive officers in
future years during which the EIP remains in effect.
As soon as practicable at the end of each year, the Compensation Committee
may issue awards under the EIC that do not exceed the unawarded balance in the
Incentive Reserve Account. The amount of an individual award will be determined
by the Compensation Committee and will depend upon the evaluation of each
executive officer's performance and the other factors described in the Base
Salary discussion above. No specific weight is given to any one factor. The
Compensation Committee believes that total cash compensation (including base
salary and 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 1998 under the EIC to executive officers whose
compensation was subject to Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), was 0.13% of covered income for the Chief Executive
Officer and 0.065% 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.
LONG-TERM INCENTIVE COMPENSATION
The Compensation Committee believes that long-term compensation should
constitute a substantial portion of each executive officer's total compensation.
Long-term compensation provides incentives that encourage the executive officers
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 option grants and retention stock awards under the 1995 Stock
Option and Retention Stock Plan (the "1995 Plan"). The Compensation Committee
and the Board have approved amendments to the 1995 Plan to increase the number
of shares available for awards under the 1995 Plan and the per-person limit for
such awards, and such amendments are being submitted to the shareholders at the
1999 Annual Meeting of Shareholders. (See Proposal 2 discussion starting on page
20.) The Company also maintains specific stock ownership guidelines for its
executive officers.
Stock Options. Stock options are granted periodically, with the magnitude
of the grant based on an executive officer's position, experience, individual
performance and surveys provided by independent consultants of the Company
regarding option grants made by the comparable companies, without giving
9
<PAGE> 13
particular weight to any one factor. The Compensation Committee exercises
subjective judgment in this regard. The Compensation Committee believes that the
value of the options granted should be equal to a multiple of the base salary of
an executive officer. For 1998, such salary multiples were based on a survey by
an independent consulting firm engaged by the Company. The salary multiple used
varied by position of the executive officer. Except to the extent that an
executive officer is approaching the per-person limit under the 1995 Plan, the
number of options already held by an executive officer is not a factor
considered in connection with a grant of options. 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.
Retention Stock. Retention stock are shares of Common Stock awarded to
executive officers that are not transferable and are subject to forfeiture if
the executive officer terminates employment before the vesting period lapses
("Retention Stock"). Awards of Retention Stock are made for the purpose of
retaining executive officers, providing incentive for long-term performance and
aligning an executive officer's interests with those of the shareholders of the
Company.
Stock Ownership Guidelines. The Company has established stock ownership
guidelines for all executive officers to ensure that the financial interests of
those executive officers remain aligned with those of the shareholders. The
executive officers are expected to make continuing progress toward compliance
with these guidelines. The guidelines range from a market value equal to two
times salary for first level executive officers, to four times salary for the
Chairman and Chief Executive Officer. Until the minimum ownership amount is
achieved, executive officers are expected to retain 50% of the Common Stock
received upon exercise of options, net of taxes and cost of exercise, and 50% of
all Retention Stock, net of taxes. Once the ownership target is exceeded, an
executive officer may sell down to his or her ownership target.
POLICY REGARDING SECTION 162(m) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Code generally limits the ability of the Company to
take a federal income tax deduction for compensation paid to the Chief Executive
Officer or the four most highly compensated executive officers other than the
Chief Executive Officer, except for qualified performance-based compensation.
The EIP and 1995 Plan are believed to qualify as performance-based compensation
under Internal Revenue Service rules. Awards of Retention Stock are not intended
to qualify as performance-based under the regulations; provided, however, if the
right to receive Retention Stock is conditioned upon the achievement of
specified performance criteria, such Retention Stock will be treated as
performance-based. While the Compensation Committee will seek to utilize
deductible forms of compensation to the extent practicable, the Committee does
not believe that compensation decisions should be constrained necessarily by how
much compensation is deductible for federal income taxes purposes. During 1998,
the Company exceeded the limits for deductibility of compensation that is not
performance-based with respect to the Chairman and Chief Executive Officer and
the President. In the case of the Chairman and Chief Executive Officer, the
limits were exceeded primarily due to his receipt of dividends on Retention
Stock released from an escrow account upon the lapse of restrictions on such
Retention Stock in 1998, and the purchase of an annuity to satisfy the Company's
unfunded obligations to him under the Supplemental Pension Plan, together with
the reimbursement of income taxes on the value of such annuities, recognized as
income in 1998. In the case of the President, the limits were exceeded due to
annuitization of his Supplemental Pension Plan benefits and accompanying income
tax reimbursement in 1998.
CEO COMPENSATION
Mr. Messman's compensation package is designed to encourage short- and
long-term performance aligned with the interests of shareholders. In 1998, the
majority of his compensation was "at risk," consisting of an EIP award and stock
options.
Mr. Messman's base pay for 1999 has been increased by 4.5% to $836,000.
With this increase, Mr. Messman's base pay is between the 50th and 75th
percentile for the comparable companies. For 1998, Mr. Messman received an
annual incentive payment under the EIP of $980,000. Mr. Messman's total cash
10
<PAGE> 14
compensation is slightly below the 75th percentile based on available data for
the comparable companies. Additionally, Mr. Messman received options to purchase
280,000 shares of Common Stock, of which 50% will vest upon the occurrence of
applicable stock price objectives on or prior to the third anniversary of the
grant date, and 50% will vest upon the occurrence of applicable stock price
objectives on or prior to the fifth anniversary of the grant date. If an
applicable objective is not met within the time period specified, the options
related to that objective will be forfeited.
The determination of Mr. Messman's compensation was based on the
application of the policies described above that are applicable to all executive
officers. In applying these policies to Mr. Messman's compensation, the
Compensation Committee considered several significant accomplishments by Mr.
Messman in 1998, during a difficult year in the oil and gas industry. Mr.
Messman led the Company as it began a transition to a pure exploration and
production company in an environment of depressed commodity prices. This
transition included the acquisition of Norcen Energy Resources, Ltd., a Canadian
exploration and production company with significant operations in Canada, the
Gulf of Mexico and Latin America. With this acquisition, the Company diversified
its portfolio of oil and gas interests and significantly enhanced its drillsite
inventory. In addition, production volumes and reserves for the year increased
by more than 50% over 1997 levels, and the Company was strategically positioned
to take advantage of future opportunities in the international arena. Under Mr.
Messman's leadership, the Company also embarked on an aggressive deleveraging
program designed to reduce the Company's debt by approximately $2 billion. While
not yet complete, the effort included the sale of approximately $650 million of
non-core exploration and production properties and the execution of an agreement
to sell the Company's gathering, processing and marketing business to Duke
Energy Field Services, Inc. for $1.35 billion. The Compensation Committee
believes that Mr. Messman's compensation is appropriate compared to CEOs of the
comparable companies and considering his accomplishments and leadership during a
challenging year for the Company.
The Compensation and Corporate Governance
Committee
Preston M. Geren III
John W. Poduska, Sr., Ph.D.
