U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-12
PHILLIPS PETROLEUM COMPANY
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(Name of Registrant as Specified in Its Charter)
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[PHILLIPS 66 LOGO]
PHILLIPS PETROLEUM COMPANY
BARTLESVILLE, OKLAHOMA 74004
NOTICE OF 2002 ANNUAL STOCKHOLDERS MEETING
MAY 6, 2002
and
PROXY STATEMENT
Monday
May 6, 2002
10 a.m. local time
Adams Building
4th Street & Keeler Avenue
Bartlesville, Oklahoma 74004
April 1, 2002
Dear Phillips Stockholder:
You are cordially invited to the Annual Meeting of Phillips Petroleum Company to
be held in the Adams Building, 4th Street and Keeler Avenue, Bartlesville,
Oklahoma, on Monday, May 6, 2002, starting at 10 a.m. local time. Your
attendance will provide an opportunity to hear the chairman's report on the
Company and its operations. Directors and representatives of the Company will
also be present.
The accompanying Notice of Annual Meeting and the Proxy Statement describe the
matters to be acted upon at the meeting.
You are asked to elect ten directors to the Board of Directors and to vote on
three proposals. Proposal 1, by the Company, requests approval of independent
auditors. Proposal 2, by two stockholders, requests that the board prepare a
report on the potential environmental damage that would result from the Company
drilling for oil and gas in the Coastal Plain of the Arctic National Wildlife
Refuge, including the financial costs of the plan and the expected return.
Proposal 3, by one stockholder, requests "an increase of three percent of the
annual basic salary of the Chairman and other officers, for every position
increase in the ranking of the world's largest energy companies, measured by
their market value." Our Board of Directors unanimously recommends that you vote
For Proposal 1 and Against Proposals 2 and 3. At the meeting, we will also
respond to your questions.
It is important that your views be represented at the meeting whether or not you
are able to attend. Stockholders of record may instruct the proxy holders how to
vote their shares of common stock by using the toll-free telephone number on the
Proxy Card or by signing, dating and mailing the Proxy Card in the postage-paid
envelope that we have provided.
On behalf of the Directors and worldwide employees of Phillips Petroleum
Company, we express our appreciation to you, the owners of this Company, for
your continued support and interest.
Sincerely,
/s/ J. J. Mulva
J. J. Mulva
Chairman and Chief Executive Officer
2 TABLE OF CONTENTS
Page
3 Notice of Annual Meeting
4 Solicitation
4 Confidential Voting
4 Voting Securities and Principal Holders
4 Vote Required for Election of Directors and Adoption of Company and
Stockholder Proposals
5-7 Nominees for Election as Directors
7 Security Ownership of Certain Beneficial Owners
8 Security Ownership of Management
8 Section 16(a) Beneficial Ownership Reporting Compliance
9 General Information Relating to the Board of Directors
10 Compensation of Directors and Nominees
10 Audit Committee Report
11 Executive Compensation
12 Options/SAR Grants in Last Fiscal Year
12 Ten-Year Option/SAR Repricing
13 Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End Option/SAR Value
14 Long-Term Incentive Plan Awards in Last Fiscal Year
15-18 Compensation Committee Report to Stockholders on Executive
Compensation
19 Performance Graph
20 Pension Plan
21 Executive Severance Plan
21 Termination of Employment and Change-of-Control Arrangements
22 Proposal 1 - Company's Proposal to Approve Independent Auditors
22-23 Proposal 2 - Stockholder Proposal
23-24 Proposal 3 - Stockholder Proposal
24 Date for Receipt of Stockholder Proposals
24 Annual Meeting Attendance
Stockholders are encouraged to keep their account address up to date and
promptly deposit their dividend checks to avoid surrender of these funds and
related shares of stock to their respective states under unclaimed property
laws.
NOTICE OF ANNUAL MEETING 3
PHILLIPS PETROLEUM COMPANY
BARTLESVILLE, OKLAHOMA 74004
Dated April 1, 2002
NOTICE OF ANNUAL MEETING to be held May 6, 2002
To the Stockholders:
We will hold the Annual Meeting of Stockholders in the Adams Building, 4th
Street and Keeler Avenue, Bartlesville, Oklahoma, on Monday, May 6, 2002, at
10 a.m. local time, to consider and vote on the following matters described
more fully in the attached Proxy Statement:
Election of ten directors (pages 5 -7);
Proposal of the Company:
Proposal 1. To approve the designation of Ernst & Young LLP as
independent auditors for 2002 (page 22);
Proposals of Stockholders:
Proposal 2. (pages 22-23);
Proposal 3. (pages 23-24) ; and
Any other matters that may properly come before the meeting (page 24).
Only stockholders of record at the close of business March 15, 2002, can vote at
this meeting.
The Company is providing its Annual Report containing financial data and a
summary of operations for 2001 to its stockholders in advance of or with this
Proxy Statement.
By Order of the Board of Directors,
/s/ Dale J. Billam
Dale J. Billam
Secretary
IMPORTANT:
Please (1) use the toll-free telephone number on the Proxy Card to submit your
proxy by phone or (2) sign, date and promptly mail the enclosed proxy in the
accompanying postage-paid envelope. If you wish to vote in accordance with the
Company's recommendations, please follow the instructions on how to do so for
telephone voting. If you vote by using the Proxy Card, it is not necessary to
specify your choice but the Proxy Card must be signed and returned.
4 PROXY STATEMENT
April 1, 2002
SOLICITATION
The Board of Directors solicits your proxy and the Company will pay all costs of
solicitation. Your proxy will be voted as you direct. You may revoke your proxy
at any time before it is voted by:
(1) sending the Company's Secretary a written document revoking your earlier
proxy;
(2) signing and sending to the Company's Secretary a later-dated proxy;
(3) calling the toll-free telephone number on the Proxy Card;
or
(4) voting in person at the meeting.
We are mailing this Proxy Statement and Proxy Card on or about April 1, 2002, to
stockholders of record on March 15, 2002.
We have hired Georgeson Shareholder Communications Inc. to solicit proxies for
this Annual Meeting. We are paying Georgeson $6,000 at the start of the
solicitation and an additional $6,000 at the end of the solicitation, plus
certain of Georgeson's out-of-pocket costs. In addition to mail solicitation,
the Company's officers, directors and employees may solicit proxies by
telephone, facsimile or personal contact.
CONFIDENTIAL VOTING
The Company's policy treats as confidential all proxies, ballots, and
voting tabulations, including telephone voting, that identify stockholders,
except when:
(1) the law requires disclosure;
(2) the stockholder writes comments on the Proxy Card;
(3) the stockholder expressly requests disclosure;
(4) there is a proxy contest or other solicitation of proxies based on an
opposition Proxy Statement; or
(5) any matter for stockholder approval requiring the vote of more than a
majority of the shares present at any meeting.
