<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Sun Company, Inc.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Sun Company, Inc.
- - --------------------------------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
[SUNOCO LOGO APPEARS HERE] SUN COMPANY, INC.
Ten Penn Center
1801 Market Street
Philadelphia, PA 19103-1699
----------------------------------
NOTICE OF ANNUAL MEETING
----------------------------------
Dear Sun Shareholder:
The 1997 Annual Meeting of Shareholders of Sun Company, Inc. will be held in
the Promenade Ballroom on the second floor of the Adam's Mark Hotel at Williams
Center, 100 East 2nd Street, Tulsa, OK 74103 on Thursday, May 1, 1997 at 9:30
a.m., for the following purposes:
1. To elect a Board of Directors (see pages 1 to 6);
2. To act upon a proposal to adopt the Sun Company, Inc. Long-Term
Performance Enhancement Plan for key employees (see pages 17 to 20);
3. To approve the appointment of independent auditors (see page 21); and
4. To transact such other business as may properly come before the Annual
Meeting (see page 26).
Only shareholders of record at the close of business on February 10, 1997 will
be entitled to vote at the 1997 Annual Meeting or at any adjournments thereof.
By Order of the Board of Directors,
/s/ Ann C. Mule
Ann C. Mule
General Attorney and Corporate Secretary
March 18, 1997
- - --------------------------------------------------------------------------------
PLEASE SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD IN THE ENVELOPE
PROVIDED, WHETHER YOUR HOLDINGS ARE LARGE OR SMALL, THUS ASSURING YOUR
REPRESENTATION AT THE 1997 ANNUAL MEETING.
IF YOU PLAN TO ATTEND THE 1997 ANNUAL MEETING, PLEASE MARK YOUR PROXY
CARD IN THE SPACE PROVIDED. AN ADMISSION TICKET WILL BE MAILED TO YOU
IN ADVANCE OF THE ANNUAL MEETING.
A COPY OF SUN'S 1996 ANNUAL REPORT WAS RECENTLY MAILED TO ALL
SHAREHOLDERS.
- - --------------------------------------------------------------------------------
<PAGE>
PROXY STATEMENT________________________________________________________________
This proxy statement is furnished to shareholders of Sun Company, Inc. ("Sun"
or the "Company") in connection with the solicitation, by the Board of
Directors (the "Board"), of the proxy/voting instruction card ("proxy card")
to be used at the 1997 Annual Meeting of Shareholders to be held on May 1,
1997 or at any adjournments thereof (the "1997 Annual Meeting"). The
approximate date of mailing this proxy statement and the accompanying proxy
card is March 18, 1997.
ELECTION OF DIRECTORS (ITEM 1 ON PROXY CARD)___________________________________
THE BOARD RECOMMENDS THAT THE PROXY CARD BE VOTED FOR THE ELECTION OF THE 11
NOMINEES LISTED STARTING ON PAGE 2 TO SERVE AS DIRECTORS UNTIL THE NEXT ANNUAL
MEETING OF SHAREHOLDERS AND UNTIL THEIR SUCCESSORS ARE ELECTED AND QUALIFIED.
ALL NOMINEES ARE CURRENTLY DIRECTORS AND THEIR TERMS WILL EXPIRE WHEN
DIRECTORS ARE ELECTED AT THE 1997 ANNUAL MEETING. If any nominee is unable to
stand for election, the Board may nominate and the persons named on the proxy
card as proxies and attorneys-in-fact may vote for a substitute or,
alternatively, the Board may reduce its size. Key information concerning the
Board is set forth below:
. Each director is elected annually for a one-year term. The Board is
comprised of a majority of outside, independent non-employee directors.
. Over the past few years, the Board has taken actions to more closely
align directors' compensation with the long-term interests of Sun's
shareholders:
--Sun pays its directors 70% of their annual retainer fee in the form of
Sun Company, Inc. Common Stock ("Common Stock").
--In February 1996, the Non-Employee Directors' Retirement Plan was
eliminated. The directors' accrued benefits under that plan were
transferred into the Directors' Deferred Compensation Plan in the form of
restricted share units which mirror the performance of Common Stock (see
page 6 for more information).
. No director has a consulting contract with the Company.
. The Board Policy and Nominating Committee reviews and evaluates each
individual director in deciding whether that director should be nominated
or renominated for election. The Board then discusses and votes on the
entire director slate.
. The Board Policy and Nominating Committee reviews changes in a director's
occupational status to determine if that director should continue on the
Board.
. The Board has a mandatory retirement age of 70 for all outside, non-
employee directors.
. Every year the Board reviews the strategic plan and approves an operating
plan for the Company.
. The Board holds at least one "Outside Directors Only" meeting annually to
discuss its assessment of Company direction and progress toward pre-
determined goals.
. The Chief Executive Officer ("CEO") reports annually on succession
planning and management development to the Board.
. Sun's Board has five standing committees:
--The AUDIT COMMITTEE examines the Company's accounting processes, financial
controls and reporting systems, reviews and approves Sun's financial
disclosures, and assesses the performance and recommends the appointment
of independent auditors.
--The BOARD POLICY AND NOMINATING COMMITTEE reviews and evaluates Board
members in determining the annual director slate and identifies new
director nominees. It also
1
<PAGE>
reviews the role, composition and structure of the Board and its
committees as well as director compensation.
--The COMPENSATION COMMITTEE reviews the compensation and benefit policies
and practices of the Company, approves annual CEO and Company goals,
evaluates the performance of the CEO and issues the Compensation Committee
Report (see pages 8 to 11) regarding executive compensation to
shareholders.
--The PUBLIC AFFAIRS COMMITTEE reviews the Company's compliance with laws
governing health, environment and safety, equal employment opportunity,
and political activities. It also oversees the administration of corporate
contributions and evaluates the Company's relationship with its
shareholders and all other constituencies.
--The EXECUTIVE COMMITTEE exercises the authority of the Board during the
intervals between meetings of the Board.
. During 1996, the Board held 12 meetings, and the committees held the
following number of meetings: AUDIT, 7; BOARD POLICY AND NOMINATING, 6;
COMPENSATION, 6; PUBLIC AFFAIRS, 3; and EXECUTIVE, 1.
. During 1996, each director attended at least 75% of the aggregate of all
meetings of the Board and the committees on which the director served.
NOMINEES FOR ELECTION AS A DIRECTOR
- - --------------------------------------------------------------------------------
[PHOTOGRAPH ROBERT H. CAMPBELL
OF ROBERT
H. CAMPBELL
APPEARS HERE] Director since 1988 Chair, Executive Committee
Age 59 Member, Board Policy and Nominating
Committee
Mr. Campbell was elected Chairman of the Board of the Company
in May 1992 and was elected its Chief Executive Officer in Sep-
tember 1991. Previously, he was President from February 1991
until December 1996 and an Executive Vice President from Novem-
ber 1988 until February 1991. He joined the Company in 1960.
Mr. Campbell is also a director of CIGNA Corporation and
Hershey Foods Corporation.
[PHOTOGRAPH RAYMOND E. CARTLEDGE
OF RAYMOND
E. CARTLEDGE Director since 1990 Chair, Compensation Committee
APPEARS HERE] Age 67 Member, Board Policy and Nominating
Committee
Member, Executive Committee
Mr. Cartledge was elected Chairman of Savannah Foods & Indus-
tries, Inc. in May 1996. He retired as Chairman and Chief Exec-
utive Officer of Union Camp Corporation in June 1994, a posi-
tion he had held since 1986, and he continues as a director.
Mr. Cartledge is also a director of Blount, Inc.; Chase Brass
Industries, Inc.; Delta Air Lines, Inc.; and UCAR
International.
2
<PAGE>
[PHOTOGRAPH ROBERT E. CAWTHORN
OF ROBERT
E. CAWTHORN Director since 1989 Member, Board Policy and Nominating
APPEARS HERE] Age 61 Committee
Member, Compensation Committee
Member, Executive Committee
Mr. Cawthorn became Managing Director of Global Health Care
Partners, DLJ Merchant Banking Partners, L.P. in January 1997.
He has been Chairman Emeritus of Rhone-Poulenc Rorer Inc.
since May 1996, continuing as one of its directors, a position
he has held since 1984. Mr. Cawthorn retired in May 1996 as
Chairman of its Board, a position he had held since 1986, and
he retired as its Chief Executive Officer in May 1995, a posi-
tion he had held since 1985. Mr. Cawthorn served as its Presi-
dent from November 1987 to 1993. He is also a director of The
Vanguard Group of Investment Companies and Westinghouse Elec-
tric Corporation.
[PHOTOGRAPH JOHN G. DROSDICK
OF JOHN
G. DROSDICK Director since 1996
APPEARS HERE]
Age 53
Mr. Drosdick was elected a Director and President and Chief
Operating Officer of the Company in December 1996. He was
President and Chief Operating Officer of Ultramar Corporation
(which recently merged with Diamond Shamrock Inc. to become
Ultramar Diamond Shamrock Corporation) from June 1992 to Au-
gust 1996, and from 1990 to June 1992, he was President of its
U.S. refining and marketing business. Previously, Mr. Drosdick
was President and Chief Operating Officer of Tosco Corporation
from 1987 to 1989, and from 1989 to 1990 he was President and
Chief Executive Officer of its subsidiary, Tosco Refining Com-
pany.
[PHOTOGRAPH MARY J. EVANS
OF MARY J.
EVANS APPEARS Director since 1980 Chair, Public Affairs
HERE] Age 67 Committee
Member, Compensation
Committee
Mrs. Evans is a director of Baxter International Inc.; Delta
Air Lines, Inc.; Household International, Inc.; Saint-Gobain
Corp.; Scudder New Europe Fund; and The Dun & Bradstreet Cor-
poration. In addition, Mrs. Evans is a member of the advisory
board of Morgan Stanley, Inc. She was a director of AMTRAK
from 1974 to 1980, serving as Vice Chairman from 1974 until
1979.
[PHOTOGRAPH THOMAS P. GERRITY
OF THOMAS
P. GERRITY Director since 1990 Chair, Audit Committee
APPEARS HERE] Age 55 Member, Public Affairs
Committee
Dr. Gerrity has been Dean of The Wharton School of the Univer-
sity of Pennsylvania since July 1990. Previously, Dr. Gerrity
had served as President of CSC Consulting and Vice President
of Computer Science Corp. from 1989 to June 1990. He is also a
director of Digital Equipment Corporation; CVS Corporation;
Reliance Group Holdings, Inc.; The Federal National Mortgage
Association; and Union Carbide Corporation; and is a trustee
of the Miller, Anderson & Sherrerd LLP's Mutual Funds Group.
3
<PAGE>
[PHOTOGRAPH JAMES G. KAISER
OF JAMES
G. KAISER Director since 1993 Member, Compensation
APPEARS HERE] Committee
Member, Public Affairs
Committee
Age 54
Mr. Kaiser retired as President, Chief Executive Officer and
as a director of Quanterra Incorporated in January 1996, posi-
tions he had held since June 1994. Quanterra succeeded to the
environmental analytical services division of International
Technology Corporation and Enseco, a unit of Corning Incorpo-
rated, for which Mr. Kaiser had been President and Chief Exec-
utive Officer since June 1992. Previously, he had served as
Senior Vice President and General Manager of Corning's Techni-
cal Products Division and Latin America/Asia Pacific Exports
Group since 1984. Mr. Kaiser is also a director of Mead Corp.;
The Stanley Works; and The Keystone Center.
[PHOTOGRAPH ROBERT D. KENNEDY
OF ROBERT
D. KENNEDY Director since 1995 Member, Audit Committee
APPEARS HERE] Age 64 Member, Public Affairs
Committee
Mr. Kennedy retired as Chairman of the Board of Union Carbide
Corporation in December 1995, a position he had held since De-
cember 1986. Previously, he served as its Chief Executive Of-
ficer from April 1986 to April 1995 and its President from
April 1986 to 1993. Since 1985, he has been one of its direc-
tors. Mr. Kennedy is also a director of Birmingham Steel
Corp.; General Signal Corporation; Kmart Corporation; UCAR In-
ternational; and Union Camp Corporation. Mr. Kennedy is also
on the advisory boards of The Blackstone Group and RFE Invest-
ment Partners.
[PHOTOGRAPH R. ANDERSON PEW(1)
OF R. ANDERSON
PEW APPEARS Director since 1978 Member, Audit Committee
HERE]
Age 60 Member, Public Affairs
Committee
Mr. Pew retired from the Company in May 1996 as Chief Execu-
tive Officer of Radnor Corporation, a position he had held
since March 1995, and as President of Helios Capital Corpora-
tion, a position he had held since September 1977, both Com-
pany subsidiaries. Mr. Pew joined the Company in 1958, and
served as Sun's Corporate Secretary from May 1974 until July
1977. Mr. Pew is also a director of The Glenmede Corporation
and its subsidiary, The Glenmede Trust Company; and Alex.
Brown Capital Advisory and Trust Company.
- - -------
(1) As noted in his biographical sketch, R. Anderson Pew is a director of The
Glenmede Trust Company ("Glenmede"), which is a beneficial owner of more
than 5% of Sun's combined outstanding Series A Cumulative Preference Stock
("Preference Stock") and outstanding Common Stock (see pages 24 and 25 for
more information on Glenmede). Mr. Pew has advised that he has no
arrangement or understanding with the Company or with Glenmede regarding
the manner in which he will exercise his duties as a director of the
Company, if elected. There is no arrangement or understanding between Sun
and Glenmede granting to Glenmede the right to representation on Sun's
Board.
4
<PAGE>
[PHOTOGRAPH WILLIAM F. POUNDS
OF WILLIAM
F. POUNDS Director since 1973 Chair, Board Policy and Nominating
APPEARS HERE] Age 68 Committee
Member, Audit Committee
Member, Executive Committee
Dr. Pounds is a Professor at the Alfred P. Sloan School of
Management at Massachusetts Institute of Technology. He joined
its faculty in 1961 and served as Dean of its Sloan School
from 1966 to 1980. Dr. Pounds retired as President and Chief
Executive Officer of Rockefeller Financial Services, Inc. in
May 1991, a position he had held since 1982. Dr. Pounds is
also a director of IDEXX Laboratories, Inc.; Perceptive
Biosystems, Inc.; and the Putnam Mutual Funds.
[PHOTOGRAPH ALEXANDER B. TROWBRIDGE
OF ALEXANDER
B. TROWBRIDGE Director since 1990 Member, Audit Committee
APPEARS HERE] Age 67 Member, Public Affairs
Committee
Mr. Trowbridge is President of Trowbridge Partners Inc. He as-
sumed this position in January 1990 upon his retirement as
President of the National Association of Manufacturers, a po-
sition he had held since 1980. Mr. Trowbridge also serves as a
director of E. M. Warburg, Pincus Funds; Harris Corporation;
ICOS Corporation; New England Life Insurance Company; The
Gillette Company; The Rouse Company; and WMX Technologies,
Inc.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
ELECTION OF EACH OF THE ELEVEN NOMINEES FOR DIRECTOR.