Michael E. Rossi
James R. Thompson (Chairperson)
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<PAGE> 15
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>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------------------------- -----------------------------
SECURITIES
OTHER RETENTION UNDERLYING
ANNUAL (RESTRICTED) OPTIONS/SAR ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) STOCK AWARDS(2) GRANTS COMPENSATION(3)
- --------------------------- ---- -------- ---------- --------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack L. Messman, 1998 $803,000 $ 980,000 $ 8,711 $ 0 280,000 $78,320
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
George Lindahl III, 1998 491,021 455,000 1,910 0 170,000 64,667
President & COO 1997 403,862 650,000 94,919 124,461 0 30,227
1996 280,000 450,000 192 2,762,500 190,000 20,021
V. Richard Eales, 1998 371,333 340,000 66,299 0 100,000 62,843
Executive Vice President 1997 267,195 375,000 105,495 962,520 0 33,601
1996 230,000 275,000 1,689 464,100 84,000 24,110
Donald W. Niemiec, 1998 334,521 260,000 943 0 84,000 26,021
Vice President-Marketing 1997 253,995 295,000 142,110 75,734 0 18,497
1996 211,750 225,000 91 1,381,250 80,000 15,402
Morris B. Smith, 1998 292,958 220,000 4,281 0 64,000 32,328
Vice President and CFO 1997 229,605 240,000 72,099 46,750 0 24,989
1996 212,500 175,000 318 375,700 68,000 13,700
</TABLE>
- ---------------
(1) Other Annual Compensation for 1998 includes: the 25% match on cash deferrals
of salary or bonus in a Stock Unit Account under the Executive Deferred
Compensation Plan (Mr. Eales, $52,833; Mr. Smith, $1,500); above-market
interest on deferred compensation (Mr. Messman, $7,762; Mr. Eales, $11,767;
Mr. Smith, $2,105); and reimbursements for Medicare tax on the supplemental
thrift plan match by the Company and on the Company match on cash deferrals
into a Stock Unit Account under the Executive Deferred Compensation Plan
(Mr. Messman, $949; Mr. Lindahl, $1,910; Mr. Eales, $1,699; Mr. Niemiec,
$943; Mr. Smith $676). Perquisites and other personal benefits for 1998 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
the executive officer and, therefore, have not been included.
(2) The values of the Retention (Restricted) Stock Awards that are presented in
the table are based on the value of the Common Stock as of the date awarded.
As of December 31, 1998, the aggregate number of shares of Retention Stock
and Rollover Retention Stock held and the value thereof were: Mr. Messman,
142,446 shares, $1,290,917; Mr. Lindahl, 73,333 shares, $664,580; Mr. Eales,
45,600 shares, $413,250; Mr. Niemiec, 36,666 shares, $332,286; Mr. Smith,
4,533 shares, $41,080. Dividends on the Retention Stock and Rollover
Retention Stock are payable at the same rate as dividends on the Common
Stock. The Retention (Restricted) Stock Awards for 1997 include the grant of
an additional 10% of the number of shares of Retention Stock that would have
vested in 1997, in consideration of the deferral in 1997 of the vesting of
such Retention Stock until 1998 (Mr. Messman, 14,298 shares; Mr. Lindahl,
5,024 shares; Mr. Niemiec, 3,066 shares; Mr. Smith, 1,890 shares). Such
additional 10% of Retention Stock vested in 1998. Additionally, in June
1997, Mr. Messman was awarded 3,405 shares of Retention Stock which vest in
equal increments over a two-year period, commencing on June 3, 1998.
Retention Stock awarded in 1996 vests as follows: 40% vests in equal
increments over a three-year period commencing on the first anniversary of
the award date, and the remaining 60% vests in equal increments on the
fourth and fifth anniversaries of the award date (Mr. Messman, 150,000; Mr.
Lindahl, 100,000; Mr. Niemiec, 50,000). Shares of Retention Stock awarded to
Mr. Eales and Mr. Smith in 1996 vest in equal increments over a three-year
period commencing on the first anniversary of the award date (Mr. Eales,
16,800; Mr. Smith, 13,600). "Rollover
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<PAGE> 16
Retention Stock" are awards of Retention Stock which the Company awarded to
an individual participant in exchange for UPC retention stock which the
participant already held under the compensation plans of UPC (the "UPC
Plans").
(3) All Other Compensation in 1998 consists of the Company match of thrift plan
contributions (Mr. Messman, $48,180; Mr. Lindahl, $55,943; Mr. Eales,
$43,413; Mr. Niemiec, $20,071; Mr. Smith, $25,555) and executive life
insurance premiums (Mr. Messman, $30,140; Mr. Lindahl, $8,724; Mr. Eales,
$19,430; Mr. Niemiec, $5,950; Mr. Smith, $6,773).
OPTION GRANT TABLE
The following table sets forth information concerning individual grants of
stock options during 1998 to the Chief Executive Officer and the other four most
highly compensated executive officers. Stock appreciation rights were not
granted in 1998:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED GRANT DATE
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION PRESENT
NAME GRANTED(1) IN FISCAL YEAR PRICE DATE VALUE(2)
- ---- ---------- --------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Jack L. Messman.................... 280,000 9% $17.04 07/14/08 $1,971,200
George Lindahl III................. 170,000 6% 17.04 07/14/08 1,196,800
V. Richard Eales................... 100,000 3% 17.04 07/14/08 704,000
Donald W. Niemiec.................. 84,000 3% 17.04 07/14/08 591,360
Morris B. Smith.................... 64,000 2% 17.04 07/14/08 450,560
</TABLE>
- ---------------
(1) One-half of these options will vest upon the achievement of applicable stock
price objectives on or prior to the third anniversary of the grant date, and
the remaining 50% will vest upon the achievement of applicable stock price
objectives on or prior to the fifth anniversary of the grant date. If an
applicable objective is not met within the time period specified, the
options related to that objective will be forfeited.
(2) Calculated in accordance with the Black-Scholes option pricing model. The
assumptions used in such option pricing model are: expected volatility, 51%;
expected dividend yield, 2.25%; expected option term, five years; and
risk-free rate of return, 4.6%.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth individual exercises of stock options during
1998 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
UNDERLYING UNEXERCISED VALUE OF IN-THE-MONEY
SHARES OPTIONS AT YEAR-END OPTIONS AT YEAR-END
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Jack L. Messman.......... 0 $0 1,129,489/415,916 $0/0
George Lindahl III....... 0 0 514,401/253,333 0/0
V. Richard Eales......... 0 0 313,406/128,000 0/0
Donald W. Niemiec........ 0 0 213,439/110,666 0/0
Morris B. Smith.......... 0 0 153,707/ 86,666 0/0
</TABLE>
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<PAGE> 17
EXECUTIVE DEFERRED COMPENSATION PLAN
The Executive Deferred Compensation Plan is designed to allow executives to
defer receipt of certain compensation, and consequently defer federal income
taxes. Executive officers are permitted to defer up to 100% of their annual
bonus and 100% of their base salary in excess of $160,000, gains on options to
purchase Common Stock and awards of Retention Stock into Stock Unit Accounts and
other investment accounts to be established from time to time by the
Compensation Committee. For such deferrals to be effective, the executive
officer must make a timely election. Under the Executive Deferred Compensation
Plan, the Company will credit an additional 25% to the Stock Unit 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 will remain invested until the officer terminates employment with
the Company. Account balances are unsecured and unfunded obligations of the
Company.
DEFINED BENEFIT PLANS
Pensions are provided through the Pension Plan for Employees of Union
Pacific Resources Group Inc. and Affiliates (the "Basic Plan"), and the
Supplemental Pension Plan for Exempt Salaried Employees of Union Pacific
Resources Company and Affiliates (the "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 12. The credited years of employment for each of the five individuals named
in the Summary Compensation Table are as follows: Mr. Messman 18, Mr. Lindahl
11, Mr. Eales 8, Mr. Niemiec 16 and Mr. Smith 22.