The Company has hired Mellon Investor Services LLC to count the votes
represented by proxies and cast by ballot and telephone. Two Mellon Investor
Services employees will act as Inspectors of Election.
VOTING SECURITIES AND PRINCIPAL HOLDERS
The Company's only class of voting securities is its $1.25 par value common
stock. The record date for stockholders entitled to vote at this meeting is
March 15, 2002. For voting purposes, there were 409,843,613 shares outstanding
at the close of business February 28, 2002. Each share is entitled to one vote.
The Compensation and Benefits Trust, or "CBT," holds 27,556,573 shares of those
outstanding. The CBT acquires, holds and distributes shares of the Company's
common stock to fund certain of the Company's future compensation and benefit
obligations. The CBT does not increase or alter the amount of benefits or
compensation payable under existing plans, but instead offers the Company
financial flexibility in providing the funding requirements of those plans. The
CBT shares do not affect earnings per share or total stockholders' equity until
they are transferred out of the CBT. All shares must be transferred out of the
CBT by January 1, 2021.
On page 7 of this Proxy Statement, you will find the table headed "Security
Ownership of Certain Beneficial Owners," which shows the number of shares
beneficially owned on February 28, 2002, by any person or group known to own
five percent or more of the Company's stock.
On page 8 of this Proxy Statement, you will find the table headed "Security
Ownership of Management," which shows the number of shares of Company common
stock beneficially owned on February 28, 2002, by each Company director,
director nominee, and officer. This table also shows the total shares of Company
common stock owned by the entire group of directors, nominees, and officers.
VOTE REQUIRED FOR ELECTION OF DIRECTORS AND
ADOPTION OF COMPANY AND STOCKHOLDER PROPOSALS
The election of directors and the adoption of the Company (and Stockholder)
proposal(s) will be decided by majority vote of the stock represented at the
Annual Meeting in person or by proxy, so long as a quorum exists. A quorum
exists if the majority of the Company's issued and outstanding common stock is
represented at the Annual Meeting in person or by proxy.
In tabulating votes, we will count abstentions as votes against the director
nominee or the Company and Stockholder proposals.
Except where we have stated otherwise, the information in this Proxy Statement
is current as of February 28, 2002.
NOMINEES FOR ELECTION AS DIRECTORS 5
Stockholders will elect ten directors at the Annual Meeting to hold office until
either (a) the 2003 Annual Meeting and their successors are elected, or (b) the
pending merger with Conoco closes, whichever occurs first (for more information
about the merger, please read the definitive Joint Proxy Statement/Prospectus
filed, effective February 7, 2002). We have listed below the ten nominees to the
Board of Directors, each of whom currently is a director. The Company's
designated proxy holders will vote for each of these nominees, except as
otherwise instructed by stockholders. The Company knows of no reason why any
nominee may be unable to serve as a director. If any nominee is unable to serve,
the shares represented by all valid proxies will be voted to elect any other
person the Board recommends.
NORMAN R. AUGUSTINE AGE 66 Director since 1989
[Picture of Norman R. Augustine]
Norman R. Augustine has been Chairman of the Executive Committee of the Board of
Directors of Lockheed Martin Corporation since August 1997. Before that, he was
Chairman of the Board of Directors of Lockheed Martin Corporation from August
1997 through March 1998; and Chief Executive Officer from January 1996 through
July 1997. He is a director of The Black & Decker Corporation and The Procter &
Gamble Company.
DAVID L. BOREN AGE 60 Director since 1994
[Picture of David L. Boren]
David L. Boren has been President of the University of Oklahoma since November
1994. He previously served as a United States Senator from the State of
Oklahoma. He is a director of AMR Corporation; Texas Instruments Incorporated;
and Torchmark Corporation.
ROBERT E. CHAPPELL, JR. AGE 65 Director since 1990
[Picture of Robert E. Chappell, Jr.]
Robert E. Chappell, Jr., is self-employed as an investment and management
consultant. He previously was the Senior Executive Vice President and Chief
Investment Officer of The Metropolitan Life Insurance Company.
ROBERT M. DEVLIN AGE 61 Director since 2000
[Picture of Robert M. Devlin]
Robert M. Devlin is Chairman of Curragh Capital Partners. He previously was the
Chairman, President and Chief Executive Officer of American General Corporation
until November 2001. He was elected Chairman of the Board of American General in
April 1997 and Chief Executive Officer in October 1996. He is a director of
Cooper Industries, Inc.
6 NOMINEES FOR ELECTION AS DIRECTORS
LARRY D. HORNER AGE 67 Director since 1991
[Picture of Larry D. Horner]
Larry D. Horner retired in June 2001 as Chairman of Pacific USA Holdings
Corporation, a position he had held since August 1994. Before that, he served as
Chairman and Chief Executive Officer of the accounting firm KPMG Peat Marwick.
He is a director of Atlantis Plastics, Inc.; Newmark Homes Corp.; and UTStarcom,
Inc.
J. J. MULVA AGE 55 Director since 1994
[Picture of J. J. Mulva]
J. J. Mulva has been the Company's Chairman of the Board of Directors and Chief
Executive Officer since October 13, 1999. He previously served as the Company's
Vice Chairman of the Board of Directors, President and Chief Executive Officer
from June 30, 1999, through October 13, 1999; and the Company's President and
Chief Operating Officer from May 1994 through June 1999.
J. STAPLETON ROY AGE 66 Director since 2001
[Picture of J. Stapleton Roy]
J. Stapleton Roy has been managing director of Kissinger Associates, Inc. since
January 2001. Before that, he served as U.S. Ambassador to Singapore, Indonesia
and the People's Republic of China. He is a director of Freeport McMoRan Copper
& Gold, Inc.
RANDALL L. TOBIAS AGE 59 Director since 1992
[Picture of Randall L. Tobias]
Randall L. Tobias has been Chairman Emeritus of Eli Lilly and Company since
January 1999. He previously served as Chairman of the Board of Directors and
Chief Executive Officer of Eli Lilly and Company from July 1993 through December
1998. He is a director of Kimberly-Clark Corporation and Knight-Ridder, Inc.
VICTORIA J. TSCHINKEL AGE 54 Director since 1993
[Picture of Victoria J. Tschinkel]
Victoria J. Tschinkel has been a Senior Environmental Consultant to Landers &
Parsons, a Tallahassee, Florida law firm, since 1987. She previously served as
Secretary of the Florida Department of Environmental Regulation.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 7
KATHRYN C. TURNER AGE 54 Director since 1995
[Picture of Kathryn C. Turner]
Kathryn C. Turner is Chairperson and Chief Executive Officer of Standard
Technology, Inc., an engineering and manufacturing firm she founded in 1985. She
is a director of Carpenter Technology Corporation and Schering-Plough
Corporation.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tables provide, as of February 28, 2002, information about
(1) persons who the Company knows beneficially own more than five percent of
the Company's common stock and (2) the beneficial ownership of the Company's
common stock by its current directors, nominees and executive officers.