5
<PAGE>
LITIGATION INVOLVING DIRECTORS
Shareholder derivative lawsuits on behalf of Corning Incorporated and the Dow
Chemical Company have been filed in the U.S. District Court for the Southern
District of New York against the directors of Dow Corning Corporation, which
had included James G. Kaiser. Plaintiffs in these cases allege, among other
things, misrepresentation, omission of material facts, breach of fiduciary
duties and waste of corporate assets relative to the manufacture, marketing
and sale of silicone breast implants by Dow Corning Corporation. The
defendants have denied the allegations of wrong-doing.
DIRECTORS' COMPENSATION________________________________________________________
Executive officers are not paid for their services as directors of the
Company. Outside, non-employee directors are compensated for their services on
the Board and its committees as follows:
. An annual Board retainer of $28,400, paid 70% in shares of Common Stock
and 30% in cash;
. An attendance fee of $1,250 paid in cash for each Board and each
committee meeting;
. An annual committee retainer of $2,000 paid in cash to the chair of each
committee;
. A fee of $1,250 per day paid in cash for special assignments in their
role as directors; and
. An annual credit of $10,000 to the Directors' Deferred Compensation Plan,
in the form of Restricted Share Units (as further described below).
. THE SUN COMPANY, INC. RETAINER STOCK PLAN FOR OUTSIDE DIRECTORS requires
that 70% of the annual retainer fee to outside, non-employee directors be
paid in Common Stock. This provides these directors with an increased equity
interest in the Company and makes the value of their compensation dependent
on the performance of Common Stock.
. THE DIRECTORS' DEFERRED COMPENSATION PLAN permits outside, non-employee
directors to defer all or a portion of their compensation which is then
converted to either "Cash Units," "Share Units," or a combination of both,
as defined in the plan. Amounts converted to Share Units are treated as if
they were invested in shares of Common Stock. Payments of compensation
deferred under this plan are restricted in terms of the earliest and latest
dates that payments may begin.
In consideration for voluntarily relinquishing all rights to any benefit
under the Non-Employee Directors' Retirement Plan (which was terminated in
February 1996), a separate account was established for each outside director
under the Directors' Deferred Compensation Plan. This account was then
credited with an amount based upon the director's accrued benefit under that
former plan. The amount was then converted to Share Units which will not be
payable until death or termination of Board service ("Restricted Share
Units"). Restricted Share Units together with any other Share Units deferred
under this plan are reflected under the column called "Directors' Deferred
Compensation Plan Total Share Unit Balance" in the table on page 7. In order
to maintain an overall competitive directors' compensation package, beginning
in May 1996, the individual account of each outside director is credited with
$10,000 annually in the form of Restricted Share Units.
The directors' accounts are also credited with dividend equivalents on all
Share Units and on all Restricted Share Units (collectively "Total Share
Units") held under the plan at such time and in such amount as all holders of
Common Stock receive dividends. These dividend equivalents are reinvested in
additional Share Units or Restricted Share Units. Share Units are paid in
cash, based upon the fair market value of Common Stock at the time of
payment.
6
<PAGE>
OWNERSHIP INTERESTS IN COMPANY STOCK AND SHARE UNITS___________________________
The following table shows, as of December 31, 1996, the number of shares of
Common Stock beneficially owned (as defined by the Securities and Exchange
Commission ("SEC")) by each director, Named Executive Officer, and by all
directors and executive officers as a group (including Total Share Units held
in the Directors' Deferred Compensation Plan). No director or executive
officer beneficially owns more than 1% of the Common Stock and directors and
executive officers as a group beneficially own approximately 2% of the Common
Stock. No director or executive officer beneficially owns any Depositary
Shares, other than R. M. Aiken, Jr., who beneficially owns 500 Depositary
Shares. For more information about Depositary Shares (each representing
ownership of one-half share of Preference Stock) see pages 22 and 23.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
TOTAL OF
SHARES OF COMMON
STOCK BENEFICIALLY
SHARES OF DIRECTORS' OWNED PLUS
COMMON DEFERRED DIRECTORS' DEFERRED
STOCK COMPENSATION PLAN COMPENSATION PLAN
BENEFICIALLY TOTAL SHARE TOTAL SHARE
NAME OWNED(1) UNIT BALANCE(2) UNIT BALANCE
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert M. Aiken, Jr.(3)... 153,096 153,096
Robert H. Campbell(3)..... 574,480 574,480
Raymond E. Cartledge...... 4,402 5,289 9,691
Robert E. Cawthorn........ 4,585 18,532 23,117
J. Greg Driscoll(3)....... 61,712 61,712
John G. Drosdick(4)....... 25,000 25,000
Mary J. Evans............. 3,829 10,468 14,297
Deborah M. Fretz(3)....... 65,821 65,821
Thomas P. Gerrity......... 4,502 5,289 9,791
James G. Kaiser........... 2,845 3,062 5,907
Robert D. Kennedy......... 2,455 1,306 3,761
David E. Knoll(3)(5)...... 180,440 180,440
R. Anderson Pew(3)(5)..... 101,126 337 101,463
William F. Pounds......... 2,555 17,170 19,725
Sheldon L. Thompson(3).... 103,714 103,714
Alexander B. Trowbridge... 3,455 5,289 8,744
-------
All directors and execu-
tive officers as a group
including those named
above(3)(4)(5)........... 1,451,775
- - --------------------------------------------------------------------------------
</TABLE>
(1) As defined by the SEC, securities beneficially owned as of December 31,
1996 include: securities that the above persons have the right to acquire
at any time within 60 days of this date, such as, through the exercise of
any option or right; securities directly or indirectly held by the above
persons or by certain members of their families for which the above
persons have sole or shared voting or investment power; and shares of
Common Stock held on behalf of the above persons in the Sun Company, Inc.
Capital Accumulation Plan ("SunCAP") and the Sun Company, Inc. Dividend
Reinvestment Plan ("Dividend Reinvestment Plan").
(2) Although ultimately paid out in cash at the time of death or termination
from Board service, the value of the Total Share Units mirrors the value
of Common Stock. Thus, the amounts ultimately realized by the directors
will reflect all subsequent changes in the market value of the Common
Stock. Neither the Share Units nor Restricted Share Units carry any voting
rights. For more information on the Directors' Deferred Compensation Plan
see page 6.
7
<PAGE>
(3) The amounts shown include shares of Common Stock which the following
persons have the right to acquire within 60 days after December 31, 1996
under the Sun Company, Inc. Long-Term Incentive Plan ("LTIP") and under
the Sun Company, Inc. Executive Long-Term Stock Investment Plan ("ELSIP"):
R. M. Aiken, Jr.--141,514 shares; R. H. Campbell--536,206 shares; J. G.
Driscoll--54,793 shares; D. M. Fretz--65,028 shares; D. E. Knoll--170,704
shares; R. A. Pew--26,439 shares; S. L. Thompson--97,952 shares; and all
directors and executive officers as a group (including those named
above)--1,225,794 shares.
(4) On January 30, 1997, J. G. Drosdick purchased 5,000 shares of Common
Stock, which are reflected in this total.
(5) The individuals and group named in the table have sole voting and
investment power with respect to shares of Common Stock beneficially
owned, except that voting and investment power is shared as follows: R. M.
Aiken, Jr.--2,135 shares; D. E. Knoll--400 shares; R. A. Pew--16,050
shares; and all directors and executive officers as a group (including
those named above)--21,572 shares.
EXECUTIVE COMPENSATION_________________________________________________________
COMPENSATION COMMITTEE REPORT
THE COMMITTEE'S RESPONSIBILITIES
The Compensation Committee of the Board (the "Committee") has responsibility
for executive compensation for the Company including setting and administering
the policies which govern executive compensation. No employees of the Company
serve on the Committee--it is composed entirely of outside, non-employee
directors. Reports of the Committee's actions and decisions are presented to
the full Board.
The purpose of this Report is to summarize the philosophical principles,
specific program objectives and other factors considered by the Committee in
reaching its determinations regarding the executive compensation of Robert H.
Campbell, as the CEO, and the other five most highly compensated executive
officers during 1996: Robert M. Aiken, Jr., David E. Knoll, Sheldon L.
Thompson, J. Greg Driscoll, and Deborah M. Fretz (collectively with the CEO,
the "Named Executive Officers").(1)
THE COMMITTEE'S PHILOSOPHICAL PRINCIPLES AND PROGRAM OBJECTIVES
The Committee believes that the Company's compensation program should:
. Encourage strong financial and operational performance by the Company
. Focus executives on "beating the competition"
. Emphasize performance-based compensation ("pay at risk")
. Align the interests of executives with the interests of shareholders by
focusing executives on the Company's Common Stock performance by
providing equity-based incentives and requiring significant equity
holdings
. Attract and retain key employees and managers by providing competitive
compensation opportunities
The Company's executive compensation program consists of three basic
components: (1) base salary, (2) annual incentive awards, and (3) long-term
incentive awards primarily in the form of
- - -------
(1) J. Greg Driscoll resigned as the Senior Vice President, Marketing, as of
February 6, 1997. However, since Mr. Driscoll was one of the five most
highly compensated executive officers in 1996, his compensation data is
reported in the Summary Compensation table on page 11 and other tables in
this proxy statement.
8
<PAGE>
Common Stock options and performance-based common stock units representing
shares of Common Stock. The program's goal is to compensate executives within
the mid-level of the range of base salaries paid by comparable companies and
to offer appropriate forms of incentive compensation to recognize superior
performance. Incentives include annual incentive awards, the payment of which
is contingent upon the attainment of performance goals, and long-term
incentive awards, the realized value of which is tied to increases in the
value of Common Stock and to total shareholder return.
The Committee believes that the Company's direct competition for executive
talent is broader than the companies included in either the new or former peer
group established for purposes of comparing shareholder returns (the
"Performance Peer Group") (see pages 16 and 17 for more information). To
assist in benchmarking the competitiveness of the Company's compensation
programs, the Company participates in executive compensation surveys, compiled
by third-party consultants, which include a total of 13 oil industry companies
(the "Compensation Peer Group"). Thus, the Compensation Peer Group is not the
same as the Performance Peer Groups presented in the Comparison of Five-Year
Cumulative Total Return Graphs on pages 16 and 17. The compensation survey
data reflect adjustments for each company's relative revenue, asset base,
employee population and capitalization, along with the scope of managerial
responsibility and reporting relationships.
The CEO participates in the same programs and receives compensation based on
the same factors as the other executive officers including the Named Executive
Officers. However, the CEO's overall compensation reflects a greater degree of
policy and decision-making authority and a higher level of responsibility with
respect to the strategic direction and financial and operational results of
the Company.
BASE SALARY
In determining Mr. Campbell's 1996 base salary, the Committee noted that his
last merit increase was in September 1994. The Committee considered
competitive data regarding the base salaries of chief executive officers
within the Compensation Peer Group. This review was conducted in December
1995. It was the Committee's view that Mr. Campbell's salary was competitive
and accordingly no change was made.
The merit increases for the other Named Executive Officers, which were
effective for 1996, served to recognize their performance in 1995 and
furthered the goal of maintaining competitive salary levels. In addition, Ms.
Fretz received a merit increase in mid-1996 to further recognize her
performance.
Mr. Campbell, recognizing the Company's disappointing 1996 financial results,
determined that there should be no merit increase awarded for 1997 for himself
or the other Named Executive Officers. The Committee concurred with Mr.
Campbell's assessment.
ANNUAL INCENTIVE AWARDS
Annual incentive awards for the Named Executive Officers are provided under
the Sun Company, Inc. Executive Incentive Plan. The purpose of this plan is to
promote the achievement of the Company's business objectives by offering
short-term incentive opportunities to those employees who have the ability to
significantly impact the Company's performance. Each year the Committee
considers the Company's prior year's performance and objectives, as well as
its expectations for the Company in the upcoming year. Bearing in mind these
considerations, the Committee sets certain Company performance criteria or
goals which must be met before awards are made. Additionally, individual
performance goals are established for each participant.
If the annual performance goals are met, executives have the ability to earn
additional cash compensation. The amounts increase with the level of
responsibility of the executive, with the
9
<PAGE>
CEO's target incentive opportunity being 60% of his annual base salary and up
to 110% of his annual base salary if the maximum levels are achieved.
For 1996, the Company's performance goals were to meet a specified level of
operating income and the achievement of a specified level of Return on Capital
Employed as compared to the former Performance Peer Group (see pages 16 and
17). The Company's disappointing 1996 financial results did not meet the
minimum performance thresholds for the Company, and accordingly, the Committee
determined that there would be no payout under this plan for 1996 performance.
LONG-TERM INCENTIVE AWARDS
The third component of the Company's executive compensation program is long-
term incentive awards. In 1996, the Committee decided that a change in the
composition of the Executive Long-Term Stock Investment Plan ("ELSIP") awards
from all stock options to a combination of stock options and common stock
units ("CSUs") was appropriate. This new award mix was designed to provide
approximately the same incentive opportunity for the Named Executive Officers
as did the prior awards of stock options. To realize a payout of CSUs, the
Company's total Common Stock shareholder return (stock price appreciation plus
dividend yield), for a three-year performance period must compare favorably to
that of the Performance Peer Group. However, if the price of Common Stock at
the end of the performance period is less than the price at the beginning of
this period, no CSUs will be earned regardless of how Sun performs versus the
Performance Peer Group. The Committee believes that utilizing CSUs as part of
the compensation mix will focus executives on "beating the competition" with
an added sense of urgency.
In deciding upon the amount of stock options and CSUs that were awarded in
1996, the Committee reviewed surveys of similar awards made to individuals in
comparable positions at the Compensation Peer Group companies and considered
the number of stock options previously granted to the Named Executive
Officers. The survey information indicated that an increase in guideline award
levels was appropriate. However, the Committee felt that increasing guideline
award levels would be inappropriate in light of the Company's 1996 results
and, therefore, no adjustment was made.
The Committee's most important consideration for determining the number of
awards was 1996 performance. Accordingly, Mr. Campbell's 1996 ELSIP award was
below guideline level to reflect the Company's disappointing 1996 results.
However, the Committee believes his award still provides an appropriate
incentive for Mr. Campbell to continue his leadership of the Company toward
improved Company performance and increased shareholder value. Awards granted
to the other Named Executive Officers reflect Mr. Campbell's recommendation to
the Committee based upon the level of responsibility and current performance
of each executive. The Committee approved Mr. Campbell's recommendations.