The Supplemental Plan is a non-contributory plan which provides, unlike the
Basic Plan, (1) for the grant of additional years of employment and deemed age
to officers and certain managers, (2) for the inclusion of earnings in excess of
the limits contained in the Internal Revenue Code of 1986, as amended (the
"Code"), (3) for deferred incentive compensation in the calculation of final
average earnings, and (4) for any benefits in excess of the limitations provided
for under the Code. Messrs. Messman, Lindahl, Eales, Niemiec and Smith have
accrued benefits under the Supplemental Plan.
Consistent with prior practice when the Company was a wholly owned
subsidiary of UPC, in 1998 the Company purchased annuities to satisfy certain
unfunded obligations under the Supplemental Plan for the Chief Executive Officer
and the other four most highly compensated executive officers, and has paid the
federal income taxes on behalf of such executive officers 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 income taxes will be the
same as the amount that would have been received from the Supplemental Plan net
of federal income taxes if the annuity had not been purchased.
14
<PAGE> 18
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
---------------------------------------------------------------------------------
15 YEARS OF 20 YEARS OF 25 YEARS OF 30 YEARS OF 35 YEARS OF 40 YEARS OF
FINAL AVERAGE EARNINGS EMPLOYMENT EMPLOYMENT EMPLOYMENT EMPLOYMENT EMPLOYMENT EMPLOYMENT
- ---------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 200,000................. $ 47,398 $ 63,198 $ 78,997 $ 94,796 $ 103,926 $ 113,055
400,000................. 97,408 129,878 162,347 194,816 213,946 233,075
600,000................. 147,418 196,558 245,697 294,836 323,966 353,095
800,000................. 197,428 263,238 329,047 394,856 433,986 473,115
1,000,000................. 247,438 329,918 412,397 494,876 544,006 593,135
1,200,000................. 297,448 396,598 495,747 594,896 654,026 713,155
1,400,000................. 347,458 463,278 579,097 694,916 764,046 833,175
1,600,000................. 397,468 529,958 662,447 794,936 874,066 953,195
1,800,000................. 447,478 596,638 745,797 894,956 984,086 1,073,215
2,000,000................. 497,488 663,318 829,147 994,976 1,094,106 1,193,235
2,200,000................. 547,498 729,998 912,497 1,094,996 1,204,126 1,313,255
2,400,000................. 597,508 796,678 995,847 1,195,016 1,314,146 1,433,275
2,600,000................. 647,518 863,358 1,079,197 1,295,036 1,424,166 1,553,295
2,800,000................. 697,528 930,038 1,162,547 1,395,056 1,534,186 1,673,315
3,000,000................. 747,538 996,718 1,245,897 1,495,076 1,644,206 1,793,335
</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 AGREEMENTS FOR EXECUTIVE OFFICERS
The Board has approved change in control agreements for executive officers,
including the Chief Executive Officer and the other four most highly compensated
executive officers. In the event of a "change in control"(as hereinafter
defined), if the executive officer is involuntarily terminated without "cause"
(as hereinafter defined) or terminates employment for "good reason"(as
hereinafter defined)(a "qualified termination") within 36 months following the
change in control, such executive officer will receive severance compensation.
Jack L. Messman, 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, President and Chief Operating Officer and
Executive Vice President, respectively, is entitled to receive severance
compensation equal to two and one-half times his respective base salary and the
average of his respective bonuses for the preceding two years. Each of Donald W.
Niemiec and Morris B. Smith, each a Vice President, is entitled to receive
severance compensation equal to two times his respective base salary and the
average of his respective bonuses for the preceding two years.
In addition to the monetary compensation described above, in the event of a
qualified termination of employment following a change in control, 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, unless the agreement granting such stock options and awarding such
Retention Stock specifically provides otherwise, (2) are entitled to receive
continuation of all life, disability, accident and health insurance for 24 to 36
months following termination and (3) will be deemed to have an additional 24 to
36 months of benefit credit under the Supplemental Plan and supplemental thrift
plan either as part of the benefit otherwise payable or in a lump sum. There is
a gross-up provision for excise taxes, as described below, and no requirement
for the executive officer to mitigate the Company's obligation to pay benefits
by seeking other employment, nor will benefits be reduced as a result of
compensation from subsequent employers.
15
<PAGE> 19
The change in control agreements were amended in January 1999 to provide
that, in the event of a qualified termination within 36 months after a change in
control, the executive officer will have the shorter of five years following
such qualified termination, or the remaining term of an option, within which to
exercise such option. The agreements were further amended to provide that,
immediately upon a change in control, and without any requirement for a
qualified termination, all options then held by the executive officer would
become fully exercisable (other than options that become exercisable solely upon
the attainment of performance targets which, at the time of the change in
control, have not been met) and all restrictions pertaining to any shares of
Retention Stock then held by the executive officer would immediately lapse or be
deemed fully satisfied (other than Retention Stock that vests only upon the
attainment of performance targets which, at the time of the change in control,
have not been met). The Compensation Committee and the Board believed that these
changes were necessary to make the Company more competitive and to ensure that
executive officers remain with the Company during the current transition period.
At the same time, they were mindful that the Company may, at some point, seek to
enter into a pooling of interests transaction and, therefore, included in the
amendment a provision that, if the Company desires to engage in a transaction
which is intended to be accounted for as a pooling of interests under applicable
accounting rules, and if the existence or implementation of any provision of the
foregoing amendments is deemed to prevent the pooling of interests in a
transaction that is otherwise eligible to be accounted for as a pooling of
interests, then such amendment and any actions taken in reliance on such
amendment will be deemed null and void to the extent necessary to allow a
pooling of interests.
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 executive 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 change in control
agreements provide a gross-up provision that essentially negates the impact of
the 20% excise tax. In addition, the Company will reimburse the executive
officer for all legal fees and expenses incurred in connection with the
enforcement of his or her agreement.
Pursuant to the change in control agreements, a "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's
shareholders holding less than 50% of the voting shares of the surviving entity
and (4) the approval by shareholders of a plan of complete liquidation of the
Company. The executive officer has 36 months after a change of control event
within which he or she will be provided such severance protection. During such
36 months, the executive officer will receive the severance compensation and
other benefits described above if, and at such time as, (i) the executive
officer is involuntarily terminated without "cause" by the Company or its
successor organization or (ii) the executive officer 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. "Cause" for
termination means the willful failure by the executive officer to perform his or
her duties with the Company after a written
16
<PAGE> 20
notice demanding substantial performance has been delivered to the executive
officer or the willful engaging by the executive officer in conduct which is
materially injurious to the Company.
In addition, 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 severance
compensation and other benefits described above. Before or after such 30-day
period, if the executive officer voluntarily terminates his or her employment
with the Company without good reason, the executive officer would not be
eligible for such severance compensation or other benefits under the change in
control agreement.
The Compensation Committee and the Board determined that the Company would
gain several advantages from the change in control agreements. The agreements,
which reflect competitive practices, will provide some degree of economic
security to executive officers, thereby enabling top management to remain
objective and responsive to shareholder interests in the event that a change in
control transaction opportunity occurs.
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 investment of $100 in the S&P 500 Stock Index and a "peer group"
over the period from October 10, 1995, the first trading date of the Common
Stock in connection with the Company's initial public offering, through December
31, 1998. Total shareholder returns assume dividend reinvestment. The peer group
consists of Anadarko Petroleum Corporation, Apache Corporation, Burlington
Resources, Inc., Enron Oil & Gas Company, Noble Affiliates, Inc. and Vastar
Resources, Inc.