Name and Address of Shares of Common Stock
Beneficial Owner (1) Beneficially Owned Percent of Class
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Vanguard Fiduciary Trust Company 35,690,645 (1) 8.7%
P. O. Box 2900
Valley Forge, Pennsylvania 19482
AXA Financial, Inc. 27,929,833 (2) 6.8%
767 Fifth Avenue
New York, NY 10153
(1) As of February 28, 2002, Vanguard as Trustee held 35,690,645 shares under
Phillips' Thrift Plan, Long-Term Stock Savings Plan ("LTSSP"), Retirement
Savings Plan and Tosco Corporation's Capital Accumulation Plan ("Tosco
CAP") (together the "Plans") with shared voting power. Vanguard and the
Plans have disclaimed beneficial ownership of the shares held by Vanguard
as Trustee of the Plans. Vanguard votes shares held by the Plans which
represent the allocated interests of participants in the manner directed
by individual participants. Employee participants in the Thrift Plan,
LTSSP and Tosco CAP are appointed by Phillips and Tosco as fiduciaries
entitled to direct the Trustee as to how to vote allocated shares which
are not directed in these Plans and unallocated shares held by the LTSSP.
Such shares are allocated pro rata among employee participants accepting
their fiduciary appointment and are voted by the Trustee as directed by
the employee fiduciaries. The Trustee votes non-directed shares of the
Retirement Savings Plan at its discretion. The Trustee will vote other
shares held by the Plans at its discretion only if required to do so by
ERISA.
Vanguard is also the Trustee and record holder of the 27,556,573 shares in
the CBT, without any voting power. Vanguard has disclaimed beneficial
ownership of these shares. As Trustee of the CBT, Vanguard will vote
shares in the CBT only in accordance with the pro rata directions of
eligible domestic employees and the trustees of certain of the Company's
international stock plans. Trust agreements for the Plans and CBT each
provide that all voting directions of individual employees received by the
Trustee will be held in confidence and not be disclosed to any person,
including the Company.
(2) On February 12, 2002, AXA Financial, Inc. ("AXA"), the parent of Alliance
Capital Management L.P. which acquired the investment advisory assets of
Sanford C. Bernstein & Co., Inc., reported that it exercised sole voting
power over 13,542,568 shares, shared voting power over 4,285,555 shares,
sole dispositive power over 27,903,233 shares and shared dispositive power
over 26,200 shares. According to the Schedule 13G AXA filed with the
Securities and Exchange Commission, such shares equal 7.3 percent of the
outstanding shares of the Company's common stock. However, when shares
held as of February 28, 2002 by the CBT and shares issued in the Tosco
merger are included, shares held by AXA equal only 6.8 percent of the
Company's outstanding shares.
8 SECURITY OWNERSHIP OF MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT
Phillips Petroleum Company
Securities
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Amount and Nature of
Beneficial Ownership
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Title of Class Name of Beneficial Owner Direct (1) Indirect Percent of Class
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Directors and Nominees (2)
Common Norman R. Augustine 11,262 -- less than 1%
Common David L. Boren 6,373 -- less than 1%
Common Robert E. Chappell, Jr. 12,825 -- less than 1%
Common Robert M. Devlin 4,262 -- less than 1%
Common Larry D. Horner 7,962 -- less than 1%
Common J. J. Mulva 560,906 -- less than 1%
Common J. Stapleton Roy 1,050 -- less than 1%
Common Randall L. Tobias 9,062 -- less than 1%
Common Victoria J. Tschinkel 8,174 -- less than 1%
Common Kathryn C. Turner 5,186 -- less than 1%
Executive Officers
Common E. L. Batchelder 23,755 -- less than 1%
Common J. A. Carrig 103,067 -- less than 1%
Common D. W. DeCamp 6,643 -- less than 1%
Common J. E. Lowe 30,634 -- less than 1%
Common K. O. Meyers 13,596 -- less than 1%
Common J. C. Mihm 134,813 2,143 less than 1%
Common M. J. Panatier 113,480 -- less than 1%
Common B. Z. Parker 166,928 -- less than 1%
Common R. A. Ridge 67,235 -- less than 1%
Common J. B. Whitworth 142,682 -- less than 1%
All directors, nominees and executive officers
as a group (20 in group) 1,429,895 2,143 less than 1%
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(1) Direct ownership includes shares that may be acquired under the Company's
stock options within 60 days of the record date.
(2) The shares stated as being beneficially owned by each nominee do not
include shares beneficially owned by the other companies on whose boards
of directors the nominees, directors or officers serve. Each nominee
disclaims beneficial ownership of all such shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company does not know of any director, officer, or beneficial owner of more
than 10 percent of the Company's common stock who failed to timely file the
required reports during 2001, under Section 16(a) of the Securities Exchange Act
of 1934, as amended.
GENERAL INFORMATION RELATING TO THE BOARD OF DIRECTORS 9
GENERAL INFORMATION
RELATING TO THE BOARD OF DIRECTORS
The Board of Directors
The Board of Directors directs the management of the Company's business and
affairs. To assist it in carrying out its duties, the Board has delegated
certain authority to five Committees. The Board held 10 meetings during 2001 and
the directors, as a group, attended an average of 90 percent of all Board and
Committee meetings.
Committees of the Board
The Board's Standing Committees are the Audit Committee, the Compensation
Committee, the Committee on Directors' Affairs, the Executive Committee and the
Public Policy Committee. The following table outlines the membership of each
committee:
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Compen- Directors' Public
Audit sation Affairs Executive Policy
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Horner* Tobias* Augustine* Mulva* Tschinkel*
Boren Augustine Chappell Augustine Boren
Chappell Turner Horner Horner Devlin
Devlin Tobias Roy
Roy Tschinkel Tobias
Tschinkel Turner
* Chairman
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The Audit Committee operates under a charter approved by the Board in May 2000
and generally is responsible for:
(1) monitoring Management's preparation of quarterly and annual financial
reports and discussing draft annual financial statements and key
accounting and reporting matters with Management and the independent
auditors;
(2) overseeing the Company's relationship with the independent auditors,
including recommending their appointment or removal; reviewing the scope
of the audit they are to conduct and the results of their audit; reviewing
their fees for auditing and any other services they provide to the
Company; and assessing the auditors' independence, taking into account the
auditors' annual letter provided under Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees" as well
as the compatibility of non-audit services with the auditors'
independence;
(3) reviewing the activities and recommendations of the Company's internal
audit program; and
(4) supervising Management's implementation of an effective system of internal
controls, including reviewing the Company's policies relating to conflicts
of interest and legal, regulatory and ethical compliance.