STOCK OWNERSHIP GUIDELINES FOR EXECUTIVES
A commitment to increased stock ownership by the Company's management is an
important element of the Company's compensation programs. Accordingly, the
Committee has established new stock ownership guidelines for approximately the
top 40 executives to ensure that the interests of executives and shareholders
are closely aligned and to strengthen the link between Company performance and
compensation. The guideline percentages increase with the level of
responsibility of each executive, with the CEO's level at three times base
pay. Shares included in the calculation of stock ownership are all shares
beneficially owned, excluding those that the executives have the right to
acquire through the exercise of stock options. The Committee will monitor the
total share holdings of these executives on an annual basis. The guidelines
are to be achieved by December 31, 2001, the end of a five-year transition
period.
10
<PAGE>
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
This Act has had no material impact upon the Company's ability to take a tax
deduction for compensation paid to the CEO and each of the other Named
Executive Officers. Therefore, the Committee has determined that it is not
necessary to seek shareholder approval to amend any current compensation plan
at this time to comply with this Act.
Respectfully submitted by the members of the Compensation Committee of
the Board of Directors:
Raymond E. Cartledge, Chair Mary J. Evans Thomas W. Langfitt
Robert E. Cawthorn James G. Kaiser
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are none.
SUMMARY COMPENSATION
The following table shows annual, long-term and all other compensation for
services to the Company in all capacities for the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
AWARDS
- - -----------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (g) (i)
- - -----------------------------------------------------------------------------------------------------
OTHER
ANNUAL NUMBER OF
BASE COMP- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS ENSATION(2) OPTIONS COMPENSATION(4)
($) ($) ($) GRANTED(3) ($)
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert H. Campbell 1996 699,140 -0- 4,789 45,000 36,367
Chairman of the Board 1995 699,140 377,000 3,409 100,000 36,367
and Chief Executive 1994 664,545 107,200 3,899 97,530 35,748
Officer
- - -----------------------------------------------------------------------------------------------------
Robert M. Aiken, Jr. 1996 329,992 -0- 3,864 19,200 17,102
Executive Vice President 1995 327,886 122,000 2,650 21,820 16,437
and Chief Financial 1994 305,530 36,900 2,339 21,990 15,347
Officer
- - -----------------------------------------------------------------------------------------------------
David E. Knoll 1996 326,976 -0- 3,520 10,910 16,926
Senior Vice President, 1995 339,749 100,000 3,885 21,820 16,573
Northeast Refining and 1994 319,826 34,200 2,068 21,990 15,952
Chemicals
- - -----------------------------------------------------------------------------------------------------
Sheldon L. Thompson 1996 273,000 -0- 1,187 10,910 14,131
Senior Vice President 1995 259,324 94,000 704 21,820 13,424
and Chief Administrative 1994 231,151 30,000 600 19,120 12,538
Officer
- - -----------------------------------------------------------------------------------------------------
J. Greg Driscoll 1996 267,020 -0- 1,047 8,730 13,519
Former Senior 1995 236,018 89,000 576 21,820 11,955
Vice President, Marketing 1994 168,721 31,400 889 19,120 8,571
- - -----------------------------------------------------------------------------------------------------
Deborah M. Fretz (5) 1996 266,417 -0- 5,053 13,090 13,491
Senior Vice President, 1995 233,836 103,000 2,863 21,820 11,094
Lubricants and Logistics 1994 176,440 29,500 3,388 16,530 8,951
- - -----------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
(1) Included in this column are fees previously received by Messrs. Aiken and
Knoll and Ms. Fretz for serving on the board of directors of Suncor Inc.,
the Company's former Canadian subsidiary. Mr. Campbell was the chairman
and a director of Suncor from April 1994 to July 1995; however, he
received no fees for this service. Sun sold its remaining interest in
Suncor on June 8, 1995, and no one from Sun served as a Suncor director in
1996. The U.S. dollar value of these fees was as follows: R. M. Aiken,
Jr., 1995--$10,738, 1994--$16,175; D. E. Knoll, 1995--$19,585, 1994--
$16,175; and D. M. Fretz, 1995--$14,780.
(2) The amounts in this column reflect reimbursements for the payment of taxes
associated with certain payments to the Named Executive Officers for club
memberships.
(3) In 1996, the Committee decided that a change in the composition of the
ELSIP awards from all stock options to a combination of stock options and
CSUs was appropriate. The CSU portion of the award is reflected in the
table of Performance Based Common Stock Unit Awards in 1996 on page 14.
For further information regarding CSUs, see page 10.
(4) This column consists of the Company's contributions allocated under
defined contribution plans (SunCAP and the Sun Company, Inc. Savings
Restoration Plan) to the individual accounts of the Named Executive
Officers as follows: R. H. Campbell, 1996--$34,957, 1995--$34,957, 1994--
$34,422; R. M. Aiken, Jr., 1996--$16,500, 1995--$15,857, 1994--$14,786;
D. E. Knoll, 1996--$16,349, 1995--$16,008, 1994--$15,386; S. L. Thompson,
1996--$13,650, 1995--$12,966, 1994--$12,079; J. G. Driscoll, 1996--
$13,351, 1995--$11,801, 1994--$8,436; and D. M. Fretz, 1996--$13,321,
1995--$10,953, 1994--$8,822. The Savings Restoration Plan permits a SunCAP
participant to continue receiving the Company-matching contribution after
the participant reaches the limitations under (i) Section 415 of the
Internal Revenue Code with respect to participant and Company-matching
contributions to SunCAP and (ii) Section 401(a) of the Internal Revenue
Code with respect to compensation which may be earned by SunCAP
participants.
This column also reflects the dollar value of term life insurance premiums
paid by the Company for the benefit of the Named Executive Officers as
follows: R. H. Campbell, 1996--$1,410, 1995--$1,410, 1994--$1,326; R. M.
Aiken, Jr., 1996--$602, 1995--$580, 1994--$561; D. E. Knoll, 1996--$577,
1995--$565, 1994--$566; S. L. Thompson, 1996--$481, 1995--$457, 1994--$459;
J. G. Driscoll, 1996--$168, 1995--$154, 1994--$135; and D. M. Fretz, 1996--
$170, 1995--$141, 1994--$129.
(5) In 1996, D. M. Fretz was awarded 10,000 CSUs with a value of $257,500 on
the date of grant. The CSUs are payable in installments of 2,000 shares in
1997, 3,000 shares in 1998 and 5,000 shares in 1999. Payment is contingent
only upon her continued employment with the Company as of each payment
date.
12
<PAGE>
OPTION GRANTS
The following table presents additional information concerning the option
awards shown in column (g) of the Summary Compensation Table for fiscal year
1996. These options to purchase Common Stock were granted to the Named
Executive Officers pursuant to ELSIP.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM(1)
- - ------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
- - ------------------------------------------------------------------------------------------------------------------------
SECURITIES PERCENT OF TOTAL 0% 5% 10%
UNDERLYING OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION STOCK STOCK STOCK
NAME GRANTED(2) FISCAL YEAR ($/SHARE) DATE PRICE PRICE PRICE
(DATE) (#) $24.625 $40.110 $63.875
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert H. Campbell 12/4/96 45,000 7.0 24.625 12/3/06 -0- 696,825 1,766,250
- - ------------------------------------------------------------------------------------------------------------------------
Robert M. Aiken, Jr. 12/4/96 19,200 3.0 24.625 12/3/06 -0- 297,312 753,600
- - ------------------------------------------------------------------------------------------------------------------------
David E. Knoll 12/4/96 10,910 1.7 24.625 12/3/06 -0- 168,941 428,218
- - ------------------------------------------------------------------------------------------------------------------------
Sheldon L. Thompson 12/4/96 10,910 1.7 24.625 12/3/06 -0- 168,941 428,218
- - ------------------------------------------------------------------------------------------------------------------------
J. Greg Driscoll 12/4/96 8,730 1.4 24.625 12/3/06 -0- 135,184 342,653
- - ------------------------------------------------------------------------------------------------------------------------
Deborah M. Fretz 12/4/96 13,090 2.0 24.625 12/3/06 -0- 202,699 513,783
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) These dollar amounts are not intended to forecast future appreciation of
the Common Stock price. Executives will not benefit unless the Common
Stock price increases above the stock option exercise price. Any gain to
the executives resulting from Common Stock price appreciation will benefit
all shareholders proportionately. The additional values, excluding any
dividends, that would be realized by all shareholders of Common Stock as a
group at appreciation levels of 0%, 5% and 10% are: at $24.625 per share--
$0; $1,130,273,037; and $2,864,915,512, respectively.
(2) Each option was awarded at the fair market value of a share of Common
Stock on the date of the option grant and will become fully exercisable 6
months from the date of grant. Options may not be transferred other than
by will or descent. These stock options were granted along with an equal
number of limited rights. Limited rights become exercisable only in the
event of a change in control of the Company and permit the holder to be
paid in cash the appreciation on a stock option instead of exercising the
option.
13
<PAGE>
AGGREGATED OPTION/SAR EXERCISES AND YEAR-END VALUES
The following table shows information concerning: (i) exercises of stock
options and SARs during 1996 by the Named Executive Officers; and (ii) the
amount and values of unexercised stock options and SARs as of December 31,
1996.
AGGREGATED OPTION/SAR EXERCISES IN 1996 AND YEAR-END OPTION/SAR VALUES (1)
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
(a) (e) (f)
- - -------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS GRANTED (#) OPTIONS/SARS AT YEAR END ($)
- - -------------------------------------------------------------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert H. Campbell 536,206 45,000 -0- -0-
- - -------------------------------------------------------------------------------------------------------------
Robert M. Aiken, Jr. 141,514 19,200 -0- -0-
- - -------------------------------------------------------------------------------------------------------------
David E. Knoll 170,704 10,910 -0- -0-
- - -------------------------------------------------------------------------------------------------------------
Sheldon L. Thompson 97,952 10,910 -0- -0-
- - -------------------------------------------------------------------------------------------------------------
J. Greg Driscoll 54,793 8,730 -0- -0-
- - -------------------------------------------------------------------------------------------------------------
Deborah M. Fretz 65,028 13,090 -0- -0-
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) No stock options or SARs were exercised during 1996.
PERFORMANCE BASED COMMON STOCK UNIT AWARDS IN 1996
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS (1)
- - -------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
- - -------------------------------------------------------------------------------------------------------------
NUMBER OF PERFORMANCE
COMMON STOCK PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME UNITS PAYOUT (# OF CSUS) (# OF CSUS) (# OF CSUS)
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert H. Campbell 13,000 12/31/99 3,250 13,000 19,500
- - -------------------------------------------------------------------------------------------------------------
Robert M. Aiken, Jr. 5,520 12/31/99 1,380 5,520 8,280
- - -------------------------------------------------------------------------------------------------------------
David E. Knoll 3,100 12/31/99 775 3,100 4,650
- - -------------------------------------------------------------------------------------------------------------
Sheldon L. Thompson 3,100 12/31/99 775 3,100 4,650
- - -------------------------------------------------------------------------------------------------------------
J. Greg Driscoll 2,480 12/31/99 620 2,480 3,720
- - -------------------------------------------------------------------------------------------------------------
Deborah M. Fretz 3,720 12/31/99 930 3,720 5,580
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The actual payout of the CSUs granted under ELSIP will depend upon the
Company achieving certain performance levels, based upon total Common
Stock shareholder return, as compared with the total shareholder return of
the Performance Peer Group over a three-year performance period from
January 1, 1997 through December 31, 1999. The threshold amount presented
represents the payout of CSUs if the minimum performance level is
achieved. No CSUs would be paid out if this minimum level is not met. At
the end of this three-year period, the Committee will determine, based
upon the Company's performance, the extent to which the target awards have
been earned (see page 10 for a detailed discussion of CSUs).
14
<PAGE>
PENSION PLAN TABLE
The following table shows estimated annual retirement benefits payable to
executive officers and key employees based upon the final average pay formulas
of the Sun Company, Inc. Retirement Plan, the Sun Company, Inc. Pension
Restoration Plan, and the Sun Company, Inc. Supplemental Executive Retirement
Plan ("SERP"). The estimates assume that benefits are received in the form of
a single life annuity.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT AT AGE 62
OR LATER
FINAL AVERAGE AFTER COMPLETION OF THE FOLLOWING YEARS OF SERVICE
TOTAL CASH -------------------------------------------------------------------
COMPENSATION(1) 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 200,000 $ 80,000 $ 90,000 $100,000 $108,000 $115,000
400,000 160,000 180,000 200,000 215,000 230,000
600,000 240,000 270,000 300,000 323,000 345,000
800,000 320,000 360,000 400,000 430,000 460,000
1,000,000 400,000 450,000 500,000 538,000 575,000
1,200,000 480,000 540,000 600,000 645,000 690,000
1,400,000 560,000 630,000 700,000 750,000 805,000
- - ---------------------------------------------------------------------------------------
</TABLE>
The retirement benefits shown above for the Retirement Plan, the Pension
Restoration Plan and SERP are amounts calculated prior to the Social Security
offset. The Social Security offset is equal to one and two-thirds percent of
primary Social Security benefits for each year of Retirement Plan
participation up to 30 years or a maximum offset of 50% of primary Social
Security benefits.
Credited years of service under these plans for the Named Executive Officers
as of December 31, 1996 are as follows: R. H. Campbell, 36; R. M. Aiken, Jr.,
26; D. E. Knoll, 29; S. L. Thompson, 34; J. G. Driscoll, 31; and D. M. Fretz,
19.
- - -------
(1) Final Average Total Cash Compensation is the average of the base salary
and annual incentive award in the highest 36 consecutive months during the
last 120 months of service. The salaries and annual incentive awards
(excluding any directors' fees from Suncor Inc., a former Canadian
subsidiary reported on page 12) reflect total cash compensation covered by
the pension plans except that SERP substitutes the unadjusted guideline
annual incentive award for the actual award received.
SPECIAL EMPLOYEE SEVERANCE PLAN AND ARRANGEMENT
All eligible exempt, non-exempt and hourly employees of the Company and its
participating subsidiaries may be entitled to receive benefits under the Sun
Company, Inc. Special Employee Severance Benefits Plan ("Severance Benefits
Plan"). Participation is not limited to only the executive officers. The
Severance Benefits Plan will provide single lump sum cash payments for
eligible employees in the event of their "termination of employment" within
two years of a "change in control" of the Company (as such terms are defined
in the plan). The Severance Benefits Plan also provides for extended life
insurance and medical benefits for such employees. The amount of the lump sum
payment will be based on the employee's years of service, annualized base
earnings at the time of a change in control and the average of the employee's
three most recent annual incentive award payments. The formula for calculating
the lump sum payment is the same for the executive officers as it is for all
other eligible employees. Based upon the terms of the Severance Benefits Plan,
payments received under the plan do not constitute "parachute payments" (as
defined in the Internal Revenue Code). The terms of the plan expressly limit
total payments to a participant under the plan to a maximum amount (when
combined with certain other payments made by the Company contingent upon a
change in control), which is up to three times the participant's average cash
compensation for the preceding five years. The severance benefit will be
payable no later than ten days after
15
<PAGE>
termination of employment. As of December 31, 1996, payments under the
Severance Benefits Plan to the Named Executive Officers would have been as
follows: R. H. Campbell, $1,721,080; R. M. Aiken, Jr., $677,542; D. E. Knoll,
$721,974; S. L. Thompson, $628,667; J. G. Driscoll, $614,328; and D. M. Fretz,
$457,882. Mr. Driscoll ceased to be an executive officer of the Company as of
February 6, 1997.