COMPARISON OF CUMULATIVE TOTAL SHAREHOLDER RETURNS
COMPANY, S&P 500 AND PEER GROUP
(FROM OCTOBER 10, 1995 TO DECEMBER 31, 1998)
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) PEER GROUP COMPANY S&P 500
<S> <C> <C> <C>
10/10/95 100 100 100
12/31/95 111.31 121.07 107.21
12/31/96 137.10 139.41 131.83
12/31/97 123.49 117.48 175.81
12/31/98 109.01 44.56 226.05
</TABLE>
17
<PAGE> 21
SECURITY OWNERSHIP OF EXECUTIVE OFFICERS,
DIRECTORS AND CERTAIN BENEFICIAL OWNERS
EXECUTIVE OFFICERS AND DIRECTORS
The following table summarizes (A) the beneficial ownership of the Common
Stock as of March 9, 1999, by (i) the Chief Executive Officer, (ii) the other
four most highly compensated executive officers, (iii) the directors and (iv)
all directors and executive officers as a group, and (B) the number of whole
stock units attributed to each such executive officer, outside director and all
directors and executive officers as a group under the Executive Deferred
Compensation Plan and Directors Deferred Compensation Plan, as applicable (a
"Stock Unit"), as of March 9, 1999. 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
COMMON STOCK NUMBER OF
BENEFICIALLY STOCK UNITS
NAME OWNED(1) ATTRIBUTED(2)
- ---- ------------ -------------
<S> <C> <C>
Jack L. Messman............................................. 1,841,781 238,256
George Lindahl III.......................................... 820,227 84,479
V. Richard Eales............................................ 554,331 18,965
Donald W. Niemiec........................................... 398,910 24,597
Morris B. Smith............................................. 270,626 34,047
H. Jesse Arnelle............................................ 12,472 1,912
Lynne V. Cheney............................................. 16,738 6,086
Preston M. Geren III........................................ 19,100 4,138
Lawrence M. Jones........................................... 17,494 1,912
Drew Lewis(3)............................................... 109,657 4,860
Claudine B. Malone.......................................... 17,680 1,912
John W. Poduska, Sr......................................... 32,246 8,524
Michael E. Rossi............................................ 9,600 206
Samuel K. Skinner........................................... 15,600 4,404
James R. Thompson........................................... 13,400 9,431
All directors and executive officers as a group (19
persons).................................................. 4,572,009 507,554
</TABLE>
- ---------------
(1) Included in the number of shares of Common Stock Beneficially Owned are
shares which such persons have the right to acquire within 60 days of March
9, 1999, pursuant to options to purchase such Common Stock (Mr. Messman,
1,129,489; Mr. Lindahl, 514,401; Mr. Eales, 313,406; Mr. Niemiec, 213,439;
Mr. Smith, 153,707; Mr. Arnelle, 11,400; Mrs. Cheney, 11,400; Mr. Geren,
10,400; Mr. Jones, 11,400; Mr. Lewis, 10,400; Ms. Malone, 11,400; Mr.
Poduska, 11,400; Mr. Rossi, 9,100; Mr. Skinner, 10,400; Mr. Thompson,
11,400); shares of Retention Stock (Mr. Messman, 636,615; Mr. Lindahl,
288,279; Mr. Eales, 203,738; Mr. Niemiec, 155,537; Mr. Smith, 108,387); and
shares of Common Stock held in the Company's thrift plan (Mr. Messman,
5,594; Mr. Lindahl, 2,596; Mr. Eales, 1,514; Mr. Niemiec, 3,035; Mr. Smith,
2,918).
(2) Included in the number of Stock Units Attributed is the Company's 25% match
on cash deferrals into Stock Units. Stock Unit Accounts are credited with
the amount deferred and include the reinvestment of dividends in additional
Stock Units. The value of a Stock Unit fluctuates based on changes in the
price of the Common Stock. The Stock Units are unsecured and unfunded
obligations of the Company and carry no voting rights.
(3) Excludes 1,000 shares of Common Stock in a Keogh account beneficially owned
by Mrs. Drew Lewis as to which Mr. Lewis disclaims any beneficial ownership.
18
<PAGE> 22
CERTAIN BENEFICIAL OWNERS
The following table sets forth the shareholders known to the Company to be
the beneficial owners of more than five percent of the Common Stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OF OF COMMON STOCK PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS(1)
- ------------------- --------------------- ----------
<S> <C> <C>
Wellington Management Company, LLP(2)....................... 19,686,700 7.84%
75 State Street
Boston, Massachusetts 02109
Dodge & Cox................................................. 15,317,803 6.10%
One Sansome St., 35th Floor
San Francisco, California 94104
</TABLE>
- ---------------
(1) Information presented is based upon Schedule 13G filings, which present
beneficial ownership information as of December 31, 1998.
(2) Includes the holdings of the Vanguard Windsor Fund of 15,510,600 shares
representing 6.18% of the Common Stock.
19
<PAGE> 23
2. APPROVAL OF AMENDMENTS TO THE 1995 STOCK OPTION AND RETENTION STOCK PLAN,
AS AMENDED AND RESTATED
At the Annual Meeting, shareholders will be asked to approve a proposal
which includes two amendments to the Company's 1995 Stock Option and Retention
Stock Plan, as amended and restated effective June 1, 1997, originally adopted
in September 1995 (the "1995 Plan"). The 1995 Plan provides for grants of
non-qualified stock options, incentive stock options and stock appreciation
rights (collectively "Options") and awards of Retention Stock to officers, to
non-officer executives and, through the Company's broad-based option program, to
all eligible employees. The proposed amendments have been unanimously approved
by the Compensation Committee and the Board.
PROPOSED AMENDMENTS
The amendments would increase the number of available shares under the 1995
Plan from 16,000,000 to 23,000,000 (the "Share Increase Amendment"), and
increase the per-person limitation applicable to Options granted and Retention
Stock awarded to individual participants from 10% to 25% of the available shares
(the "25% Limitation Amendment"). A summary of these changes is set forth below.
The Share Increase Amendment. Under the 1995 Plan, an aggregate of
16,000,000 shares of Common Stock have been available for grants of Options and
awards of Retention Stock. The Company is proposing an increase in the aggregate
number of shares available under the 1995 Plan by 7,000,000 to 23,000,000.
As of March 9, 1999, the Company had made grants and awards covering
13,630,366 shares under the 1995 Plan, including 5,113,040 grants and awards
made to all qualified non-executive employees under the Company's broad-based
option program. Also included in the total shares granted and awarded under the
1995 Plan are awards of 1,474,439 shares of Retention Stock and Option grants
covering 1,006,439 shares of Common Stock made in the first quarter of 1999 to
the executive officers, including the Chief Executive Officer and the other four
most highly compensated executive officers, as well as certain non-officer
executives. As of March 9, 1999, there were 3,014,804 shares remaining available
for future grants of Options and awards of Retention Stock under the 1995 Plan,
including shares subject to previously granted Options and Retention Stock which
have again become available for grant after such Options and Retention Stock
were cancelled, forfeited, expired or terminated pursuant to the terms of the
1995 Plan.
The increase in shares proposed in the Share Increase Amendment is based on
the results of a study conducted by an independent consulting firm retained by
the Company showing that, based on data as of December 1997, the Company is
below the 25th percentile of the comparable companies referenced for executive
compensation purposes with regard to the percentage of shares outstanding which
are available for issuance, as well as with regard to the average annual grants
made to employees as a percentage of shares outstanding. The Compensation
Committee and the Board believe that the additional authorized shares are needed
under the 1995 Plan to attract, retain and motivate key employees and to provide
the Compensation Committee with the flexibility it needs to award long-term
incentives to employees of the Company.