The Audit Committee also may direct the General Counsel, any independent
counsel, the independent auditors, the internal audit staff or others to inquire
into and report on any matter having to do with the Company's business affairs.
To fulfill these responsibilities, the Audit Committee regularly meets with the
Chief Financial Officer, the Controller, the General Auditor, and the
independent auditors to discuss their judgments as to the acceptability and
quality of the Company's accounting principles and to review and discuss all
financial statements, the reasonableness of significant accounting judgments,
and the clarity of financial statement disclosures. Before the Company issues
financial statements, the Audit Committee Chairman, or the full Committee,
reviews the statements with the Chief Financial Officer, Controller and the
independent auditors.
The Audit Committee held three meetings in 2001.
The Compensation Committee recommends, for Board Approval, the salaries for the
Chairman of the Board of Directors and Chief Executive Officer and the
President, and approves salaries for all Executive Officers and all employees
who earn $250,000 or more. The Committee also makes recommendations to the Board
on any proposals for new benefits, incentive plans or programs for officers who
are also directors, and on the application of amendments to existing plans or
programs that would significantly increase such officers' compensation. The
Committee further approves awards under the Annual Incentive Compensation Plan
and the Omnibus Securities Plans of 1993 and 2002. The Compensation Committee
held six meetings in 2001. The Company had no interlocking relationship during
the last fiscal year.
The Committee on Directors' Affairs recommends to the Board qualified candidates
for election as directors and nominates candidates to the Board committees. The
Committee welcomes suggestions from stockholders about qualified candidates. A
stockholder wishing to submit a recommendation to the Committee may do so by
writing Dale J. Billam, Secretary, Phillips Petroleum Company, Bartlesville,
Okla. 74004. The Committee on Directors' Affairs did not meet in 2001.
The Executive Committee: When the Board is not in session, this Committee has
the same power and authority as the Board in the management and business of the
Company, subject to the limitations in the Bylaws. The Committee is authorized
to review and approve proposed corporate action when the Board is not in session
and may make recommendations to the Board regarding any proposed corporate
action. The Executive Committee did not meet in 2001.
The Public Policy Committee advises Management and the Board:
(1) in response to current and emerging public policy issues, and
10 COMPENSATION OF DIRECTORS AND NOMINEES
(2) in the development and review of policies and budgets for contributions,
including, among others, contributions to charitable, civic, cultural or
educational organizations.
To carry out these duties, the Committee:
(a) identifies, evaluates and monitors the social, political, environmental,
occupational, safety and health trends, issues and concerns, domestic and
foreign, which affect or could affect the Company's business activities
and performance;
(b) reviews information from Management and approves recommendations to aid in
the formulation and adoption of policies, programs and practices about
such things as ecological and environmental protection, employee safety,
ethical business conduct, consumer affairs, alcohol and drug abuse, equal
employment opportunity and government relations; and
(c) monitors and evaluates the Company's compliance with these policies,
programs and practices.
The Committee may also authorize the use of Company funds for political
contributions, if and to the extent permitted by law and the company's Bylaws.
The Public Policy Committee held four meetings in 2001.
COMPENSATION OF DIRECTORS AND NOMINEES
Each director who chairs a committee receives $126,500 per year, while the other
directors receive $125,000 per year. Half of this compensation is paid in
Company stock, which may be restricted stock. The other half is paid as cash,
but may be deferred or taken as additional restricted or unrestricted stock. The
future payment of any deferred cash compensation is funded in a grantor trust
designed for this purpose.
Restricted stock issued to each non-employee director remains restricted until
the director retires from the Board. Dividends payable on restricted stock are
reinvested in restricted stock. The restrictions on a percentage of the
restricted shares begin lapsing five years prior to retirement from the Board.
All restrictions will lapse in the year the director reaches age 70. A director
may choose to delay the lapsing of the restrictions until retirement from the
Board of Directors. The director also may elect to credit the value of lapsed
shares to the director's account in the Deferred Compensation Plan for
Non-Employee Directors, or may take possession of the shares.
Prior to retirement, the Company also provides each director with life
insurance. The amount of coverage, which is based on length of Board service,
begins at $200,000 and increases to a maximum of $300,000.
As part of its overall program to support communities and recognize the
importance of charitable giving, the Company also has established The Phillips
Petroleum Company Charitable Giving Program, which is funded by life insurance
policies on directors who have served as a director for five years or more. Upon
the death of an individual director, the Company will donate the $1,000,000
proceeds from such life insurance to one or more qualifying charitable
organizations recommended by the individual director. The proceeds will be paid
in $100,000 installments over a 10-year period. Individual directors derive no
financial benefit from this program because all charitable deductions for
federal and state income taxes accrue solely to the Company. The Company paid
premiums of $336,274 in 2001.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is comprised of the six directors
named below, each of whom is an independent director as defined by New York
Stock Exchange rules. The Committee has reviewed and discussed the Company's
audited financial statements with Management, which is primarily responsible for
them, and Management has advised the Committee that the financial statements
comply with generally accepted accounting principles. Ernst & Young LLP, the
Company's independent auditor for 2001, is responsible for opining on the
conformity of the Company's financial statements with generally accepted
accounting principles. The Committee discussed with Ernst & Young the matters
required to be discussed by Statement on Auditing Standards No. 61,
"Communication With Audit Committees." Ernst & Young has provided the Committee
the written disclosures and the letter required by Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," and the
Committee has considered and discussed with Ernst & Young that firm's
independence.
The Committee also considered the scope and adequacy of the Company's internal
auditing program, including the results of domestic and foreign internal audits;
proposals for adequate staffing; and proposals to strengthen internal controls
and procedures where appropriate.
On the basis of the reviews, discussions and procedures outlined above, the
Committee has recommended to the Board of Directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K for
2001.
The Audit Committee report does not constitute soliciting materials and
should not be deemed filed or incorporated by reference into any other Company
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934,
as amended, except to the extent the Company specifically incorporates this
Report by reference therein.
THE AUDIT COMMITTEE
Larry D. Horner, Chairman Robert M. Devlin
David L. Boren J. Stapleton Roy
Robert E. Chappell, Jr. Victoria J. Tschinkel
EXECUTIVE COMPENSATION 11
EXECUTIVE COMPENSATION
The following Summary Compensation Table shows the 2001, 2000 and 1999
compensation for the Company's Chief Executive Officer, the four most highly
compensated officers and a retired Senior Vice President as of December 31,
2001.