STOCK PERFORMANCE GRAPHS
-------------------------------------------------------
During 1996, the Company re-evaluated the composition of its Performance Peer
Group and determined that a change was appropriate. The new Performance Peer
Group is composed of the major domestic independent refining and marketing
companies and integrated oil companies which are both similar in size to Sun
and represent its competitors in certain geographic areas.
Assuming an initial investment of $100 in the Company's Common Stock, as of
the periods indicated, and the reinvestment of all dividends, the following
graphs compare Sun's cumulative total return (i.e., based on Common Stock
price and dividends), plotted on an annual basis, with the S&P 500 Stock Index
(a performance indicator of the overall stock market) and the new and former
Performance Peer Groups. The first graph compares Sun's cumulative total
return for the previous five fiscal years to the new Performance Peer Group.
As required by the SEC, a second graph has also been provided which compares
Sun's cumulative total return for the previous five fiscal years to the former
Performance Peer Group.
Five-Year Cumulative Total Return
[LINE GRAPH APPEARS HERE]
- - ----------------------------
NEW PEER GROUP
- - ----------------------------
Amerada Hess
Ashland
Crown Central
Marathon/USX
Tosco
Total Petroleum, N.A.
Ultramar Diamond Shamrock
Valero
- - ----------------------------
<TABLE>
<CAPTION>
12/91 12/92 12/93 12/94 12/95 12/96
<S> <C> <C> <C> <C> <C> <C>
Sun 100 98 110 114 114 105
Peers 100 84 91 93 109 140
S&P 500 100 108 118 120 165 203
</TABLE>
Note: Ultramar Corporation and Diamond Shamrock, Inc. merged on December 4,
1996. The resulting company, Ultramar Diamond Shamrock Corporation, is
included in Sun's new Performance Peer Group. In calculating the new
Performance Peer Group's five year cumulative total return, Ultramar
Corporation's stock price was used prior to December 4, 1996, and
Ultramar Diamond Shamrock Corporation's stock price was used from
December 4, 1996 to the end of the measurement period.
16
<PAGE>
Five-Year Cumulative Total Return
[LINE GRAPH APPEARS HERE]
- - -------------------
Former Peer Group
- - -------------------
Amerada Hess
Ashland
Kerr McGee
Marathon/USX
Phillips
Unocal
- - -------------------
<TABLE>
<CAPTION>
12/91 12/92 12/93 12/94 12/95 12/96
<S> <C> <C> <C> <C> <C> <C>
Sun 100 98 110 114 114 105
Peers 100 99 109 116 134 173
S&P 500 100 108 118 120 165 203
</TABLE>
ADOPTION OF THE LONG-TERM PERFORMANCE ENHANCEMENT PLAN
(ITEM 2 ON THE PROXY CARD)
----------------------------------------------------
BACKGROUND. The Compensation Committee and the Board have approved and
- - ----------
recommend that the shareholders vote to adopt the Sun Company, Inc. Long-Term
Performance Enhancement Plan ("Proposed Plan"). The Proposed Plan would
replace the existing long-term compensation plan, the Sun Company, Inc.
Executive Long-Term Stock Investment Plan ("ELSIP"), which was approved by
shareholders in 1991. On December 31, 1996, ELSIP expired and no further
awards are permitted to be made under that plan.
The Committee believes that the Proposed Plan will further the philosophical
principles and program objectives set forth in the Compensation Committee
Report on page 8. The Committee's current intention is to make annual awards
under the Proposed Plan to the top 40 executives which divide the value of the
incentive opportunity approximately equally between stock options (with
related limited rights) and performance-based Common Stock Units ("CSUs") as
described more fully below. Other participants will generally only receive
stock options (with related limited rights). However, under the Proposed Plan,
the Committee retains the discretion to change the award mix or type of award
as appropriate.
Stock options are rights to purchase, for cash or Common Stock, shares of
Common Stock at a price no less than the fair market value of these shares on
the date the options are granted. Limited rights are attached to stock options
and permit the holder to be paid in cash the appreciation on a stock option
instead of exercising the stock option, only in connection with a "change in
control." Both stock options and limited rights provide value to holders only
if the price of Common Stock increases above the exercise price of the stock
option.
Performance-based CSUs which represent shares of Common Stock are expected to
be earned by achieving predetermined performance levels versus the Performance
Peer Group as measured by total Common Stock shareholder return (stock price
appreciation plus dividend yield) over a three-year performance period.
However, if the price of Common Stock at the end of the performance period is
less than the price at the beginning of this period, no CSUs will be earned
regardless of how Sun performs versus the Performance Peer Group. The
Committee believes that utilizing CSUs as part of the compensation mix will
focus executives on "beating the competition" with an added sense of urgency.
17
<PAGE>
Finally, for the top 40 executives eligible to participate in the Proposed
Plan, the Committee established new stock ownership guidelines to ensure that
the interests of executives and shareholders are more closely aligned, and to
strengthen the link between Company performance and compensation. For more
information on the Stock Ownership Guidelines for Executives see page 10.
In summary, the Committee believes that stock options (with related limited
rights) and performance-based CSUs included in the Proposed Plan and the stock
ownership guidelines provide increased incentive for executives to increase
shareholder value.
VOTE REQUIRED. The affirmative vote of the holders of a majority of the votes
- - -------------
present, in person or represented by proxy, at the 1997 Annual Meeting is
required to adopt the Proposed Plan.
SUMMARY OF PLAN. The following is a summary of the Proposed Plan. Please read
- - ---------------
the full text of the Proposed Plan, which is included as Exhibit A for a
complete description.
GENERAL. The Proposed Plan has several types of awards--stock options and
incentive stock options (both generally referred to as "Options"), limited
rights and CSUs. The Company will reserve up to 4 million shares of Common
Stock for issuance under the Proposed Plan, subject to adjustment in the case
of certain changes in capital structure (see Adjustments on page 20). Shares
will be issued only after registration with the SEC or pursuant to exemptions
from registration under applicable SEC rules.
Those eligible to receive awards under the Proposed Plan are officers,
executives, and other key employees of Sun. It is expected that approximately
135 employees will receive awards each year. Directors may also receive awards
under the Proposed Plan if they are officers or employees of Sun at the time
of the award. All individual grants and awards to be made under the Proposed
Plan will be approved by the Committee.
The Committee has the discretion to make awards contingent upon approval of
the Proposed Plan. The Proposed Plan will become effective on the date
approved by the shareholders and will expire on December 31, 2001, unless the
Board extends this date to a date no later than December 31, 2006. All awards
made under the Proposed Plan prior to December 31, 2001 (or the extended date)
will remain in effect until such awards have been satisfied or terminated per
their terms.
STOCK OPTIONS AND INCENTIVE STOCK OPTIONS. Each Option will be exercisable
during a period fixed by the Committee which begins no earlier than two years
and ends no later than ten years after the date of grant. The purchase price
payable upon exercise of an Option will be no less than 100% of the fair
market value of a share of Common Stock on the date the Option is granted. The
purchase price may be paid in cash or in shares of Common Stock.
The number of Options that may be granted to a participant each year shall not
exceed two-hundred thousand (subject to adjustment for certain capitalization
changes described under Adjustments on page 20).
As a general rule, each Option will be canceled upon the termination of the
participant's employment. However, if the participant's termination is by
reason of death, or permanent disability or retirement, as determined by the
Committee, Options may be exercised for a period of up to 60 months after such
termination.
LIMITED RIGHTS. The Committee may grant related limited rights to any
participant who has been awarded Options. Limited rights are immediately
exercisable in full upon grant for a period up to seven months following a
change in control (as defined in the Proposed Plan) of the Company. Upon the
exercise of limited rights, payment will be made in cash in an amount equal to
the difference between the exercise price of the related Option and the
greater of (i) the highest price per share of Common Stock paid in connection
with the change in control or (ii) the highest price per share of Common Stock
during the 60-day period prior to the change in control.
18
<PAGE>
Generally, limited rights will terminate upon the participant's death or
termination of employment unless such termination of employment is due to
retirement or disability, in which case the participant may exercise limited
rights within six months of such termination to the extent they are
exercisable. In addition, a participant who is terminated subsequent to a
change in control by the Company for other than just cause (as defined in the
Proposed Plan) may exercise limited rights during the seven-month period
following a change in control.
COMMON STOCK UNITS. A CSU is a right to receive a share of Common Stock and
related "dividend equivalents" which are paid in cash. At the time of the
grant, the Committee will determine whether this right will be conditioned
only upon continued employment with the Company for a certain time period or
whether it will be further conditioned upon the attainment of certain pre-
determined performance targets during the period. The Committee anticipates
that most of the CSU awards made will be performance-based. Objective
performance goals will be established based upon financial and/or operating
measures. Goal achievement may be measured against absolute targets or in
comparison to the Performance Peer Group (see page 16). The 1996 CSU awards
made under ELSIP shown in the table on page 14 are examples of performance-
based awards.
The Proposed Plan will not use more than 1 million shares (of the 4 million
total shares of Common Stock authorized) for CSU awards. The number of CSUs
awarded per participant, per calendar year, will not exceed 50,000. These
amounts are subject to adjustment for certain capitalization changes as
described under Adjustments on page 20.
CSUs usually will terminate upon the participant's termination of employment.
However, if termination is due to death, permanent disability or retirement,
payment will be made of a prorated number of CSUs and dividend equivalents at
the end of the performance period, after adjustment for the attainment of
performance targets. In the event of a change in control of the Company, all
outstanding CSUs and related dividend equivalents will be paid out at the
target level.
FEDERAL TAX CONSEQUENCES. The following summarizes information regarding the
federal tax consequences of awards granted under the Proposed Plan:
. A participant will not realize any income, nor will the Company receive any
deduction, for federal income tax purposes, upon the grant of Options,
limited rights or CSUs.
. With regard to stock options or limited rights, ordinary income will be
realized by the participant at the time shares are transferred or cash is
paid upon exercise.
. For stock options, the amount of income will be equal to the difference
between the stock option price and the fair market value of shares of
Common Stock on the date of the exercise.
. For limited rights, the amount of income will be equal to the cash
received.
. Ordinary income will be realized by a participant in the year in which CSUs
are paid, in an amount equal to the fair market value of the shares of
Common Stock issued at the end of the performance period and the dividend
equivalents paid.
. Income received by a participant pursuant to a limited right or CSU which
is received upon a change in control of the Company may be subject to a 20%
excise tax as an "excess parachute payment."
. The Company will receive a deduction on its consolidated federal income tax
return for the taxable year in which the participant realizes ordinary
income from the exercise of stock options, limited rights, or CSUs.
. A participant will not recognize taxable income pursuant to the exercise of
an incentive stock option, provided that the participant holds the Common
Stock for the required holding
19
<PAGE>
period. The required holding period is the later of two years from the date
of grant or one year from the date of exercise.
. The exercise of an incentive stock option will result in a tax preference
item for the alternative minimum tax of an amount equal to the difference
between the stock option price and the fair market value of the shares of
Common Stock on the date of exercise.
ADJUSTMENTS. In the event of a change in the number of outstanding shares of
Common Stock by reason of a stock dividend or distribution, recapitalization,
merger, consolidation, split-up, combination, exchange of shares or the like,
the Committee may appropriately adjust the number of shares of Common Stock
which may be issued under the Proposed Plan, the awards previously granted
under the Proposed Plan, and any and all matters deemed appropriate by the
Committee.
AMENDMENTS. The Committee may, without shareholder approval, terminate or
amend the Proposed Plan at any time. However, the Committee may not, without
shareholder approval, amend the Proposed Plan in certain respects, including
amendments which would (i) increase the maximum award levels established in
the Proposed Plan, including the maximum number of shares of Common Stock
which may be issued under the Proposed Plan (except for adjustments as
described above); (ii) extend the term during which an Option may be exercised
beyond ten years from the date of grant; or (iii) extend the term of the
Proposed Plan, except that the Board may extend the period during which awards
may be made, but not beyond December 31, 2006.
POTENTIAL VOTING DILUTION. As of December 31, 1996, Sun has total pro forma
- - -------------------------
Common Stock outstanding of 97,912,578 shares, consisting of Common Stock
actually outstanding as well as Common Stock assumed to be issued upon the
redemption of the Depositary Shares, utilizing a ratio of one share of Common
Stock for each outstanding Depositary Share. Each Depositary Share represents
ownership of one-half of a share of Preference Stock. The Company's current
intention is to redeem the Depositary Shares no later than June 12, 1998 in
accordance with the terms of the Exchange Agreement dated June 12, 1995. Sun's
Preference Stock has one vote per share and votes with Common Stock as a
single class.
The 4,000,000 shares of Common Stock authorized under the Proposed Plan, if
issued, would result in 3.9% dilution of the total pro forma Common Stock
outstanding, or an average of .8% per plan year.
The following table represents the outstanding and unexercised awards under
the Company's existing stock-based incentive plans:
<TABLE>
- - ---------------------------------------------------------------
SHARES RESERVED
OUTSTANDING AND UNEXERCISED AWARDS FOR AWARDS
- - ---------------------------------------------------------------
<S> <C>
ELSIP and LTIP Options Outstanding(1) 3,989,800
Other ELSIP Awards Outstanding 169,310
Options Outstanding or Available for Grant
under the Employee Option Plan(2) 1,775,595
- - ---------------------------------------------------------------
Total Shares Reserved for Awards 5,934,705
- - ---------------------------------------------------------------
</TABLE>
(1) No additional awards may be granted under these plans.
(2) A broad-based plan in which all employees of the Company and certain of
its subsidiaries participate except certain key employees.
The maximum issuance of 4,000,000 shares of Common Stock under the Proposed
Plan and 5,934,705 shares of Common Stock for awards under all other existing
plans would result in 9.2% dilution based on the total pro forma Common Stock
outstanding.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE ADOPTION
OF THE SUN COMPANY, INC. LONG-TERM PERFORMANCE ENHANCEMENT PLAN.