The 25% Limitation Amendment. The 25% Limitation Amendment would increase
the cumulative limitation applicable to Option grants and Retention Stock awards
to an individual participant from 10% to 25% of the available shares (excluding
Rollover Options and Rollover Retention Stock, as defined below, from the
calculation of the 25% limitation). In order to comply with Section 162(m) of
the Code, the 1995 Plan imposes a "per-person" limitation on the number of
Option grants and Retention Stock awards. The 1995 Plan currently provides that
no more than 10% of the available shares of Common Stock can be granted or
awarded to any participant in the form of Options or Retention Stock over the
term of the 1995 Plan. The 25% Limitation Amendment provides the Compensation
Committee with greater flexibility in rewarding outstanding performance and
attracting and retaining superior employees. In that regard, the cumulative
number of shares subject to Options granted and Retention Stock awarded to the
Chief Executive Officer, including the grants and awards made in the first
quarter of 1999, is 10% of the total number of shares available under the 1995
Plan (prior to the Share Increase Amendment), thus limiting the Compensation
Committee's alternatives for providing long-term incentive compensation.
Rollover Options are options which
20
<PAGE> 24
were granted by the Company to an individual participant in exchange for options
to purchase common stock of UPC which the participant already held under the UPC
Plans.
DESCRIPTION OF THE 1995 PLAN
The Compensation Committee and the Board believe that attracting,
motivating and retaining employees of superior ability is essential to the
Company's future growth and success. In their opinion, the long-term success of
the Company is enhanced by a compensation program which includes long-term
incentives relating compensation to increases in shareholder value, aligns the
interests of employees with those of the Company's shareholders and retains key
employees. Accordingly, Options and Retention Stock have been, and are expected
to continue to be, a key element of compensation for the Company's officers and
employees. The amendments to the 1995 Plan are being submitted to shareholders
to meet the requirements of the Code, the New York Stock Exchange and the 1995
Plan for shareholder approval.
The following is a brief description of the material features of the 1995
Plan as currently in effect and as modified by the proposed amendments. This
description is not intended to be a complete description of all of the terms of
the 1995 Plan. A copy of the full plan document will be furnished without charge
to any shareholder upon written request to the attention of the Company's
Investor Relations Department at 777 Main Street, Fort Worth, Texas 76102.
Administration. The 1995 Plan is 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 under the Exchange Act or an "outside director" under Section 162(m) of
the Code, 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.
The Compensation Committee will grant Options and award Retention Stock and
determine the terms and conditions of such Options and Retention Stock.
Additionally, the Compensation Committee has full authority to construe and
interpret the 1995 Plan, to establish, amend and rescind rules and regulations
relating to the 1995 Plan and to take all such steps and make all such
determinations in connection with the 1995 Plan, and Options and Retention Stock
granted thereunder, as it deems necessary or advisable. Future awards under the
1995 Plan are not determinable because specific grants and awards are made at
the discretion of the Compensation Committee, depending upon a variety of
factors.
Shares Available Under the 1995 Plan and Per-Person Limitations. As
modified by the proposed amendments, the total number of shares of Common Stock
available for grants and awards under the 1995 Plan would be 23,000,000 (rather
than 16,000,000), and over its term (i.e., through September 27, 2005), no
participant could receive grants of Options (excluding Rollover Options) or
awards of Retention Stock (excluding Rollover Retention Stock) covering more
than 25% (rather than 10%) of the shares of the Common Stock available under the
1995 Plan, or 5,750,000 million shares (rather than 1,600,000), subject to
adjustment, as described below. Shares subject to a grant or an award that is
canceled, forfeited, expires or terminates without delivery of shares may again
be available for grants or awards under the 1995 Plan, except that shares to
which a stock appreciation right ("SAR") relates will be counted against the
1995 Plan limits when the SAR is exercised. Shares of Common Stock issued under
the 1995 Plan may be either authorized and unissued shares or shares previously
issued and reacquired by the Company.
Adjustments and Extraordinary Corporate Events. In the event of a
recapitalization, stock split, stock dividend, combination or exchange of
shares, merger, consolidation, rights offering, separation, spinoff,
reorganization, liquidation or any other change in the corporate structure or
capital stock of the Company, equitable adjustments may be made in (1) the
number or kind of shares authorized by the 1995 Plan, (2) the option price of
outstanding Options and (3) the number and kind of shares or other securities or
property subject to outstanding Option grants or Retention Stock awards.
21
<PAGE> 25
Eligibility. Employees of the Company and its subsidiaries, including
executive officers, are eligible to be granted Options and awarded Retention
Stock under the 1995 Plan. As of March 9, 1999, approximately 1,640 persons were
considered eligible for grants and awards under the 1995 Plan. Option grants and
Retention Stock awards have already been granted under the 1995 Plan to
approximately 1,600 eligible participants.
Stock Options. The Compensation Committee is authorized to grant 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 exercise 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 9, 1999, the fair market value of a share of Common Stock was $9.65.
Rollover Options generally were granted with an option exercise 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 will be exercisable subsequent to the
tenth anniversary of the date on which the stock option is granted.
The 1995 Plan originally limited the exercise period following termination
of employment to three months, except in the case of death, disability or
retirement. The 1995 Plan has been amended by the Board to grant the
Compensation Committee discretion to extend the exercise period for stock
options following terminations of employment, including terminations following a
change in control. In general, 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. The
Compensation Committee has the discretion to accelerate the vesting of stock
options. Stock options may be exercised by payment of the option exercise price
in cash or, at the discretion of the Committee, shares of Common Stock having a
fair market value equal to the option exercise price. The Compensation Committee
may also permit the option exercise 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 will 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 exercise price per share times the number
of shares covered by the option, or portion thereof, which is surrendered.
Payment will 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
determined by the Compensation Committee. Except for the provisions with respect
to payment, SARs are subject to the same terms and conditions described above
with respect to stock options.
Retention Stock. The Compensation Committee is authorized to award
Retention Stock. Retention Stock is an award of shares of Common Stock which may
not be sold or disposed of prior to the end of a restricted period specified by
the Compensation Committee, and which may be forfeited in the event of
termination of employment or upon failure to meet specified performance
objectives. Originally, the restricted period for Retention Stock could not be
less than one year, except for Rollover Retention Stock which has restrictions
that will not terminate prior to three years after the date of award of the UPC
retention stock for which such Rollover Retention Stock was exchanged. The 1995
Plan has been amended to give the Compensation Committee the flexibility to
accelerate the vesting of Retention Stock to less than one year, including in
the event of a change in control. 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 shares
of Common Stock subject to the award.
Other Terms of Grants and Awards. Grants and awards under the 1995 Plan
are generally made without a requirement that the participant pay consideration
in the form of cash or property for the grant or award (as distinguished from
payment associated with the exercise of a stock option). The 1995 Plan has been
amended to provide that, with respect to any amendment to the 1995 Plan which
becomes effective on or after
22
<PAGE> 26
January 21, 1999, if the Company desires to engage in a transaction which is
intended to be accounted for as a pooling of interests under applicable
accounting rules, and if the existence or operation of any such amendment will
prevent pooling of interest treatment in a transaction that is otherwise
eligible to be accounted for as a pooling of interests, then such amendment and
any actions taken in reliance on such amendment will be deemed null and void to
the extent necessary to allow a pooling of interests.