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Summary Compensation Table
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Annual Compensation Long-Term Compensation
------------------------------------- -------------------------------------------------------------
Awards Payouts
Restricted Securities All Other
Other Annual Stock Underlying Long-Term Compen-
Name and Compensation Award(s)(1) Option/ Incentive sation (2)
Principal Position Year Salary ($) Bonus ($) ($) ($) SARs(#) Payout ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
J. J. Mulva 2001 1,281,250 3,630,000 0 0(4) 1,739,000 3,839,655(5) 17,994
Chairman of the 2000 1,045,833 4,516,875(3) 0 2,195,854 167,800 3,102,763(6) 16,619
Board & CEO 1999 806,669 1,075,804 0 0 186,800 558,803(7) 14,580
J. A. Carrig 2001 366,856 553,172 0 0 36,500 639,483(5) 17,926
Sr. Vice President 2000 294,082 677,273(3) 0 1,000,012 22,800 283,985(6) 16,415
& CFO 1999 253,017 213,806 0 0 10,900 78,103(7) 13,393
J. E. Lowe 2001 366,856 581,328 0 0 36,500 493,553(5) 17,995
Sr. Vice President 2000 279,750 742,074(3) 0 1,000,012 22,800 281,675(6) 16,348
1999 187,164 153,121 0 0 9,200 0(7) 12,117
B. Z. Parker 2001 522,450 450,073 0 0 42,000 951,787(5) 17,145
Executive Vice 2000 497,253 553,041 0 0 31,600 725,257(6) 15,769
President 1999 452,502 387,311 0 0 52,800 260,054(7) 13,780
J. B. Whitworth 2001 492,823 680,089 0 0 45,800 1,061,766(5) 17,995
Exec. Vice President, 2000 398,497 960,962(3) 0 800,009 26,500 961,582(6) 16,619
General Counsel & 1999 364,002 372,320 0 0 36,000 192,047(7) 14,580
Chief Admin. Officer
T. C. Morris (8) 2001 153,667 147,815 0 0 0 735,047(5) 16,265
Sr. Vice President 2000 441,500 977,209(3) 0 0 24,200 897,867(6) 16,619
& CFO (Retired) 1999 404,997 374,368 0 0 40,100 187,769(7) 14,580
- ------------------------------------------------------------------------------------------------------------------------------------
(1) The value of restricted stock awards on the date of grant made in 2000.
The Company settled awards under its 1985 and 1987 annual incentive plans
and under all long-term incentive plans since 1986 by issuing shares of
restricted stock that are not transferable before death, disability or
retirement, unless the Compensation Committee of the Board of Directors
removes the restrictions or upon a change of control. In addition, the
Compensation Committee has granted special awards of restricted stock from
time to time. The aggregate number of both types of restricted shares held
at December 31, 2001, and the market value of such shares on that date
(calculated without regard to the restrictions and the resulting inability
of the named executives to realize such values at such times) were: J. A.
Carrig, 38,815 shares, $2,351,413; J. E. Lowe, 25,215 shares, $1,527,525;
T. C. Morris, 0 shares, $0; J. J. Mulva, 183,868 shares, $11,138,723; B.
Z. Parker, 42,244 shares, $2,559,142; and J. B. Whitworth, 10,781 shares,
$653,113.
(2) Includes Company contributions to the Thrift Plan for the benefit of
participants and the value of the shares allocated to Long-Term Stock
Savings Plan participants as of the respective valuation dates.
(3) The amount shown includes a special recognition award for major
accomplishments in the successful completion of the Duke Energy Field
Services joint venture, the Chevron Phillips Chemical Company joint
venture and the acquisition of ARCO's Alaskan businesses. The award
amounts were: J. A. Carrig, $300,000; J. E. Lowe, $300,000; T. C. Morris,
$400,000; J. J. Mulva, $900,000; and J. B. Whitworth $400,000.
(4) Although not reflected in this table, the Compensation Committee granted
Mr. Mulva 250,000 Restricted Stock Units in 2001. See the Compensation
Committee's Report on pages 15-18 for further explanation.
(5) Value of the awards on the award approval date for performance under the
Long-Term Incentive Plan Performance Period from 1999-2001. Awards were
issued in restricted stock units for J. A. Carrig, J. E. Lowe, J. J.
Mulva, B. Z. Parker and J. B. Whitworth and in unrestricted shares for
T. C. Morris.
(6) Value of the restricted stock on the date of the award for performance
under the Long-Term Incentive Plan Performance Period from 1998-2000.
(7) Value of the restricted stock on the date of the award for performance
under the Long-Term Incentive Plan Performance Period from 1997-1999.
(8) T. C. Morris retired as an Officer of the Company as of January 31, 2001,
and as an employee effective May 1, 2001.
12 OPTIONS/SAR GRANTS
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Stock options granted during 2001 to the Chief Executive Officer, the four most
highly compensated officers and a retired Senior Vice President of the Company
are reflected in the following Options/SAR Grants in Last Fiscal Year table.
INDIVIDUAL GRANTS
-------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT ASSUMED
Number of Percent of Total ANNUAL RATES OF STOCK PRICE
Securities Options/SARS APPRECIATION FOR OPTION TERM (1)
Underlying Granted to Exercise or
Options/SARS Employees in Base Price Expiration
Name Granted Fiscal Year ($/Share) Date 0%($) 5%($) 10%($)
- ------------------------------------------------------------------------------------------------------------------------------------
J. J. Mulva .......... 239,000 5.52% 54.77 10/08/11 0 8,231,160 20,862,310
750,000 17.31% 64.13 11/17/11 0 30,247,500 76,657,500
750,000 17.31% 51.31 11/17/11 0 24,202,500 61,327,500
J. A. Carrig ......... 1,400 0.03% 56.34 02/12/11 0 49,602 125,706
35,100 0.81% 54.77 10/08/11 0 1,208,844 3,063,879
J. E. Lowe ........... 1,400 0.03% 56.34 02/12/11 0 49,602 125,706
35,100 0.81% 54.77 10/08/11 0 1,208,844 3,063,879
B. Z. Parker ......... 42,000 0.97% 54.77 10/08/11 0 1,446,480 3,666,180
J. B. Whitworth ...... 3,100 0.07% 56.34 02/12/11 0 109,833 278,349
42,700 0.99% 54.77 10/08/11 0 1,470,588 3,727,283
T. C. Morris ......... 0 0% -- -- -- -- --
Total Stockholders (2) N/A N/A N/A N/A 0 9,754,734,147 24,723,889,189
(1) SEC rules require disclosure of "potential realizable value" for
illustration only. The Company does not intend these values to be, and you
should not interpret them to be, representations or projections of future
value of the Company's stock or of the stock price.
(2) To put the illustrative potential realizable value into perspective, if
the Company's stock price increased 5 percent or 10 percent per year for
10 years from January 1, 2001 (disregarding dividends and assuming for
purpose of the calculation a constant number of shares outstanding), the
total increase in the value of all shares outstanding at January 1, 2001,
is shown above as "potential realizable value" for total stockholders.
TEN-YEAR OPTION/SAR REPRICING
There have been no option or stock appreciation right repricings during the last
10 years for the Chief Executive Officer, for any of the four most highly
compensated officers or for a retired Senior Vice President of the Company as
reflected in the following Ten-Year Option/SAR Repricing table.