20
<PAGE>
APPROVAL OF THE APPOINTMENT OF INDEPENDENT AUDITORS
(ITEM 3 ON THE PROXY CARD) ____________________________________________________
As a result of a competitive bidding process, Ernst & Young LLP ("Ernst &
Young") replaced Coopers & Lybrand L.L.P. ("Coopers & Lybrand") as independent
auditors for the Company for fiscal year 1996. The Audit Committee has
recommended and the Board has approved the appointment of Ernst & Young as
independent auditors for the fiscal year 1997, subject to the approval of the
shareholders.
Audit services provided by Ernst & Young during 1996 included audits of the
Company's consolidated financial statements, the separate financial statements
of certain Company affiliates, the financial statements of employee benefit
plans, and a review of the Company's annual report and other filings with the
SEC and other governmental agencies. In addition, Ernst & Young provided
various nonaudit services to the Company during 1996.
The report of Coopers & Lybrand on the Company's financial statements for the
fiscal year ended December 31, 1995 did not contain an adverse opinion or
disclaimer of opinion, nor was it qualified or modified as to uncertainty,
audit scope, or accounting principles. During the fiscal year ended December
31, 1995, there were no disagreements with Coopers & Lybrand on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreement(s), if not resolved to the
satisfaction of Coopers & Lybrand, would have caused it to make a reference to
the subject matter of the disagreement(s) in connection with its report.
In addition, for the fiscal year ended December 31, 1995, Coopers & Lybrand
did not advise the Company:
(1) that the internal controls necessary for the Company to develop
reliable financial statements did not exist;
(2) that information had come to its attention that had led it to no longer
be able to rely on management's representations, or that had made it
unwilling to be associated with the financial statements prepared by
management;
(3) of the need to expand significantly the scope of its audit, or that
information had come to its attention during such period that, if
further investigated, might (i) materially have impacted the fairness
or reliability of either: a previously issued audit report or the
underlying financial statements, or the financial statements issued or
to be issued covering the fiscal period(s) subsequent to the date of
the most recent financial statements covered by an audit report or (ii)
have caused it to be unwilling to rely on management's representations
or be associated with the Company's financial statements; or
(4) that information had come to its attention that it had concluded
materially impacts the fairness or reliability of either: (i) a
previously issued audit report or the underlying financial statements,
or (ii) the financial statements issued or to be issued covering the
fiscal period(s) subsequent to the date of the most recent financial
statements covered by an audit report.
During the fiscal year ended December 31, 1995, neither the Company nor anyone
on its behalf consulted Ernst & Young regarding either the application of
accounting principles to a specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on the Company's
financial statements, and neither a written report nor oral advice was
provided to the Company by Ernst & Young.
Representatives of Ernst & Young will be present at the 1997 Annual Meeting to
make a statement if they desire to do so and will be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE TO
APPROVE THE APPOINTMENT OF ERNST & YOUNG AS INDEPENDENT AUDITORS FOR THE
FISCAL YEAR 1997.
21
<PAGE>
PROXY CARDS ___________________________________________________________________
PROXY CARD FOR DEPOSITARY SHARES. The yellow proxy card sets forth voting and
proxy instructions for the recordholders of Depositary Shares, each of which
represents one-half of one share of Preference Stock. Each share of Preference
Stock is entitled to one vote. Since a Depositary Share represents one-half of
one share of the underlying Preference Stock, each Depositary Share is
entitled to one-half of a vote. Accordingly, the Depositary recordholders will
have one vote for every two Depositary Shares owned. Each recordholder of
Depositary Shares is entitled to instruct First Chicago Trust Company of New
York ("First Chicago"), the Preference Stock Depositary, on how to vote the
respective number of shares of Preference Stock represented by the Depositary
Shares that the recordholder owns. First Chicago has authorized The
Corporation Trust Company, the Company's independent proxy tabulation agent,
to tabulate all proxy cards received directly from recordholders in accordance
with their instructions. Also, First Chicago has authorized and instructed the
proxies and attorneys-in-fact indicated on the yellow proxy card to vote the
shares of Preference Stock based on the tabulation of the recordholder voting
instructions received by the independent proxy tabulation agent. The proxies
and attorneys-in-fact will not vote to the extent that proxy cards are not
received from the holders of the Depositary Shares.
PROXY CARD FOR COMMON STOCK. The blue proxy card appoints proxies and
attorneys-in-fact for shareholders of Common Stock and also serves as the
voting instruction from SunCAP participants to the trustee of that plan. Each
share of Common Stock is entitled to one vote.
If proxy cards covering shares of Common Stock held by the SunCAP trustee are
not returned or are returned signed but with no or an unclear voting
designation, according to the terms of that plan, the trustee will vote these
shares of Common Stock held by the plan in the same proportion as the shares
of Common Stock for which clearly designated voting instructions have been
received from other participants in that plan.
The administrator of the Dividend Reinvestment Plan has certified to the
independent proxy tabulation agent that certain shares of Common Stock
registered in its name are held for the accounts of specified beneficial
owners. Pursuant to the bylaws of the Company, for purposes of notice and
voting at the 1997 Annual Meeting, the beneficial owners of Dividend
Reinvestment Plan shares are deemed to be the recordholders of the number of
shares of Common Stock specified by the Dividend Reinvestment Plan
administrator. These shares are combined on the blue proxy card with the
shares of Common Stock for which the respective beneficial owners are
recordholders.
TOTAL SHARES ON CARD. The total number of Depositary Shares or shares of
Common Stock that each shareholder is eligible to vote as of the February 10,
1997 record date is represented as a single number on the right side of the
respective proxy card. For the shareholders of Common Stock, this total number
includes any shares of Common Stock owned through SunCAP and/or the Dividend
Reinvestment Plan.
TABULATION PROCESS. If a holder of Depositary Shares or shares of Common Stock
returns the proxy card signed, but with no or an unclear voting designation,
the independent proxy tabulation agent will tabulate the vote and the proxies
and attorneys-in-fact will vote FOR Items (1), (2) and (3) as more fully
described in this proxy statement.
Shareholders who return a properly signed and dated proxy card will have the
number of shares of Preference Stock or Common Stock represented by such proxy
card counted as "present" for purposes of establishing a quorum. Any
shareholder of Depositary Shares or Common Stock who returns a proxy card but
who does not desire to vote and wishes to record this fact may abstain from
voting by marking the appropriate box on the proxy card. However, a proxy card
marked as abstaining (including a proxy card containing broker no-votes) will
be counted as present for purposes of establishing a quorum. In certain cases
where shares are held in a
22
<PAGE>
brokerage account and a shareholder does not return a proxy card, a broker is
permitted to cast a vote on routine matters on behalf of the shareholder. A
broker no-vote occurs when an item to be voted on is deemed non-routine by the
New York Stock Exchange, and a broker is unable to exercise discretionary
authority on behalf of the shareholder to vote for or against the item.
Sun is a Pennsylvania corporation and pursuant to Pennsylvania Law and the
Company's bylaws, the terms, "voting" or "casting a vote," do not include
either the act of abstaining or failing to vote. Thus, abstentions and broker
no-votes are not counted either in the tally of votes "for" or "against" a
director nominee or a proposal. A "withheld" vote is the equivalent of an
abstention.
CONFIDENTIAL VOTING. The Company utilizes a confidential voting procedure
whereby all proxy cards and ballots are mailed or returned directly to the
Company's independent proxy tabulation agent, and handled in a manner that
protects shareholder voting privacy. No vote or voting instruction will be
disclosed by the independent proxy tabulation agent except: to permit the
agent to tabulate and certify the vote; as necessary to meet any legal
requirements; and in limited circumstances such as a proxy contest in
opposition to the Board.
Any shareholder returning a proxy card to the independent proxy tabulation
agent may revoke it at any time before it is exercised by providing written
notice of revocation or by executing a proxy card bearing a later date which
will be deemed to be a written notice of revocation.
SOLICITATION OF PROXY CARDS ___________________________________________________
The Company has provided proxy materials to brokers, banks, custodians,
nominees and fiduciaries and requested that such materials be promptly
forwarded to the beneficial owners of Depositary Shares and of Common Stock
registered in the names of such brokers, banks, custodians, nominees and
fiduciaries. In addition, solicitation of proxy cards may be made by
directors, officers and employees of the Company by personal interview, mail,
telephone, facsimile transmission or telegraph. Morrow & Co., Inc. has been
retained to assist in the distribution of Sun's proxy materials and in the
solicitation of proxy cards at an estimated cost of $20,000 plus reimbursement
of reasonable out-of-pocket expenses. The cost of soliciting proxy cards and
related services will be borne by the Company.
VOTING SECURITIES _____________________________________________________________
On February 10, 1997, the record date for voting at the 1997 Annual Meeting,
the Company had outstanding 85,452,028 shares of voting stock consisting of
12,460,550 shares of Preference Stock and 72,991,478 shares of Common Stock.
The holders of Depositary Shares are entitled to vote the underlying
Preference Stock on all matters submitted to a vote of the holders of the
Common Stock, voting together with the holders of the Common Stock as one
class. Each share of the Preference Stock is entitled to one vote. Since each
share of Preference Stock is represented by two Depositary Shares, each
Depositary Share is entitled to one-half of a vote. Every shareholder of
Common Stock is entitled to one vote for each share of Common Stock registered
(or deemed registered under SunCAP or the Dividend Reinvestment Plan).
Approval of the three matters scheduled to be presented for vote by the
shareholders at the 1997 Annual Meeting will require a majority of votes
present, in person or represented by proxy.
OWNERSHIP INTERESTS OF PRINCIPAL BENEFICIAL OWNERS ____________________________
The following shareholders were the only beneficial owners known by the
Company to hold more than five percent of its outstanding Preference Stock
and/or Common Stock as of December 31, 1996:
23
<PAGE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------
PERCENT PERCENT
PERCENT OF SHARES OF OF TOTAL
SHARES OF PREFERENCE OF COMMON VOTING
NAME, ADDRESS PREFERENCE STOCK COMMON STOCK STOCK
AND NATURE OF OWNERSHIP(1) STOCK(2) OUTSTANDING STOCK OUTSTANDING OUTSTANDING
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Glenmede Trust Company 1,961,214 15.7 3,359,884 4.6 6.2
One Liberty Place
1650 Market Street, Suite 1200
Philadelphia, PA 19103
- - ----------------------------------------------------------------------------------------------------------------
The State Teachers Retirement Board -0- -0- 4,821,198 6.6 5.6
of Ohio
275 East Broad Street
Columbus, OH 43215
- - ----------------------------------------------------------------------------------------------------------------
Wellington Management Company, LLP -0- -0- 4,818,640 6.6 5.6
75 State Street
Boston, MA 02109
- - ----------------------------------------------------------------------------------------------------------------
Franklin Resources, Inc. -0- -0- 4,530,900 6.2 5.3
777 Mariners Island Blvd.
San Mateo, CA 94404
- - ----------------------------------------------------------------------------------------------------------------
Bankers Trust Company -0- -0- 3,995,697 5.5 4.7
280 Park Avenue
New York, NY 10017
- - ----------------------------------------------------------------------------------------------------------------
The Capital Group Companies, Inc. 1,320,655 10.6 -0- -0- 1.5
333 South Hope Street
Los Angeles, CA 90071
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The following information was obtained from the shareholder or Schedule
13Gs filed with the SEC:
. The Glenmede Trust Company has sole voting power with respect to 1,854,599
shares of Preference Stock and shared voting power with respect to 68,449
shares of Preference Stock. Glenmede also has sole investment power with
respect to 1,813,085 shares of Preference Stock and shared investment
power with respect to 148,129 shares of Preference Stock.
The Glenmede Trust Company also has sole voting power with respect to
3,180,648 shares of Common Stock and shared voting power with respect to
128,409 shares of Common Stock. Glenmede also has sole investment power
with respect to 3,060,282 shares of Common Stock and shared investment
power with respect to 290,786 shares of Common Stock.
. The State Teachers Retirement Board of Ohio has sole voting power and
sole investment power with respect to all shares reported in the table.
. Wellington Management Company, LLP has shared voting power with respect to
1,468,065 shares of Common Stock and shared investment power with respect
to all 4,818,640 shares of Common Stock reported in the table.
. Franklin Resources, Inc. is the parent company of Templeton Global
Advisors Limited (an investment advisory subsidiary). Templeton Global
Advisors Limited advises closed-end investment companies or other managed
accounts. Advisory contracts grant to Templeton Global Advisors Limited
sole voting power and sole investment power with respect to all shares
reported in the table. Templeton Global Advisors Limited disclaims
beneficial ownership with respect to all shares reported in the table.
. All shares reported in the table by Bankers Trust Company are held as
trustee of SunCAP. Bankers Trust Company has disclaimed beneficial
ownership of all shares of Common Stock that have been allocated to the
individual accounts of participants in SunCAP (see page 22 for more
information on SunCAP voting).
24
<PAGE>
. The Capital Group Companies, Inc. is the parent holding company of
Capital Research and Management Company and The Income Fund of America,
Inc. Capital Research and Management Company is an investment adviser and
has sole investment power with respect to 1,320,655 shares of Preference
Stock, and it disclaims beneficial ownership of all these shares. The
Income Fund of America, Inc. is an investment company that receives
investment advice from Capital Research and Management Company and it has
sole voting power and sole investment power with respect to 1,247,500
shares reported in the total for The Capital Group Companies, Inc. in the
table.
(2) The Preference Stock listed above for Glenmede is represented by 3,922,427
Depositary Shares. The Preference Stock listed above for The Capital Group
Companies, Inc. is represented by 2,641,310 Depositary Shares. See pages
22 and 23 for additional information regarding the Preference Stock.
On February 1, 1996, the Company entered into an agreement (the "Registration
Rights Agreement") with Glenmede, as trustee or co-trustee for certain of the
charitable trusts ("Charitable Trusts"). The Registration Rights Agreement
provides Glenmede with the right to require the Company to complete a maximum
of two registrations under the Securities Act of 1933 of Depositary Shares,
Common Stock and/or other voting stock of the Company held by the Charitable
Trusts. The Registration Rights Agreement places certain restrictions upon the
sale or transfer of the Charitable Trusts' interests in the Company during the
term of the Registration Rights Agreement. The Company completed one
registration on April 9, 1996. The Registration Rights Agreement expires on
July 31, 1997.
SHAREHOLDER NOMINATIONS AND PROPOSALS FOR THE 1998 ANNUAL MEETING _____________
The Board Policy and Nominating Committee will consider shareholder
nominations for election as a director at the 1998 Annual Meeting if the
nominations are submitted in compliance with the requirements of the Company's
bylaws relating to shareholder nominations. These nominations must include the
following information: name, residence and business address of the nominating
shareholder; a representation that the shareholder is a recordholder or
beneficial owner of the Company's voting shares and a statement of the number
of such shares; a representation that the shareholder intends to appear in
person or by proxy at the meeting to nominate the individual(s) specified in
the notice, if the nominations are to be made at a meeting of the
shareholders; information regarding each nominee such as would be required to
be included in a proxy statement; a description of all arrangements or
understandings between and among the shareholder and each and every nominee;
and the written consent of each nominee to serve as a director, if elected.