Amendment and Termination. The Board may at any time terminate the 1995
Plan with respect to any shares of Common Stock not at that time subject to
outstanding Options or Retention Stock, and may from time to time alter or amend
the 1995 Plan or any part thereof, provided that no change with respect to any
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 1995 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 1995 Plan, (ii) extend the term
of the 1995 Plan, (iii) change the class of eligible persons who may receive
grants of Options or awards of Retention Stock under the 1995 Plan or (iv)
increase the limitation on the maximum number of shares that any participant may
receive under the 1995 Plan. The 1995 Plan provides that no Options or Retention
Stock may be granted or awarded after September 27, 2005, but grants or awards
of Options and Retention Stock theretofore granted or awarded may extend beyond
that date and the terms and conditions of the 1995 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 the shares of Common Stock purchased upon
exercise of an ISO (generally measured as of the date of exercise) and the
amount paid for those shares 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.
If the optionee holds the shares of Common Stock acquired upon exercise of
an ISO (the "ISO Shares") for one year after the date the stock 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 exercise price,
will be treated as ordinary income. Any additional gain on disposition of the
ISO Shares will be long- or short-term capital gain, depending upon whether or
not the ISO Shares were held for the required holding period.
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 shares of Common Stock acquired
on the date of exercise and the option exercise price thereof. An optionee's
subsequent disposition of the shares of Common Stock acquired upon the exercise
of a non-qualified stock option generally will result in long- or short-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
exercise price plus any amount previously recognized as ordinary income in
connection with the exercise of the stock option).
SARs. The grant of an SAR will create no tax consequences for the
optionee. Upon exercise of an SAR, the optionee generally must recognize
ordinary income equal to the cash or the fair market value of any shares of
Common Stock received.
23
<PAGE> 27
Tax Consequences of Options and SARs to the Company. The grant of a stock
option or an 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 an 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 periods
described earlier.
Retention Stock. Because Retention Stock awarded under the 1995 Plan is
restricted as to transferability and subject to a substantial risk of forfeiture
for a period of time after being 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 the 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 Retention Stock 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 Section 162(m) of the Code, 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 $1,000,000 in any tax year
beginning on or after January 1, 1994. Compensation that qualifies as
"performance-based compensation" is excluded from the $1,000,000 deductibility
cap and, therefore, remains fully deductible even if it exceeds $1,000,000. The
Company intends that Options granted and any performance-based Retention Stock
awarded under the 1995 Plan qualify as such "performance-based compensation," so
that such grants and awards will not be subject to the $1,000,000 deductibility
cap of Section 162(m). A number of requirements must be met in order for
particular compensation to qualify, however, so there can be no assurance that
such compensation under the 1995 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 $1,000,000 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 and
participants. Different tax rules may apply to specific optionees and
participants and to specific transactions, including, where applicable, in the
case of payment of the option exercise price 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 and participants should consult a
tax advisor as to the tax consequences of participation in the 1995 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR PROPOSAL 2 TO
APPROVE AMENDMENTS TO THE 1995 STOCK OPTION AND RETENTION STOCK PLAN, AS AMENDED
AND RESTATED.
24
<PAGE> 28
3. APPROVAL OF AMENDMENT TO THE 1995 DIRECTORS STOCK INCENTIVE PLAN, AS
AMENDED AND RESTATED
At the Annual Meeting, shareholders will be asked to approve an amendment
to the Company's 1995 Directors Stock Incentive Plan, as amended and restated
effective July 14, 1998 (the "1995 Directors Stock Incentive Plan"). The
amendment would increase the number of shares of Common Stock that may be issued
under the 1995 Directors Stock Incentive Plan from 1,000,000 to 1,500,000 (the
"Share Increase Amendment"). The Share Increase Amendment has been unanimously
approved by the Compensation Committee and the Board.
THE SHARE INCREASE AMENDMENT
Under the Company's 1995 Directors Stock Incentive Plan, an aggregate of
1,000,000 shares of Common Stock have been reserved for issuance. The Company is
proposing to increase by 500,000 the aggregate number of shares that may be
issued pursuant to the 1995 Directors Stock Incentive Plan from 1,000,000 to
1,500,000.
As of March 9, 1999, the Company has made grants of options covering
783,700 shares under the 1995 Directors Stock Incentive Plan. As of that date,
there were 216,300 shares remaining available for future grants of stock options
and awards of other equity-based compensation. The increase in the number of
shares that may be issued under the 1995 Directors Stock Incentive Plan from
1,000,000 to 1,500,000 is necessitated by an overall change in the composition
of director compensation since the 1995 Directors Stock Incentive Plan was
originally adopted in 1995, including the increased use of equity-based
compensation.
DESCRIPTION OF DIRECTORS 1995 STOCK INCENTIVE PLAN
The following is a brief description of the material features of the 1995
Directors Stock Incentive Plan as presently in effect and as modified by the
proposed Share Increase Amendment. This description is not intended to be a
complete description of all of the terms of the 1995 Directors Stock Incentive
Plan. A copy of the full plan document will be furnished without charge to any
shareholder upon written request to the attention of the Company's Investor
Relations Department at 777 Main Street, Fort Worth, Texas 76102.
The purpose of the 1995 Directors Stock Incentive Plan is to provide stock
options and other forms of equity-based compensation to outside directors of the
Company in order to attract, retain and encourage the highest level of director
performance and to promote long-term shareholder value. The 1995 Directors Stock
Incentive Plan provides outside directors with a proprietary interest in the
Company's success and progress through a grant of options to purchase shares of
Common Stock or award of other equity-based compensation. Participation in the
1995 Directors Stock Incentive Plan is limited to outside directors.
The 1995 Directors Stock Incentive Plan currently provides for
discretionary grants of options and awards of other forms of equity-based
compensation. For a detailed description of the amendments made to the 1995
Directors Stock Incentive Plan and grants of stock options made to directors
since the Plan was adopted, see the discussion of the 1995 Directors Stock
Incentive Plan beginning on page 6, under "Compensation of Outside
Directors -- Amended and Restated 1995 Directors Stock Incentive Plan."
The 1995 Directors Stock Incentive Plan is administered by the Compensation
Committee. The Compensation Committee's interpretations of the 1995 Directors
Stock Incentive Plan, including factual determinations, will be conclusive and
binding. The 1995 Directors Stock Incentive Plan provides that the exercise
price of a stock option may be paid in cash or previously acquired shares of
Common Stock.
There are currently ten directors eligible to participate in the 1995
Directors Stock Incentive Plan. Subject to shareholder approval of the Share
Increase Amendment, an aggregate of 1,500,000 shares of the Common Stock could
be issued pursuant to grants and awards under the 1995 Directors Stock Incentive
Plan, subject to adjustment under circumstances similar to those described under
"Proposal 2 -- Approval of Amendments to the 1995 Stock Option and Retention
Stock Plan, as Amended and Restated -- Description of 1995 Plan -- Adjustments
and Extraordinary Corporate Events." Future grants and awards under the 1995
25
<PAGE> 29
Directors Stock Incentive Plan are not determinable because specific grants and
awards are made at the discretion of the Board, depending upon a variety of
factors.