Number of Securities Market Price Exercise Length of Original
Underlying Of Stock at Price Option Term
Options/SARs Time of At Time of New Remaining at Date
Repriced or Repricing or Repricing or Exercise Of Repricing or
Name Date Amended Amendment ($) Amendment ($) Price ($) Amendment
- ------------------------------------------------------------------------------------------------------------------------------------
J. J. Mulva - 0 - - - -
J. A. Carrig - 0 - - - -
J. E. Lowe - 0 - - - -
B. Z. Parker - 0 - - - -
J. B. Whitworth - 0 - - - -
T. C. Morris - 0 - - - -
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR 13
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUE
The following table shows the number of shares the Chief Executive Officer, the
four most highly compensated officers and a retired Senior Vice President of the
Company acquired and the net value they realized from exercising stock options
during 2001, and the number and value of exercisable and unexercisable stock
options granted under the 1990 Stock Plan and the 1993 Omnibus Plan at fiscal
year-end 2001.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
Fiscal Year-End Fiscal Year-End ($) (2)
- -------------------------------------------------------------------------------------------------------------------------------
Number of Shares Acquired Net Value Exercisable/ Exercisable/
Name On Exercise Realized ($) (1) Unexercisable Unexercisable
478,702 8,412,665
J. J. Mulva 0 0 1,975,391 9,899,896
58,968 1,133,118
J. A. Carrig 0 0 62,258 381,569
22,342 225,900
J. E. Lowe 0 0 59,158 335,861
124,019 1,786,935
B. Z. Parker 8,947 328,131 103,891 823,373
102,442 1,629,255
J. B. Whitworth 0 0 93,616 695,787
90,303 1,340,295
T. C. Morris 5,062 76,927 42,787 480,755
(1) Net value realized is the market price on the date of exercise, less the
option price, times the number of shares exercised under the option.
(2) Based on $60.58, the fair market value of the Company's common stock on
December 31, 2001.
14 LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
The following table shows Long-Term Incentive Plan awards established under the
Omnibus Securities Plan during 2001 for the Chief Executive Officer, the four
most highly compensated officers and a retired Senior Vice President of the
Company.
Estimated Future Payouts Under Non-Stock Price Based Plans
----------------------------------------------------------
Performance or
Other Period Number of Shares (1)
Number of Until Maturation
Name Shares Or Payout Threshold (2) Target Maximum
- -----------------------------------------------------------------------------------------------------------------------
J. J. Mulva 46,552 12/31/03 23,276 46,552 93,104
J. A. Carrig 5,458 12/31/03 2,729 5,458 10,916
J. E. Lowe 5,458 12/31/03 2,729 5,458 10,916
B. Z. Parker 9,298 12/31/03 4,649 9,298 18,596
J. B. Whitworth 7,642 12/31/03 3,821 7,642 15,284
T. C. Morris 7,753 (3) 12/31/03 3,877 7,753 15,506
(1) The March 12, 2002, approval of the Conoco merger by the Company's
stockholders constituted a change of control that accelerated the
settlement of target awards for the period January 1, 2001 through
December 31, 2003.
(2) The Company's total stockholder return must rank in the top 75 percent
when compared with the peer group before any award can be approved. This
is called the "threshold performance." If the threshold performance is
achieved, the Compensation Committee expects to approve awards of 50
percent of the target number of shares established for the performance
period. The actual awards earned can range from 0 percent to 200 percent
of the target awards.
(3) The number of shares for T. C. Morris will be prorated to 861 shares. For
threshold, target and maximum, the amounts are: 431 shares; 861 shares;
and 1,722 shares, respectively, based on the four months he was an
employee during the Performance Period.
COMPENSATION COMMITTEE REPORT 15
COMPENSATION COMMITTEE REPORT
TO STOCKHOLDERS
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors administers the Company's
executive compensation program. The Committee is composed solely of independent,
outside directors who qualify as Non-Employee Directors under Rule 16b-3 of the
Securities Exchange Act of 1934.
The executive compensation programs are designed to motivate all executives to
work as a team to (i) maximize long-term stockholder value, (ii) achieve a high
level of return on capital employed, (iii) provide industry safety leadership
and environmental stewardship, and (iv) successfully complete corporate
transactions including mergers, acquisitions, joint ventures and divestitures,
where such transactions create stockholder value.
The Company's businesses are extremely capital intensive, requiring large
investments, in most cases over a number of years, before tangible financial
returns are achieved. For the near term, the Company's prospects and performance
are measured by its share price, which can be affected significantly by
commodity prices and world events over which the Company and its management have
no control. Therefore, the Committee bases executive compensation decisions on
quantitative and qualitative measures, along with external factors that may have
affected such measures. The Committee also exercises its discretion in
evaluating performance achievements of executives, operating units and staffs.
During 2001, the quantitative measures the Committee considered included:
relative total return to stockholders; relative return on capital employed by
the Company; and the Company's safety performance. The determination of safety
performance is based on several factors including employee and contractor
recordable injury rate, progress on the Company's Process for Safety Excellence
performance, lost time injuries, severity of injuries, and awards for
environmental performance. Quantitative measures to evaluate Corporate and Award
Unit performance included: (i) for operating units, their controllable expenses,
operating efficiency, return on capital employed, capital efficiency and safety
performance; (ii) for development units, their progress on project milestones
and accomplishments, exploration value indices, growth value indices,
controllable expenses and safety performance; and (iii) for staff units, their
controllable expenses, safety performance, and the success of internal customers
who bear their costs.
The Committee uses the following qualitative performance measures for
individuals: the application of experience; success in developing and
implementing strategic plans; contribution to the growth or success of business
line accomplishments; leadership in the industry and community; and social
responsibility.
By design, executive compensation provides awards that vary with performance and
produces an opportunity for earnings through performance over a longer term. The
Company encourages stronger executive performance by making a substantial
percentage of total executive compensation variable, or "at-risk," through the
Annual Incentive Compensation Plan, the granting of stock options, and awards
under the Long-Term Incentive Plan.
Internal Revenue Code Section 162(m)
The Compensation Committee has carefully considered the implications of Section
162(m) of the Internal Revenue Code. The Committee, where possible and
considered appropriate, strives to preserve corporate tax deductions, including
the deductibility of compensation to executive officers named in the Summary
Compensation Table. The 2002 Omnibus Securities Plan, which we refer to as the
"2002 Omnibus Plan," furthers this policy by providing for Qualified
Performance-Based Awards grantable at the Compensation Committee's discretion.
The Company generally will be entitled to take tax deductions relating to
Qualified Performance-Based Awards, which may include Restricted Stock,
Restricted Stock Units and other performance-based awards. In addition, the
Company expects all options granted under the 2002 Omnibus Plan to be exempt
from taxation under Section 162(m).