These nominations must be received at the Company's principal office no later
than December 31, 1997.
Any proposal to be presented at the Company's 1998 Annual Meeting must be
received at the Company's principal office no later than November 19, 1997, in
order to be considered for inclusion in the 1998 proxy materials and the
proposal must contain and be accompanied by such information required to be
included under the SEC's rules.
Pursuant to the Company's bylaws, notice of any other proposal to be presented
by a shareholder (outside the solicitation of proxies under the SEC's rules
and regulations) from the floor of the 1998 Annual Meeting must be delivered
in writing to the Company's Corporate Secretary no later than December 31,
1997, and may be considered by the Company's shareholders upon the Board's
determination that it is a proper matter for consideration under the Company's
bylaws. Notice of such a proposal must include: the name and address of record
of the proposing shareholder, the number and class of all shares of Company
stock beneficially owned by such shareholder, and a representation that such
shareholder is the holder of voting stock, is entitled to vote at the 1998
Annual Meeting and intends to appear in person or by proxy to present the
proposal at such meeting. This required notice shall also include the text of
the proposal to be presented, a brief statement of the reasons for such
shareholder's support of the
25
<PAGE>
proposal, and any material interest of such shareholder in the proposal. All
nominations, proposals, and required notices must be submitted in writing and
addressed to the attention of Sun's Corporate Secretary at Ten Penn Center,
1801 Market Street, Philadelphia, PA 19103-1699.
OTHER BUSINESS ________________________________________________________________
The Board does not know of any business to come before the 1997 Annual Meeting
other than as contained in the Notice of Annual Meeting of Shareholders.
However, if any other business properly comes before the 1997 Annual Meeting,
it is the intention of the proxies and attorneys-in-fact to vote upon such
business in accordance with their judgment.
ADMISSION TICKETS _____________________________________________________________
If you have shares registered in your name and plan to attend the Annual
Meeting, please mark your proxy card in the space provided and an admission
ticket will be mailed to you.
If you are a beneficial shareholder (your shares are held by a bank or by a
stockbroker and are not registered in your own name) and you plan to attend
the Annual Meeting, you may obtain an admission ticket by writing to Sun's
Corporate Secretary, Ten Penn Center, 1801 Market Street, Philadelphia, PA
19103-1699. Written evidence of your share ownership (such as an account
statement or an omnibus proxy) must be included with your request. Upon timely
receipt of your request, an admission ticket will be mailed to you.
By Order of the Board of Directors,
/s. Ann C. Mule
Ann C. Mule
General Attorney and Corporate Secretary
Philadelphia, PA
March 18, 1997
YOUR VOTE IS IMPORTANT.
PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD AS SOON AS POSSIBLE IN THE
ENVELOPE PROVIDED.
26
<PAGE>
EXHIBIT A
SUN COMPANY, INC.
LONG-TERM PERFORMANCE ENHANCEMENT PLAN
ARTICLE I
---------
GENERAL
-------
1.1 PURPOSE. The purposes of this Sun Company, Inc. Long-Term Performance
Enhancement Plan (the "Plan") are to: (1) better align the interests of
shareholders and management of Sun Company, Inc. and its subsidiaries and
affiliates (collectively referred to as the "Company") by creating a
direct linkage between participants' rewards and shareholders' gains; (2)
provide management with the ability to increase equity ownership in Sun
Company, Inc.; (3) provide competitive compensation opportunities which
can be realized through attainment of performance goals; and (4) provide
an incentive to management for continuous employment with the Company. It
is intended that most awards made under the Plan will qualify as
performance-based compensation under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code").
1.2 ADMINISTRATION.
(a) The Plan shall be administered by a committee (the "Committee")
appointed by the Board of Directors of Sun Company, Inc., as constituted
from time to time. The Committee shall consist of at least two members
of the Board of Directors, each of whom shall meet applicable
requirements set forth in the pertinent regulations under Section 16 of
the Securities Exchange Act of 1934, as amended, and Section 162(m) of
the Code.
(b) The Committee shall have the authority, in its sole discretion and from
time to time to: (i) designate the employees or classes of employees
eligible to participate in the Plan; (ii) grant awards provided in the
Plan in such form and amount as the Committee shall determine; (iii)
impose such limitations, restrictions and conditions upon any such award
as the Committee shall deem appropriate; and (iv) interpret the Plan,
adopt, amend and rescind rules and regulations relating to the Plan, and
make all other determinations and take all other action necessary or
advisable for the implementation and administration of the Plan.
(c) Decisions and determinations of the Committee on all matters relating to
the Plan shall be in its sole discretion and shall be conclusive. No
member of the Committee shall be liable for any action taken or not
taken or decision made or not made in good faith relating to the Plan or
any award thereunder.
1.3 ELIGIBILITY FOR PARTICIPATION. Participants in the Plan shall be the
officers and other key employees of the Company who occupy responsible
managerial or professional positions and who have the capability of making
a substantial contribution to the success of the Company. In making this
selection and in determining the amount of awards, the Committee shall
consider any factors deemed relevant, including the individual's
functions, responsibilities, value of services to the Company and past and
potential contributions to its profitability and sound growth.
1.4 TYPES OF AWARDS UNDER THE PLAN. Awards under the Plan may be in the form
of any one or more of the following:
(a) Stock Options, as described in Article II;
(b) Incentive Stock Options, as described in Article III;
A-1
<PAGE>
(c) Limited Rights, as described in Article IV; and/or
(d) Common Stock Units, as described in Article V.
1.5 AGGREGATE LIMITATIONS ON AWARDS.
(a) Shares of stock which may be issued under the Plan shall be authorized
and unissued or treasury shares of Common Stock of Sun Company, Inc.
("Common Stock"). The maximum number of shares of Common Stock which may
be issued under the Plan shall be four million.
(b) For purposes of calculating the maximum number of shares of Common Stock
which may be issued under the Plan: (i) all the shares issued (including
the shares, if any, withheld for tax withholding requirements) shall be
counted when cash is used as full payment for shares issued upon
exercise of an Option, (ii) only the shares issued (including the
shares, if any, withheld for tax withholding requirements) net of shares
of Common Stock used as full or partial payment for such shares upon
exercise of an Option, (iii) only the shares issued (including the
shares, if any, withheld for tax withholding) upon vesting and payment
of the Common Stock Units, shall be counted.
(c) In addition to shares of Common Stock actually issued pursuant to the
exercise of Options, there shall be deemed to have been issued a number
of shares equal to the number of shares of Common Stock in respect of
which Limited Rights (as described in Article IV) shall have been
exercised.
(d) Shares tendered by a participant as payment for shares issued upon
exercise of an Option, shall be available for issuance under the Plan.
Any shares of Common Stock subject to an Option, which for any reason is
terminated unexercised or expires shall again be available for issuance
under the Plan, but shares subject to an Option which are not issued as
a result of the exercise of Limited Rights shall not be available for
issuance under the Plan.
(e) The maximum number of Options that shall be granted with respect to
each calendar year to a participant shall be two-hundred thousand.
(f) The maximum number of Common Stock Units granted with respect to each
calendar year to a participant shall be fifty thousand.
(g) The maximum number of Common Stock Units granted under the Plan will
be one million.
The share limits set forth in this Section 1.5 shall be adjusted to
reflect any capitalization changes as discussed in Section 6.8.
1.6 EFFECTIVE DATE AND TERM OF PLAN.
(a) The Plan shall become effective upon approval by the holders of a
majority of the votes present, in person or represented by proxy, at
the 1997 Annual Meeting of Shareholders of Sun Company, Inc.
(b) No awards will be made under the Plan after December 31, 2001, unless
the Board of Directors (the "Board") extends this date to a date no
later than December 31, 2006. The Plan and all awards made under the
Plan prior to such date (or extended date) shall remain in effect
until such awards have been satisfied or terminated in accordance with
the Plan and the terms of such awards.
1.7 PRIOR PLAN. Effective on December 31, 1996, no further awards shall be
made under the Sun Company, Inc. Executive Long-Term Stock Investment Plan
adopted in May, 1991 provided, however, that any rights theretofore
granted under that plan shall not be affected.
A-2
<PAGE>
1.8 DEFINITIONS. In this Plan the following definitions shall apply:
(a) "Subsidiary" means any corporation of which, at the time more than 50%
of the shares entitled to vote generally in an election of directors
are owned directly or indirectly by Sun Company, Inc. or any subsidiary
thereof.
(b) "Affiliate" means any person or entity which directly, or indirectly
through one or more intermediaries, controls, is controlled by, or is
under common control with Sun Company, Inc.
(c) "Fair Market Value" as of any date and in respect of any share of
Common Stock shall be the opening price on such date of a share of
Common Stock (which price shall be the closing price on the previous
trading day of a share of Common Stock as reported on the New York
Stock Exchange Composite Transactions Tape, and as reflected in the
consolidated trading tables of the Wall Street Journal or any other
publication selected by the Committee). If there is no sale of shares
of Common Stock on the New York Stock Exchange for more than 10 days
immediately preceding such date, or if deemed appropriate by the
Committee for any other reason, the fair market value of the shares of
Common Stock shall be as determined by the Committee in such other
manner as it may deem appropriate. In no event shall the fair market
value of any share of Common Stock be less than its par value.
(d) "Option" means Stock Option and/or Incentive Stock Option.
(e) "Option Price" means the purchase price per share of Common Stock
deliverable upon the exercise of an Option.
(f) "Optionee" means the holder of an Option.
(g) "Change in Control" shall be deemed to have occurred if
(i) Continuing Directors cease, within one year of a Control
Transaction, to constitute a majority of the Board of Directors of
Sun Company, Inc. (or of the Board of Directors of any successor
to Sun Company, Inc. or to all or substantially all of its
assets), or
(ii) any entity, person or Group acquires shares of Sun Company, Inc.
in a transaction or series of transactions that result in such
entity, person or Group directly or indirectly owning beneficially
more than 20% of the outstanding voting shares.
As used herein, "Control Transaction" shall mean any of the following
transactions or any combination thereof: (1) any tender offer for or
acquisition of capital stock of Sun Company, Inc., (2) any merger,
consolidation, or sale of all or substantially all of the assets of Sun
Company, Inc., or (3) the submission of a nominee or nominees for the
position of director of Sun Company, Inc. by a shareholder or a group
of shareholders in a proxy solicitation or otherwise. As used herein,
"Continuing Director" shall mean a Director who was a member of the
Board of Directors immediately prior to a control transaction which
results in a Change in Control. As used herein, "Group" shall mean
persons who act in concert as described in Sections 13(d)(3) and/or
14(d)(2) of the Securities Exchange Act of 1934, as amended.
(h) "Just Cause" shall mean willful misconduct or dishonesty, or
conviction of or failure to contest prosecution for a felony, or
excessive absenteeism unrelated to illness.
(i) "Performance Goals" shall be specific targeted amounts of, or changes
in, financial or operating goals including: revenues; expenses; net
income; operating income; equity; return on equity, assets or capital
employed; working capital; shareholder return; operating capacity
utilized; production or sales volumes; or throughput. Other financial
or operating goals may also be used as determined by the Committee.
Such goals may
A-3
<PAGE>
be applicable to the Company as a whole or one or more of its business
units and may be applied in total or on a per share, per barrel or
percentage basis and on an absolute basis or relative to other
companies, industries or indices or any combination thereof, as
determined by the Committee.
(j) "Performance Factors" shall mean the various payout percentages
related to the attainment levels of one or more Performance Goals, as
determined by the Committee.
ARTICLE II
----------
STOCK OPTIONS
-------------
2.1 AWARD OF STOCK OPTIONS. The Committee, from time to time, and subject to
the provisions of the Plan and such other terms and conditions as the
Committee may prescribe, may grant to any participant in the Plan one or
more options to purchase for cash or shares the number of shares of Common
Stock ("Stock Options") allotted by the Committee. The date a Stock Option
is granted shall mean the date selected by the Committee as of which the
Committee allots a specific number of options to a participant pursuant to
the Plan.
2.2 STOCK OPTION AGREEMENTS. The grant of a Stock Option shall be evidenced by
a written Stock Option Agreement, executed by the Company and the holder
of a Stock Option, stating the number of shares of Common Stock subject to
the Stock Option evidenced thereby, and in such form as the Committee may
from time to time determine.
2.3 STOCK OPTION PRICE. The Option Price per share of Common Stock deliverable
upon the exercise of a Stock Option shall be not less than 100% of the
fair market value of a share of Common Stock on the date the Stock Option
is granted.
2.4 TERM AND EXERCISE. The term and the vesting schedule of the Stock Options
shall be determined by the Committee. However, no Stock Option may be
exercisable before the second anniversary of the date of grant or after
the tenth anniversary of such date. No Stock Option shall be exercisable
after the expiration of its term.
2.5 MANNER OF PAYMENT. Each Stock Option Agreement shall set forth the
procedure governing the exercise of the Stock Option granted thereunder,
and shall provide that, upon such exercise in respect of any shares of
Common Stock subject thereto, the Optionee shall pay to the Company, in
full, the Option Price for such shares with cash or with Common Stock. All
shares of Common Stock issued under the Sun Company, Inc. Long-Term
Incentive Plan, the Sun Company, Inc. Executive Long-Term Stock Investment
Plan or this Plan must be held at least six months before they may be used
as payment of the Option Price.
2.6 ISSUANCE AND DELIVERY OF SHARES. As soon as practicable after receipt of
payment, the Company shall deliver to the Optionee a certificate or
certificates for such shares of Common Stock. The Optionee shall become a
shareholder of the Company with respect to Common Stock represented by
share certificates so issued and as such shall be fully entitled to
receive dividends, to vote and to exercise all other rights of a
shareholder.
2.7 RETIREMENT OR DISABILITY. Upon termination of the Optionee's employment by
reason of retirement or permanent disability (as each is determined by the
Committee), the Optionee may, within 60 months from the date of
termination, exercise any Stock Options to the extent such options are
exercisable during such 60-month period.
A-4
<PAGE>
2.8 TERMINATION FOR OTHER REASONS. Except as provided in Sections 2.7 and 2.9,
or except as otherwise determined by the Committee, all Stock Options
shall terminate upon the termination of the Optionee's employment;
provided, however, that the Limited Rights (described herein at Article
IV) awarded in tandem with such Stock Options shall not terminate and such
Limited Rights shall remain exercisable during the Exercise Period for any
Optionee who:
(a) was employed by the Company at the time of the Change in Control and
is subsequently terminated by the Company other than for Just Cause;
or
(b) voluntarily terminates if such termination was the result of a good
faith determination by the Optionee that, as a result of the Change in
Control, the optionee is unable to effectively discharge his or her
present duties or the duties of the position occupied just prior to
the Change in Control.