Amendment and Termination. The Board may amend or terminate the 1995
Directors Stock Incentive Plan at any time; provided, however, that the Board is
required to seek shareholder approval with respect to any amendment which would
cause the 1995 Directors Stock Incentive Plan, or any grant of options or awards
of other equity-based compensation thereunder, to fail to comply with New York
Stock Exchange requirements or Rule 16b-3 under the Exchange Act. The 1995
Directors Stock Incentive Plan is scheduled to expire on March 5, 2008, unless
otherwise extended by the Board with shareholder approval. In general, any
amendment or termination of the 1995 Directors Stock Incentive Plan will not,
without the participant's consent, result in the amendment or termination of any
participant's outstanding grants or awards; provided, however, that the 1995
Directors Stock Incentive Plan has been amended to provide that, if the Company
desires to engage in a transaction which is intended to be accounted for as a
pooling of interests under applicable accounting rules, and if the existence or
operation of any amendment to the 1995 Directors Stock Incentive Plan which
becomes effective on or after January 21, 1999, would prevent the pooling of
interests in a transaction that is otherwise eligible to be accounted for as a
pooling of interests, then such amendment and any actions taken in reliance on
such amendment will be deemed null and void to the extent necessary to allow a
pooling of interests.
Federal Income Tax Implications. Stock options granted under the 1995 Plan
are non-qualified stock options for federal income tax purposes, and any
restricted stock awarded would be treated the same as Retention Stock as
described under the summary of tax consequences set forth above under, "Proposal
2 -- Approval of Amendments to the 1995 Stock Option and Retention Stock Plan,
as Amended and Restated -- Federal Income Tax Implications -- Non-Qualified
Stock Options" and "Retention Stock."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR PROPOSAL 3 TO
APPROVE THE AMENDMENT TO THE 1995 DIRECTORS STOCK INCENTIVE PLAN, AS AMENDED AND
RESTATED.
INDEPENDENT AUDITORS
Arthur Andersen LLP has been selected as the Company's independent auditors
for the 1999 fiscal year. Representatives of Arthur Andersen LLP 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 Board of Directors, dismissed Deloitte & Touche LLP ("D&T") as its
independent auditors effective upon D&T's completion of its audit of the
Company's financial statement for the fiscal year ended December 31, 1997. The
report of D&T on the financial statements of the Company for the 1997 fiscal
year 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 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 a reference to the subject
matter of such disagreement in connection with its report on the Company's
financial statements.
26
<PAGE> 30
OTHER BUSINESS
The only business to come before the Annual Meeting of which the Company 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 will
be exercised in respect thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, SHAREHOLDERS
ARE URGED TO DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE.
27
<PAGE> 31
UPR
1995
STOCK OPTION AND RETENTION STOCK PLAN
OF
UNION PACIFIC RESOURCES GROUP INC.
AS AMENDED AND RESTATED
(EFFECTIVE JUNE 1, 1997)
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<PAGE> 32
1995 STOCK OPTION AND RETENTION STOCK PLAN
OF UNION PACIFIC RESOURCES GROUP INC.
(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.
- 2 -
<PAGE> 33
"Committee" means the Committee designated by the Board to administer
the Plan pursuant to Section 3.
"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.
- 3 -
<PAGE> 34
"UPC Retention Shares" means shares of common stock of UPC granted and
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
Subsidiary, and such
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<PAGE> 35
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 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.
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<PAGE> 36
(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 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
- 6 -
<PAGE> 37
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.
(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.
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<PAGE> 38
(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.
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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 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
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<PAGE> 39
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 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
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<PAGE> 40
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 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.
- 10 -
<PAGE> 41
- --------------------------------------------------------------------------------
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), 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
- 11 -
<PAGE> 42
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,
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
- 12 -
<PAGE> 43
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- 13 -
<PAGE> 44
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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).
- --------------------------------------------------------------------------------
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.
- 14 -
<PAGE> 45
(c) Notwithstanding any provision herein to the contrary, the
Committee, under terms and conditions as it may prescribe, may permit certain
Optionees (with respect to NonQualified Options and Stock Appreciate Rights) and
certain Participants (with respect to Awards of Retention Shares) to make
elections, engage in transactions or take any other action intended to defer the
receipt of compensation for federal income tax purposes with respect to such
Non-Qualified Options, Stock Appreciation Rights or Retention Shares. This
provision shall be effective on and after September 5, 1997.
- --------------------------------------------------------------------------------
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).
- 15 -
<PAGE> 46
1995 STOCK OPTION AND RETENTION STOCK PLAN
OF
UNION PACIFIC RESOURCES GROUP INC.
(AMENDED AND RESTATED JUNE 1, 1997)
SECOND AMENDMENT
The following represents the SECOND AMENDMENT to the above-referenced Plan, such
amendment having been duly adopted by the Board at its January 21, 1999 meeting.
1. Section 6(h) of the Plan is amended by inserting the parenthetical
phrase "(unless the Committee shall otherwise determine)" in place of the
parenthetical phrase "(unless the Committee shall provide for shorter periods at
the time the option is granted)".
2. Section 9(a) of the Plan is amended by deleting, in the second
sentence thereof, the comma after the reference to Section 9(c) and by
inserting, immediately following such deleted comma, the words "or unless the
Committee shall determine otherwise,".
3. Section 15 of the Plan is amended by adding new subsection (d) as
follows:
With respect to any amendment to the Plan which becomes effective on or
after January 21, 1999, if the Company, at any time, desires to engage
in a transaction which is intended to be accounted for as a pooling of
interests under Accounting Principles Board Opinion No. 16 (or any
successor thereto), and if the existence and/or operation of any such
amendment would violate Paragraph 47(c) thereof (or any successor
thereto), then any such amendment shall (in whole or in part to the
minimum extent necessary to avoid a violation) be deemed null and void
ab initio and/or the operation of such amendment shall (in whole or in
part to the minimum extent necessary to avoid a violation) be deemed to
have no force or effect under law; provided, however, that this
subsection (d) shall apply only if the transaction is otherwise
eligible to be accounted for as a pooling of interests.
4. Section 15 of the Plan is further amended by replacing, in
subsection (c), the word "Appreciate" with the word "Appreciation", thus
correcting a typographical error.
<PAGE> 47
5. The foregoing amendments are effective January 21, 1999.
6. Except as amended herein, all other terms and provisions shall
remain in full force and effect.
<PAGE> 48
[UPR LOGO]
1995 DIRECTORS STOCK INCENTIVE PLAN
OF
UNION PACIFIC RESOURCES GROUP INC.
AND SUBSIDIARIES
-----------------------------
AMENDED AND RESTATED
EFFECTIVE JULY 14, 1998
<PAGE> 49
UNION PACIFIC RESOURCES GROUP INC.
1995 DIRECTORS STOCK INCENTIVE PLAN
(amended and restated effective July 14, 1998)
The purposes of the Union Pacific Resources Group Inc. 1995 Directors Stock
Incentive Plan, as amended and restated effective July 14, 1998 (the "Plan"),
formerly known as the Union Pacific Resources Group Inc. 1995 Stock Option
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 and other forms of equity-based compensation; (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.
This Plan shall be administered 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
or such other forms of equity-based compensation as the Board of
Directors of the Company may prescribe ("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 made pursuant
to Section
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<PAGE> 50
5 (which Grants shall be made in the form of nonqualified stock
options) 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 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
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<PAGE> 51
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".
(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.