The Committee also seeks to maintain flexibility to approve compensation
arrangements that, although not necessarily fully tax deductible to the Company,
are nonetheless in the Company's and its stockholders' best interest. The
Committee will continue to review the Company's executive compensation practices
to determine if other elements of executive compensation qualify as
"performance-based compensation" under the Internal Revenue Code.
Executive Compensation Actions for 2001
Salaries
On October 8, 2001, the Committee reviewed competitive salary data to approve
changes to the annual salaries for all executive officers (except Mr. Mulva) and
for employees with annual salaries of $250,000 or more. These changes were made
effective as of October 1, 2001.
For Mr. Mulva, the Committee proposed salary changes for the Board of Director's
approval. On October 8, 2001, the Board approved the Committee's recommendation
to increase Mr. Mulva's annual salary to $1,375,000. This increase was
competitive and recognized Mr. Mulva's accomplishments in the successful
corporate transactions completed during 2001, including the acquisition of
Tosco. Mr. Mulva's last prior salary increase was August 1, 2000.
16 COMPENSATION COMMITTEE REPORT
Annual Incentive Compensation Program
The Committee administers and sets yearly objectives for the Annual Incentive
Compensation Plan, or "AICP," from which the Committee may award annual bonuses.
The Committee set three Companywide objectives for 2001: (i) favorable total
stockholder return for 2001 relative to the stockholder return of the Company's
oil industry peers as listed in the "Performance Graph" on page 19 of this Proxy
Statement; (ii) favorable return on capital employed relative to the return on
capital employed of the Company's oil industry peers; and (iii) safety
performance awards as measured by a number of factors including employee and
contractor recordable injury rate, progress on the Process for Safety &
Environmental Excellence Plan performance, chargeable vehicle incidents, lost
time injuries, which takes into consideration the severity of injuries as well
as industry/governmental awards for safety and environmental performance.
The Committee, using both internally generated data and data obtained from an
independent, third party consultant, established targets for individual AICP
awards based on individual grades. For 2001, the target percentages varied from
22.5 percent of salary, for the beginning level of AICP eligibility, to 100
percent of salary, for Mr. Mulva. The target percentages are prorated to
recognize changes in salary grades during the year. The Committee can approve
individual awards from 0 percent of the target amount to 200 percent of the
target amount for the award year, based upon the Committee's assessment of
performance.
Mr. Mulva's AICP award is based on overall corporate performance. Awards to all
other AICP participants reflect the performance of the operating unit,
development unit or staff group with which the participant is related, as well
as corporate performance. In the February 2002 meeting of the Compensation
Committee of the Board of Directors, awards for the 2001 Performance Year were
reviewed and determined. The Committee determined that the Company was fourth in
the group of peer companies for total shareholder return, fourth in the group of
peer companies for Return on Capital Employed and accomplished the best safety
performance for both Recordable Injury Rate and Lost Workday Accidents since the
beginning of the program. Based on the Company's Corporate and Business Unit
performance for the year, awards ranging from 108 percent to 145 percent of the
target amount were approved.
With respect to Mr. Mulva's award, the Board of Directors considered the
Company's performance under the Plan and Mr. Mulva's leadership in the
completion of the Tosco acquisition and the successful negotiation of the merger
agreement with Conoco.
Based on these results, Mr. Mulva received an award for 2001 performance under
the AICP of $3,630,000 to recognize Mr. Mulva's role in the transformation of
the Company and his role in its improved operating and financial performance.
The Summary Compensation Table on page 11 of this Proxy Statement lists the
amount of Mr. Mulva's award.
Stock Options
The Committee typically considers whether to grant stock options in October of
each year. To date, the Committee has only granted stock options with exercise
prices equal to or greater than the fair market value of the Company's stock on
the date of the grant. If the Company's stock does not trade on the New York
Stock Exchange on the date of the grant, the Committee determines fair market
value on the last trading day before the date of the grant. After considering
internally generated information and consulting with independent third-parties,
the Committee sets the number of shares subject to options to approximate the
grants by peer companies to persons in corresponding job positions. The
Committee also considers individual performance when making each option grant.
These same considerations also govern the Committee's award of supplemental
stock options, typically granted to recognize promotions made during the year.
On October 8, 2001, the Committee granted Mr. Mulva stock options to acquire
239,000 shares of common stock. The Committee also granted stock options to the
other executive officers, to all other employees whose annual salary is $250,000
or more, and to other employees where the potential realizable value derived
through a growth model calculation of the stock options exceeded 100 percent of
employee's salary. These stock option grants were in conjunction with the annual
stock option grants to all eligible employees. You should look to the table
entitled "Options/SAR Grants in Last Fiscal Year" on page 12 of this Proxy
Statement to see the stock option grants to Mr. Mulva and the Company's other
four most highly paid officers.
In December 2001, the Committee granted stock options, effective January 1,
2002, to certain executive employees of RM&T who were former Tosco employees.
Effect of Stockholder Approval of Conoco Merger on Stock Options Granted Before
November 17, 2001
On March 12, 2002, the Company's stockholders approved the merger of the Company
and Conoco Inc. This constituted a "change of control" under the Omnibus
Securities Plan of Phillips Petroleum Company approved by stockholders in 1993,
which we refer to as the "1993 Omnibus Plan." The 1993 Omnibus Plan governs all
currently unvested, outstanding stock options. Unless otherwise provided in the
applicable grant agreement, the change of control caused all
COMPENSATION COMMITTEE REPORT 17
outstanding Stock Options and Stock Appreciation Rights granted before
November 17, 2001 (the date the Board approved the merger) to become fully
exercisable and vested. Accordingly, all stock options granted to Mr. Mulva
and other listed executives before November 17, 2001, became fully vested
and exercisable.
Long-Term Incentive Plan
The Committee administers the Long-Term Incentive Plan, or "LTIP," under the
1993 Omnibus Plan. Under the 1993 Omnibus Plan, the Committee annually
establishes a three-year performance period over which it will compare the
Company's total stockholder return and return on capital employed with the total
stockholder return and return on capital employed for the Company's oil industry
peers. The Committee may grant awards only if the Company's total stockholder
return over the performance period is in the top 75 percent of industry peer
companies.
Historically, the Company has settled LTIP awards with Restricted Stock.
However, on December 17, 2001, the Company commenced an Exchange Offer
permitting (1) eligible holders of Restricted Stock to exchange that stock for
Restricted Stock Units, and (2) eligible holders of LTIP awards to exchange
those awards for LTIP awards to be settled in Restricted Stock Units. This was
done to give eligible Restricted Stock holders an opportunity to avoid possible
adverse tax consequences from shareholder approval of the Conoco merger.
Restricted Stock Units have the same economic consequences as Restricted Stock,
but the Company does not issue actual shares to the holders until the award
finally is settled, regardless of when the award vests.