2.9 DEATH OF OPTIONEE. Any rights in respect of Stock Options to the extent
exercisable on the date of the Optionee's death may be exercised by the
Optionee's estate or by any person that acquires the legal right to
exercise such Stock Option by bequest, inheritance, or otherwise by reason
of the death of the Optionee. Any such exercise to be valid must occur
within the remaining option term of the Stock Option. The foregoing
provisions of this Section 2.9 shall apply to an Optionee who dies while
employed by the Company and to an Optionee whose employment may have
terminated prior to death; provided, however, that
(a) an Optionee who dies while employed by the Company will be treated as
if the Optionee had retired on the date of death. Accordingly, the
Optionee's estate or a person who acquires the right to exercise such
Stock Option by bequest or inheritance will have the right to exercise
the Stock Option in accordance with Section 2.7; or
(b) the estate or a person who acquires the right to exercise a stock
option by bequest or inheritance from an Optionee who dies after
terminating employment with the Company will have the remainder of any
exercise period provided under Sections 2.7 and 2.8.
2.10 ACCELERATION OF OPTIONS. Notwithstanding any provisions to the contrary
in agreements evidencing Options granted thereunder, each outstanding
Option shall become immediately and fully exercisable if there is a
Change in Control of Sun Company, Inc.
2.11 EFFECT OF EXERCISE. The exercise of any Stock Options shall cancel that
number of related Limited Rights, if any, which is equal to the number of
shares of Common Stock purchased pursuant to said options.
ARTICLE III
-----------
INCENTIVE STOCK OPTIONS
-----------------------
3.1 AWARD OF INCENTIVE STOCK OPTIONS. The Committee may, from time to time and
subject to the provisions of the Plan and such other terms and conditions
as the Committee may prescribe, grant to any participant in the Plan one
or more "incentive stock options" (intended to qualify as such under the
provisions of Section 422 of the Internal Revenue Code of 1986, (the
"Code") as amended ("Incentive Stock Options")) to purchase for cash or
shares the number of shares of Common Stock allotted by the Committee. The
date an Incentive Stock Option is granted shall mean the date selected by
the Committee as of which the Committee allots a specific number of
options to a participant pursuant to the Plan. Notwithstanding the
foregoing, Incentive Stock Options shall not be granted to any owner of
10% or more of the total combined voting power of the Company and its
subsidiaries.
A-5
<PAGE>
3.2 INCENTIVE STOCK OPTION AGREEMENTS. The grant of an Incentive Stock Option
shall be evidenced by a written Incentive Stock Option Agreement, executed
by the Company and the holder of an Incentive Stock Option stating the
number of shares of Common Stock subject to the Incentive Stock Option
evidenced thereby, and in such form as the Committee may from time to time
determine.
3.3 INCENTIVE STOCK OPTION PRICE. The Option Price per share of Common Stock
deliverable upon the exercise of an Incentive Stock Option shall not be
less than 100% of the fair market value of a share of Common Stock on the
date the Incentive Stock Option is granted.
3.4 TERM AND EXERCISE. The term and the vesting schedule of the Incentive
Stock Option shall be determined by the Committee. However, no Incentive
Stock Option may be exercisable before the second anniversary of the date
of grant or after the tenth anniversary of such date. No Incentive Stock
Option shall be exercisable after the expiration of its term.
3.5 MAXIMUM AMOUNT OF INCENTIVE STOCK OPTION GRANT. The aggregate fair market
value (determined on the date the option is granted) of Common Stock
subject to an Incentive Stock Option granted to an Optionee by the
Committee in any calendar year shall never exceed $100,000.
3.6 RETIREMENT OR DISABILITY. Upon the termination of the Optionee's
employment by reason of retirement or permanent disability (as each is
determined by the Committee), the Optionee may, within 60 months from the
date of such termination of employment, exercise any Incentive Stock
Options to the extent such Incentive Stock Options are exercisable during
such 60-month period. Notwithstanding the foregoing, the tax treatment
available pursuant to Section 422 of the Internal Revenue Code of 1986
upon the exercise of an Incentive Stock Option will not be available to an
Optionee who exercises any Incentive Stock Option more than (i) 12 months
after the date of termination of employment due to permanent disability or
(ii) three months after the date of termination of employment due to
retirement.
3.7 TERMINATION FOR OTHER REASONS. Except as provided in Sections 3.6 and 3.8
or except as otherwise determined by the Committee, all Incentive Stock
Options shall terminate upon the termination of the Optionee's employment;
provided, however, that the Limited Rights (described herein at Article
IV) awarded in tandem with such Incentive Stock Options shall not
terminate and such Limited Rights shall remain exercisable during the
Exercise Period for any Optionee who:
(a) was employed by the Company at the time of the Change in Control and
is subsequently terminated by the Company other than for Just Cause;
or
(b) voluntarily terminates if such termination was the result of a good
faith determination by the Optionee that, as a result of the Change in
Control, he is unable to effectively discharge his present duties or
the duties of the position which he occupied just prior to the Change
in Control.
3.8 DEATH OF OPTIONEE. Any rights in respect of Incentive Stock Options to the
extent exercisable on the date of the Optionee's death may be exercised by
the Optionee's estate or by any person that acquires the legal right to
exercise such Stock Option by bequest, inheritance, or otherwise by reason
of the death of the Optionee. Any such exercise to be valid must occur
within the remaining option term of the Incentive Stock Option. The
foregoing provisions of this Section 3.8 shall apply to an Optionee who
dies while
A-6
<PAGE>
employed by the Company and to an Optionee whose employment may have
terminated prior to death; provided, however, that
(a) an Optionee who dies while employed by the Company will be treated as
if the Optionee had retired on the date of death. Accordingly, the
Optionee's estate or a person who acquires the right to exercise such
Incentive Stock Option by bequest or inheritance will have the right
to exercise the Incentive Stock Option in accordance with Section 3.6;
or
(b) the estate or a person who acquires the right to exercise a stock
option by bequest or inheritance from an Optionee who dies after
terminating employment with the Company will have the remainder of any
exercise period provided under Section 3.6 and 3.7.
3.9 APPLICABILITY OF STOCK OPTIONS SELECTIONS. Section 2.5, Manner of Payment,
Section 2.6, Issuance and Delivery of Shares, Section 2.10, Acceleration
of Options and Section 2.11, Effect of Exercise, applicable to Stock
Options, shall apply equally to Incentive Stock Options. Said Sections are
incorporated by reference in this Article III as though fully set forth
herein.
ARTICLE IV
----------
LIMITED RIGHTS
--------------
4.1 AWARD OF LIMITED RIGHTS. Concurrently with or subsequent to the award of
any Option, the Committee may, subject to the provisions of the Plan and
such other terms and conditions as the Committee may prescribe, award to
the Optionee with respect to each Option, a related limited right
permitting the Optionee, during a specified limited time period, to be
paid the appreciation on the Option in lieu of exercising the Option
("Limited Right").
4.2 LIMITED RIGHTS AGREEMENT. Limited Rights granted under the Plan shall be
evidenced by written agreements in such form as the Committee may from
time to time determine.
4.3 EXERCISE PERIOD. Limited Rights are immediately exercisable in full upon
grant for a period of up to seven months following the date of a Change in
Control of Sun Company, Inc. (the "Exercise Period").
4.4 AMOUNT OF PAYMENT. The amount of payment to which an Optionee shall be
entitled upon the exercise of each Limited Right shall be equal to 100% of
the amount, if any, which is equal to the difference between the Option
Price of the related Option and the Market Price of a share of such Common
Stock. Market Price is defined to be the greater of (i) the highest price
per share of Common Stock paid in connection with any Change in Control
and (ii) the highest price per share of Common Stock reflected in the
consolidated trading tables of The Wall Street Journal (presently the New
York Stock Exchange Composite Transactions quotations) during the 60-day
period prior to the Change in Control.
4.5 FORM OF PAYMENT. Payment of the amount to which an Optionee is entitled
upon the exercise of Limited Rights, as determined pursuant to Section
4.4, shall be made solely in cash.
4.6 EFFECT OF EXERCISE. If Limited Rights are exercised, the Stock Options, if
any, related to such Limited Rights cease to be exercisable to the extent
of the number of shares with respect to which the Limited Rights were
exercised. Upon the exercise or termination of the Options, if any,
related to such Limited Rights, the Limited Rights granted with respect
A-7
<PAGE>
thereto terminate to the extent of the number of shares as to which the
related Options were exercised or terminated; provided, however, that with
respect to Options that are terminated as a result of the termination of
the Optionee's employment status, the Limited Rights awarded in tandem
therewith shall not terminate and such Limited Rights shall remain
exercisable during the Exercise Period for any Optionee who:
(a) was employed by the Company at the time of the Change in Control and
is subsequently terminated by the Company other than for Just Cause;
or
(b) voluntarily terminates if such termination was the result of a good
faith determination by the Optionee that, as a result of the Change in
Control, he is unable to effectively discharge his present duties or
the duties of the position which he occupied just prior to the Change
in Control.
4.7 RETIREMENT OR DISABILITY. Upon termination of the Optionee's employment by
reason of permanent disability or retirement (as each is determined by the
Committee), the Optionee may, within six months from the date of
termination, exercise any Limited Rights to the extent such Limited Right
is exercisable during such six-month period.
4.8 DEATH OF OPTIONEE OR TERMINATION FOR OTHER REASONS. Except as provided in
Sections 4.7 and 4.9 or except as otherwise determined by the Committee,
all Limited Rights granted under the Plan shall terminate upon the
termination of the Optionee's employment or upon the death of the
Optionee.
4.9 TERMINATION RELATED TO A CHANGE IN CONTROL. The requirement that an
Optionee be terminated by reason of retirement or permanent disability or
be employed by the Company at the time of exercise pursuant to Sections
4.7 and 4.8 respectively, is waived during the Exercise Period as to any
Optionee who (i) was employed by the Company at the time of the Change in
Control and (ii) is subsequently terminated by the Company other than for
Just Cause or who voluntarily terminates if such termination was the
result of a good faith determination by the Optionee that as a result of
the Change in Control the Optionee is unable to effectively discharge the
Optionee's present duties or the duties of the position occupied just
prior to the Change in Control.
ARTICLE V
---------
COMMON STOCK UNITS
------------------
5.1 AWARD OF COMMON STOCK UNITS. The Committee, from time to time, and subject
to the provisions of the Plan, may grant to any participant in the Plan
rights to receive shares of Common Stock which are subject to a risk of
forfeiture by the participant ("Common Stock Units"). At the time it
grants any Common Stock Units, the Committee shall determine whether the
payment of such Common Stock Units shall be conditioned upon either (i)
the participant's continued employment with the Company throughout a
stated period (Section 5.4); or (ii) the attainment of certain
predetermined performance objectives during a stated period (Section 5.5).
The date Common Stock Units are granted shall mean the date selected by
the Committee as of which the Committee allots a specific number of Common
Stock Units to a participant pursuant to the Plan.
5.2 COMMON STOCK UNIT AGREEMENTS. Common Stock Units granted under the Plan
shall be evidenced by written agreements stating the number of Common
Stock Units evidenced thereby or in such form and as the Committee may
from time to time determine.
5.3 DIVIDEND EQUIVALENTS. A holder of Common Stock Units will be entitled to
receive payment from the Company in an amount equal to each cash dividend
("Dividend
A-8
<PAGE>
Equivalent") the Company would have paid to such holder had he, on the
record date for payment of such dividend, been the holder of record of
shares of Common Stock equal to the number of Common Stock Units which had
been awarded to such holder as of the close of business on such record
date. The Company shall establish a bookkeeping account on behalf of each
participant in which the Dividend Equivalents that would have been paid to
the holder of Common Stock Units ("Dividend Equivalent Account") shall be
credited. The Dividend Equivalent Account will not bear interest.
5.4 PERFORMANCE PERIOD. Upon making an award, the Committee shall determine
(and the Common Stock Unit Agreement shall state) the length of the
applicable period during which employment must be maintained or certain
performance targets must be attained (the "Performance Period").
Performance Periods will normally be from three to five years; however,
the Committee at its sole discretion may establish other time periods.
5.5 PERFORMANCE GOALS. Common Stock Units and the related Dividend Equivalent
Account earned may be based upon the attainment of Performance Goals
established by the Committee in accordance with Section 162(m). Within the
first ninety (90) days of the Performance Period, the Committee shall
establish, in writing, the weighted Performance Goals and related
Performance Factors for various goal achievement levels for the Company.
In establishing the weighted Performance Goals, the Committee shall take
the necessary steps to insure that the Company's ability to achieve the
preestablished goals is uncertain at the time the goals are set. The
established written Performance Goals, assigned weights, and Performance
Factors shall be written in terms of an objective formula, whereby any
third party having knowledge of the relevant Company performance results
could calculate the amount to be paid. Such Performance Goals may vary by
participant and by grant.
The number of Common Stock Units and Dividend Equivalents earned will be
equal to the amounts awarded multiplied by the Performance Factor.
However, the Committee shall have the discretion, by participant and by
grant, to reduce (but not to increase) some or all of the amount that
would otherwise be payable by reason of the satisfaction of the
Performance Goals. In making any such determination, the Committee is
authorized to take into account any such factor or factors it determines
are appropriate, including but not limited to Company, business unit and
individual performance.
5.6 PAYMENT OF COMMON STOCK UNITS AND DIVIDEND EQUIVALENT ACCOUNT. Payment in
respect of Common Stock Units earned (as determined under Sections 5.4 and
5.5) shall be made to the holder thereof within 90 days after the
Performance Period for such units has ended, but only to the extent the
Committee determines that the continuing employment and/or any applicable
performance targets have been met.
Payment for Common Stock Units earned shall be made in shares of Common
Stock, except as provided in Section 5.9. The number of shares paid shall
be equal to the number of Common Stock Units earned. The holder may elect
to reduce this amount by the number of shares of Common Stock which have,
on the date the Common Stock Units are paid, a fair market value equal to
the applicable federal, state and local withholding tax due on the receipt
of Common Stock, in lieu of making a cash payment equal to the amount of
such withholding tax due.
A holder of Common Stock Units will be entitled to receive payment from
the Company at the end of the Performance Period an amount in cash equal
to the Dividend Equivalent Account earned (as determined under Sections
5.4 and 5.5) by the holder minus applicable federal, state and local
withholding tax due.
A-9
<PAGE>
5.7 DEATH, DISABILITY OR RETIREMENT. A portion of the Common Stock and the
Dividend Equivalent Account shall be forfeited upon the death of a
participant or the termination of a participant's employment by reason of
retirement or permanent disability (as each is determined by the
Committee) prior to the end of the Performance Period.