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<PAGE> 52
(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 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 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 may be exercised by the individual's
personal representative at any time prior to the expiration
of five years from the date of death, 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
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<PAGE> 53
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 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 of an option. 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.
-5-
<PAGE> 54
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 approval is necessary in order to comply
with the requirements of the New York Stock Exchange.
(b) TERMINATION OF PLAN. The Plan shall terminate on March 5,
2008, unless 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
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<PAGE> 55
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.
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.
This Plan shall be effective as of July 14, 1998 (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.
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.
(c) DEFERRALS. Notwithstanding any provision herein to the
contrary, the Committee, under terms and conditions as it may
prescribe, may permit Participants to make elections, engage
in transactions or take any other action intended to defer
the receipt of compensation for federal income tax purposes
with respect to Grants made hereunder. Any such deferral
arrangement so established shall be maintained by the Company
on an unfunded and unsecured basis and any Participant who
-7-
<PAGE> 56
elects to defer under such arrangement shall, with respect to
any consequent obligation assumed by the Company, be a
general creditor of the Company.
(d) DISCRETIONARY GRANTS. The Board of Directors of the Company
may, from time to time during the term of this Plan, make
other Grants to Non-Employee Directors, in addition to the
Grants described in Section 5. Such additional Grants may
take the form of nonqualified stock options or such
additional other forms of equity-based compensation as the
Board may determine; provided, however, that the Board shall
not make any such Grants without the approval of the
stockholders of the Company if such approval is necessary in
order to comply with the requirements of the New York Stock
Exchange.
- 8 -
<PAGE> 57
1995 DIRECTORS STOCK INCENTIVE PLAN
OF
UNION PACIFIC RESOURCES INC.
AND SUBSIDIARIES
FIRST AMENDMENT
The following represents the FIRST AMENDMENT to the above-referenced Plan,
following its amendment and restatement effective July 14, 1998, made by the
Board at its January 21, 1999 meeting:
1. Section 5(a)(ii) is amended by adding, in the first sentence
thereof, the words "and prior to January 21, 1999" immediately following the
words "Date of Initial Grant".
2. Section 13(d) is amended by adding, in the first sentence thereof,
the words "or in lieu of" immediately following the words "in addition to" and,
in the second sentence thereof, adding the words "and may be granted on terms
and conditions other than those applicable to Grants described in Section 5"
immediately after the words "as the Board may determine". Also, in the proviso
which forms part of the second sentence of Section 13(d), the word "Board" shall
be spelled correctly.
3. Section 13 is further amended by adding a new subsection (e) to read
as follows:"
Pooling of Interests. With respect to any amendment to the Plan which
becomes effective on or after January 21, 1999, if the Company, at any
time, desires to engage in a transaction which is intended to be
accounted for as a pooling of interests under Accounting Principal
Board Opinion No. 16 (or any successor thereto), and if the existence
and/or operation of any such amendment would violate Paragraph 47(c)
thereof (or any successor thereto), then any such amendment shall (in
whole or in part to the minimum extent necessary to avoid a violation)
be deemed null and void ab initio and/or any operation of such
amendment shall (in whole or in part to the minimum extent necessary to
avoid a violation) be deemed to have no force or effect under law;
provided, however, that
<PAGE> 58
this subsection (e) shall apply only if the transaction is otherwise
eligible to be accounted for as a pooling of interests.
4. The foregoing amendments are effective January 21, 1999.
5. Except as amended herein, all other terms and provisions shall
remain in full force and effect.
<PAGE> 59
PROXY PROXY
UNION PACIFIC RESOURCES GROUP INC.
SOLICITED BY BOARD OF DIRECTORS
ANNUAL MEETING MAY 18, 1999
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 18, 1999, 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 ALL
PROPOSALS.
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.)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 60
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, and 3.
1. Election of Directors, Nominees:
H. Jesse Arnelle
Lynne V. Cheney Jack L. Messman
Preston M. Geren III John W. Poduska, Sr.
Lawrence M. Jones Michael E. Rossi
Drew Lewis Samuel K. Skinner
Claudine B. Malone James R. Thompson
------------------------------
Except Nominee (s) written above
FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
[ ] [ ] [ ]
2. Approval of amendments to the Company's 1995 Stock Option and Retention Stock
Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of the amendment to the 1995 Directors Stock Incentive Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
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.
Dated: 1999
-------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
Signature (s) Stockholder (s)
- --------------------------------------------------------------------------------
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
[UPR LOGO]
<PAGE> 61
UNION PACIFIC RESOURCES GROUP INC.
CONFIDENTIAL VOTING INSTRUCTIONS FOR ANNUAL MEETING ON MAY 18, 1999
To the Trustee:
The UNDERSIGNED hereby instructs the Trustee of each of the plans (each
"Trustee") 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 the
undersigned's account as of March 9, 1999, under one or more of the plans
listed below and identified by the four-letter code below and on the reverse
side of this card at the Annual Meeting of Shareholders ("Annual Meeting") to
be held on May 18, 1999, or any adjournment or postponement thereof, upon all
matters referred to on the reverse side of this card as indicated. This card
when properly executed will set forth how the shares of Common Stock allocated
to the undersigned's account will be voted. If no direction is made by the
undersigned and such card is returned, such shares of Common Stock allocated to
the undersigned's account will be voted FOR all proposals by the Trustee. If
this card is not returned, the shares of Common Stock allocated to the Union
Pacific Resources Group Inc. Employees' Thrift Plan ("Company Thrift Plan")
will be voted by the Trustee in accordance with instructions from Independent
Fiduciary Services, Inc., an independent fiduciary. If the card is not
returned, the shares of Common Stock allocated to all the other plans, except
for the Company Thrift Plan, PAYSOP and TRASOP shares, will be voted by the
Trustee in the same proportion as the shares with respect to which voting
instructions are received. If this card is not returned, the PAYSOP and TRASOP
shares will not be voted. If the undersigned has shares of Common Stock
allocated to more than one of the plans below and wishes to vote the shares
differently among the plans, the undersigned may contact Harris Trust and
Savings Bank at 1-800-335-6918 for additional cards.
Union Pacific Resources Group Inc. Employees' Thrift Plan (RSTP)
Union Pacific Resources Employee Stock Ownership Plan (RSOP)
Union Pacific Resources Group Inc. Thrift Plan PAYSOP (RSPS)
Union Pacific Resources Group Inc. TRASOP (RTSP)
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)
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.)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 62
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 AND 3.
FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
[ ] [ ] [ ]
1. ELECTION OF DIRECTORS, NOMINEES:
H. JESSE ARNELLE
LYNNE V. CHENEY JACK L. MESSMAN
PRESTON M. GEREN III JOHN W. PODUSKA, SR.
LAWRENCE M. JONES MICHAEL E. ROSSI
DREW LEWIS SAMUEL K. SKINNER
CLAUDINE B. MALONE JAMES R. THOMPSON
------------------------------
EXCEPT NOMINEE (S) WRITTEN ABOVE
2. APPROVAL OF AMENDMENTS TO THE COMPANYOS 1995 STOCK OPTION AND RETENTION
STOCK PLAN.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. APPROVAL OF THE AMENDMENT TO THE 1995 DIRECTORS STOCK INCENTIVE PLAN.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
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.
DATED , 1999
-------------------------
- ---------------------------------------------------
- ---------------------------------------------------
SIGNATURE (s) OF STOCKHOLDER (s)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
CONFIDENTIAL PROXY-DOES NOT PRINT