The number of Common Stock Units forfeited will be equal to the remaining
number of months in the Performance Period divided by the total number of
months in the Performance Period times the number of Common Stock Units
outstanding and will be rounded down to the next lowest whole amount. The
Dividend Equivalent account will be reduced in a similar fashion. The
Common Stock Units and the Dividend Equivalent Account retained will
remain subject to adjustment for any Performance Factors in accordance
with Section 5.5.
5.8 TERMINATION OF EMPLOYMENT. Except as provided in Sections 5.7 and 5.9, or
as determined by the Committee, 100% of all Common Stock Units of a
participant under the Plan shall be forfeited and the Dividend Equivalent
Account shall be forfeited upon termination of the participant's
employment with the Company prior to the end of the Performance Period,
and in such event the participant shall not be entitled to receive any
Common Stock or any payment of the Dividend Equivalent Account regardless
of the level of Performance Goals achieved for the respective Performance
Periods.
5.9 CHANGE IN CONTROL. Common Stock Units and the Dividend Equivalent Account
shall not be forfeited in the case of a participant (i) who was employed
by the Company at the time of a Change in Control, and (ii) who is
subsequently terminated by the Company other than for Just Cause or who
voluntarily terminates if such termination was the result of a good faith
determination by the holder of the Common Stock Units that as a result of
the Change in Control, the holder is unable to effectively discharge the
holder's present duties or the duties of the position occupied just prior
to the Change in Control. In that event, all outstanding Common Stock
Units and the related Dividend Equivalent Account shall be payable to the
Employee in cash within ninety (90) days following the date of occurrence
of such Change in Control, regardless of whether the applicable
Performance Period has expired. However, the Committee may establish, at
the time of the grant of Common Stock Units, other conditions which must
be met for payout to occur. These conditions shall be set forth in the
Committee's resolution granting the Common Stock Units and in the
Agreement with the holder. The participant shall receive in cash an amount
equal to the sum of (i) the number of Common Stock Units outstanding
multiplied by the Market Price as defined in Section 4.4, and (ii) the
Dividend Equivalent Account. There will be no adjustment for any
Performance Factors described in Section 5.5. Such amounts will be reduced
by the applicable federal, state and local withholding taxes due.
ARTICLE VI
----------
MISCELLANEOUS
-------------
6.1 GENERAL RESTRICTION. Each award under the Plan shall be subject to the
requirement that, if at any time the Committee shall determine that (i)
the listing, registration or qualification of the shares of Common Stock
subject or related thereto upon any securities exchange or under any state
or Federal law, or (ii) the consent or approval of any government
regulatory body, or (iii) an agreement by the recipient of an award with
respect to the disposition of shares of Common Stock, is necessary or
desirable as a condition of, or in connection with, the granting of such
award or the issue or purchase of shares of Common Stock thereunder, such
award may not be consummated in whole or in part unless such listing,
registration, qualification, consent, approval or agreement shall have
been effected or obtained free of any conditions not acceptable to the
Committee.
A-10
<PAGE>
6.2 NON-ASSIGNABILITY. Awards under the Plan shall not be assignable or
transferable by the recipient thereof, except by will or by the laws of
descent and distribution except as otherwise determined by the Committee.
Accordingly, during the life of the recipient, such award shall be
exercisable only by such person or by such person's guardian or legal
representative, unless the Committee determines otherwise.
6.3 RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan or in any agreement
entered into pursuant to the Plan shall confer upon any participant the
right to continue in the employment of the Company or effect any right
which the Company may have to terminate the employment of such
participant.
6.4 NON-UNIFORM DETERMINATIONS. The Committee's determinations under the Plan
(including without limitation, determinations of the persons to receive
awards, the form, amount and timing of such awards, the terms and
provisions of such awards, and the agreements evidencing same) need not be
uniform and may be made by it selectively among persons who receive, or
are eligible to receive, awards under the Plan, whether or not such
persons are similarly situated.
6.5 RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan shall
have no rights as a shareholder with respect thereto unless and until
certificates for shares of Common Stock are issued on behalf of such
recipient.
6.6 LEAVES OF ABSENCE. The Committee shall be entitled to make such rules,
regulations and determinations as it deems appropriate under the Plan in
respect of any leave of absence taken by the recipient of any award.
Without limiting the generality of the foregoing, the Committee shall be
entitled to determine (i) whether or not any such leave of absence shall
constitute a termination of employment within the meaning of the Plan and
(ii) the impact, if any, of any such leave of absence on awards under the
Plan theretofore made to any recipient who takes such leaves of absence.
6.7 NEWLY ELIGIBLE EMPLOYEES. The Committee shall be entitled to make such
rules, regulations, determinations and awards as it deems appropriate in
respect of any employee who becomes eligible to participate in the Plan or
any portion thereof after the commencement of an award or incentive
period.
6.8 ADJUSTMENTS. In any event of any change in the outstanding Common Stock by
reason of a stock dividend or distribution, recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like, the
Committee may appropriately adjust the number of shares of Common Stock
which may be issued under the Plan, the number of shares of Common Stock
subject to Options theretofore granted under the Plan, the Option Price of
Options theretofore granted under the Plan, the number of Common Stock
Units theretofore awarded under the Plan and any and all other matters
deemed appropriate by the Committee.
6.9 AMENDMENT OF THE PLAN.
(a) The Committee may, without further action by the shareholders and
without receiving further consideration from the participants, amend
this Plan or condition or modify awards under this Plan in response to
changes in securities or other laws or rules, regulations or
regulatory interpretations thereof applicable to this Plan or to
comply with stock exchange rules or requirements.
(b) The Committee may at any time, and from time to time, modify or amend
the Plan in any respect, except that without shareholder approval the
Committee may not
A-11
<PAGE>
(i) increase the maximum award levels established in Section 1.5,
including the maximum number of shares of Common Stock which may be
issued under the Plan (other than increases pursuant to Section 6.8);
(ii) extend the term during which an Option may be exercised beyond ten
years from the date of grant; or (iii) extend the term of the Plan,
except that the Board may extend the period during which awards may be
made in accordance with Section 1.6. The termination or any
modification or amendment of the Plan, except as provided in subsection
(a), shall not without the consent of a participant, affect the
participant's rights under an award previously granted.
A-12
<PAGE>
[SUNOCO LOGO APPEARS HERE]
YOU ARE CORDIALLY INVITED TO THE 1997 ANNUAL MEETING
THURSDAY, MAY 1, 1997
in the Promenade Ballroom, Second Floor of the Adam's Mark Hotel at Williams
Center, 100 East 2nd Street Tulsa, OK 74103
9:30 A.M. -- Annual Meeting Starts
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
[PRINTED ON RECYLCED PAPER APPEARS HERE]
<PAGE>
[THIS COMMON STOCK PROXY CARD WILL BE ON BLUE CARD STOCK PRINTED WITH BLACK INK]
[LOGO OF SUN COMPANY, INC. APPEARS HERE]
[Sunoco Diamond]
1997 ANNUAL MEETING
THE ADAM'S MARK HOTEL
at Williams Center
Promenade Ballroom, Second Floor
100 East 2nd Street
Tulsa, OK 74103
[ID: STREET MAP OF TULSA]
YOUR VOTE IS IMPORTANT.
Please SIGN AND DATE your proxy card below. After voting
on the reverse side, detach the proxy card and RETURN it
in the envelope provided, whether your holdings are large or small,
thus assuring your representation at the 1997 ANNUAL MEETING.
Fold and Detach Here Fold and Detach Here
- - --------------------------------------------------------------------------------
LOGO
[Sunoco Diamond]
SUN COMPANY, INC. COMMON STOCK
Ten Penn Center PROXY CARD
1801 Market Street
Philadelphia, PA 19103-1699
THIS PROXY AND VOTING INSTRUCTION CARD IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF SUN COMPANY, INC. FOR THE MAY 1, 1997 ANNUAL MEETING OF
SHAREHOLDERS OR ANY ADJOURNMENTS THEREOF.
The undersigned appoints R.H. CAMPBELL and J.L. FOLTZ and each of them, with
full power of substitution, as proxies and attorneys-in-fact (the "Proxies") to
vote as indicated all shares of Sun Company, Inc. Common Stock, which the
undersigned is entitled to vote, and in their discretion, to vote upon such
other business as may properly come before the 1997 Annual Meeting. This proxy
card also provides voting instructions for shares held for the account of the
undersigned, if any, in the Sun Company, Inc. Capital Accumulation Plan. For
additional explanatory information, see pages 22 to 23 of the accompanying proxy
statement.
SIGNATURE SIGNATURE DATED ,1997
---------------- --------------- ---------------
Please sign exactly as your name appears above. When signing as attorney,
executor, administrator, trustee, guardian, etc., give full title. If stock is
jointly owned, each joint owner should sign.
CONTINUED ON REVERSE SIDE
<PAGE>
THIS PROXY CARD WHEN PROPERLY EXECUTED WILL BE VOTED BY THE PROXIES IN THE
MANNER DESIGNATED BELOW. IF THIS PROXY CARD IS RETURNED SIGNED, BUT THERE IS
NO INDICATION OF A VOTE OR IF IT IS NOT CLEAR WHICH BOX IS CHECKED, THE PROXIES
WILL VOTE FOR ITEMS (1), (2) AND (3). SUNCAP SHARES WILL BE VOTED IN ACCORDANCE
WITH THE TERMS OF THAT PLAN.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ITEMS (1), (2) AND (3).
---------------------------
(1) ELECTION OF DIRECTORS
FOR all nominees listed // AGAINST all //
nominees listed
R.H. CAMPBELL M.J. EVANS R.A. PEW
R.E. CARTLEDGE T.P. GERRITY W.F. POUNDS
R.E. CAWTHORN J.G. KAISER A.B. TROWBRIDGE
J.G. DROSDICK R.D. KENNEDY
TO VOTE AGAINST ANY NOMINEE, LIST NOMINEE'S NAME.
- - -----------------------------------------------------------------------
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE (TO ABSTAIN), LIST NOMINEE'S
NAME.
- - -----------------------------------------------------------------------
(2) ADOPTION OF THE SUN COMPANY, INC. LONG-TERM PERFORMANCE
ENHANCEMENT PLAN
FOR AGAINST ABSTAIN
// // //
(3) APPROVAL OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS FOR THE FISCAL YEAR 1997
FOR AGAINST ABSTAIN
// // //
// Please check ONLY if you plan to attend the 1997 Annual Meeting.
Admission tickets are required and will be mailed to you.
PLEASE SIGN AND DATE YOUR PROXY CARD ON THE REVERSE SIDE AND
RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
<PAGE>
[LOGO OF SUN COMPANY, INC. APPEARS HERE]
[LOGO OF SUNOCO DIAMOND APPEARS HERE]
1997 ANNUAL MEETING
THE ADAM'S MARK HOTEL
at Williams Center
Promenade Ballroom, Second Floor
100 East 2nd Street
Tulsa, OK 74103
[ID: STREET MAP OF TULSA]
YOUR VOTE IS IMPORTANT.
Please SIGN AND DATE your proxy card below. After voting
on the reverse side, detach the proxy card and RETURN it
in the envelope provided, whether your holdings are large or small,
thus assuring your representation at the 1997 ANNUAL MEETING.
Fold and Detach Here Fold and Detach Here
- - --------------------------------------------------------------------------------
[LOGO OF SUNOCO DIAMOND APPEARS HERE]
DEPOSITARY SHARES REPRESENTING SERIES A
SUN COMPANY, INC. CUMULATIVE PREFERENCE STOCK
Ten Penn Center
1801 Market Street
Philadelphia, PA 19103-1699
THIS PROXY CARD IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SUN COMPANY,
INC. FOR THE MAY 1, 1997 ANNUAL MEETING OF SHAREHOLDERS OR ANY ADJOURNMENTS
THEREOF.
The undersigned holder of Depositary Shares instructs First Chicago Trust
Company of New York ("First Chicago") to vote, as indicated, all shares of Sun
Company, Inc. Series A Cumulative Preference Stock ("Preference Stock"), as to
the voting of which the undersigned is entitled to instruct First Chicago to
vote, and in First Chicago's discretion, to vote upon such other business as may
properly come before the 1997 Annual Meeting. First Chicago has authorized The
Corporation Trust Company to tabulate the vote received and has further
authorized and instructed R.H. CAMPBELL and J.L. FOLTZ and each of them, with
full power of substitution, to act as First Chicago's proxies and
attorneys-in-fact (the "Proxies") to vote as indicated all Depositary Shares
and thereby the underlying Preference Stock held by the undersigned. The
undersigned hereby approves the appointment of such Proxies by First Chicago.
For additional explanatory information, see pages 22 to 23 of the accompanying
proxy statement.
SIGNATURE SIGNATURE DATED ,1997
-------------------------- ------------------- -------
Please sign exactly as your name appears above. When signing as attorney,
executor, administrator, trustee, guardian, etc., give full title. If stock is
jointly owned, each joint owner should sign.
CONTINUED ON REVERSE SIDE
<PAGE>
THIS PROXY CARD WHEN PROPERLY EXECUTED WILL BE VOTED BY THE PROXIES IN THE
MANNER DESIGNATED BELOW. IF THIS PROXY CARD IS RETURNED SIGNED, BUT THERE IS NO
INDICATION OF A VOTE OR IF IT IS NOT CLEAR WHICH BOX IS CHECKED, THE PROXIES
WILL VOTE FOR ITEMS (1), (2) AND (3). THE PROXIES WILL NOT VOTE THE PREFERENCE
STOCK TO THE EXTENT THAT PROXY CARDS ARE NOT RECEIVED FROM THE HOLDERS OF THE
DEPOSITARY SHARES.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ITEMS (1), (2) AND (3).
--------------------------
(1) ELECTION OF DIRECTORS
FOR all nominees listed / / AGAINST all / /
nominees listed
R.H. CAMPBELL M.J. EVANS R.A. PEW
R.E. CARTLEDGE T.P. GERRITY W.F. POUNDS
R.E. CAWTHORN J.G. KAISER A.B. TROWBRIDGE
J.G. DROSDICK R.D. KENNEDY
TO VOTE AGAINST ANY NOMINEE, LIST NOMINEE'S NAME.
- - -------------------------------------------------------------------------------
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE (TO ABSTAIN), LIST NOMINEE'S NAME.
- - -----------------------------------------------------------------------
(2) ADOPTION OF THE SUN COMPANY, INC. LONG-TERM PERFORMANCE ENHANCEMENT PLAN
FOR AGAINST ABSTAIN
/ / / / / /
(3) APPROVAL OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR
THE FISCAL YEAR 1997
FOR AGAINST ABSTAIN
/ / / / / /
/ / Please check ONLY if you plan to attend the 1997 Annual Meeting.
Admission tickets are required and will be mailed to you.
PLEASE SIGN AND DATE YOUR PROXY CARD ON THE REVERSE SIDE AND
RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