In February 2001, the Committee established the ninth performance period under
the Plan, covering January 1, 2001 through December 31, 2003. The target awards
for Mr. Mulva and the other executive officers are shown on the table entitled
"Long-Term Incentive Plan Awards in Last Fiscal Year." The Committee based these
awards on a percentage of salary, varying according to salary grade, and the
price of the Company's stock at the beginning of the performance period. To set
these target levels, the Committee considered both internally generated
information and competitive data provided by an independent, third-party
consultant. The Committee also granted supplemental target awards, listed in the
table, to recognize promotions during the year.
In February 2002, the Committee determined the actual awards for the seventh
performance period of the LTIP, covering January 1, 1999, through December 31,
2001. For the Total Shareholder Return performance measure, the Company was
second of the peer group with a total return including reinvested dividends of
53 percent. This return was compared to an average for the group of 26 percent.
For the measure Return on Capital Employed, the Company achieved an average
annual return for the three-year period of 15.2 percent which placed the Company
fourth within the peer group. The return of 15.2 percent resulted when the
return was adjusted for purchase accounting to make the Company's return for the
period comparable with those of the other peer companies. Based on the combined
performance for stockholder return and return on capital employed for this
period, the Committee granted awards totaling 50 percent greater than the target
amount set for the participants at the beginning of the seveth performance
period. The award for Mr. Mulva was further adjusted by 50 percent to reflect
his leadership and contribution to the strategic transformation of the Company
that occurred during the three-year period. The value of the awards for this
period, to be settled in Restricted Stock or Restricted Stock Units, for the
five most highly compensated executive officers, is shown in the "2001" row of
the Summary Compensation Table found in this Proxy Statement.
Effect of Stockholder Approval of the Conoco Merger on Restricted Stock,
Restricted Stock Units and Performance Awards Granted before November 17, 2001
Approval of the Conoco merger by the Company's stockholders constituted a
"change of control" under the 1993 Omnibus Plan. As a result, all Restricted
Stock and Restricted Stock Units granted before November 17, 2001, as well as
all Restricted Stock Units granted under the Exchange Offer described above,
became unrestricted and fully vested and, in the case of Restricted Stock,
transferable. Furthermore, because of the change of control, all outstanding
Performance Awards and other Awards became earned and payable.
The shares of Restricted Stock or Restricted Stock Units, as applicable, awarded
to Mr. Mulva and the other listed officers are shown on the Summary Compensation
Table under the Long-Term Incentive Payout.
Grants of Stock Options and Restricted Stock to J. J. Mulva
On November 17, 2001, the Company granted Mr. Mulva options to purchase 750,000
shares of Phillips common stock for $51.31 per share, which is the average of
the high and low trading prices of Phillips common stock on November 16, 2001.
He also received options to purchase 750,000 shares of Phillips common stock for
$64.13 per share, which is 125 percent of the average of the high and
18 COMPENSATION COMMITTEE REPORT
low trading prices of Phillips common stock on November 16, 2001. These options
automatically convert into options to purchase ConocoPhillips common stock when
the merger is completed. Generally, one-third of the options will vest upon the
merger's completion, one-third will vest one year after the merger's completion,
and one-third will vest two years after the merger's completion. If the merger
is not completed, they will vest on November 17, 2007. The options will also
vest upon a future change of control other than the merger, and in the case of
certain employment terminations.
On November 17, 2001, the Company also granted Mr. Mulva 250,000 Restricted
Stock Units, based on shares of Phillips common stock, that will convert into
units based on ConocoPhillips common stock upon merger completion. Over time,
Mr. Mulva will be credited with additional Restricted Stock Units, representing
the number of shares having a fair market value equal to the dividends that
would have been paid on the units had they been actual shares. These additional
units will be credited to Mr. Mulva when dividends are paid on the Phillips
common stock or, after the merger, on the ConocoPhillips common stock.
Mr. Mulva will forfeit these Restricted Stock Units if the merger is not
completed. Otherwise, the Restricted Stock Units will vest on June 19, 2006. The
units also will vest upon a future change of control other than the Conoco
merger, upon Mr. Mulva's death or disability, and upon certain terminations of
employment. When the units vest, the Company will pay Mr. Mulva the value of the
units, unless he previously has elected to defer the payments under the Phillips
Key Employee Deferred Compensation Plan.
THE COMPENSATION COMMITTEE
Randall L. Tobias, Chairman
Norman R. Augustine
Kathryn C. Turner
PERFORMANCE GRAPH 19
The Performance Graph shows the Company's total return to stockholders over the
five-year period from December 31, 1996, through December 31, 2001, compared
with the S&P 500 Index and two formulations of the peer group index of
integrated oil companies. Due to mergers and acquisitions by Phillips, as well
as within the oil industry, the Compensation Committee decided during 2001 to
add major international oil companies Eni, Repsol, Royal Dutch and TotalFinaElf
to the existing peer group. The table shows both the old and the new peer
groups.
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL STOCKHOLDER RETURN (1)
Among Phillips Petroleum, S&P 500 Index, and Peer Group Indexes (2) (3)
LINE GRAPH
1997 1998 1999 2000 2001
- ---------------------------------------------------------------------------
Phillips Petroleum $113 $102 $116 $144 $156
S&P 500 Index 133 171 208 189 166
Peer Group Index (2) 122 140 167 168 163
Peer Group Index (3) 124 132 159 162 152
(1) Assumes $100 invested at closing prices on December 31, 1996, in Phillips
common stock, S&P 500 Index and Peer Group Indexes. Also assumes dividend
reinvestment.
(2) Amerada Hess, BP, ChevronTexaco, Conoco (1999 - 2001 only), ExxonMobil,
Marathon, Occidental and Unocal.
(3) Amerada Hess, BP, ChevronTexaco, Conoco (1999 - 2001 only), Eni,
ExxonMobil, Marathon, Occidental, Repsol, Royal Dutch, TotalFinaElf and
Unocal.
20 PENSION PLAN
PENSION PLAN
The Retirement Income Plan, in which all active eligible employees (including
executive officers) participate, does not require participant contributions.
Benefits are computed according to several formulas. Officers, including
executive officers, generally receive benefits under a final average earnings
formula. Benefits are based on length of service, a participant's annual salary
and awards paid under the Annual Incentive Compensation Plan. Normal retirement
age is 65.
A participant may retire as early as age 55 and receive a reduced benefit.
Benefits for a retiring employee are paid in the form of a straight-life annuity
or one of several other forms of equivalent actuarial value.
The Pension Plan Table shows the maximum estimated straight-life annual benefits
payable at normal retirement age to employees in the higher salary
classifications, prior to reductions required by the plan for Social Security
benefits.
PENSION PLAN TABLE
Estimated Annual Retirement Benefits Under Final Average Earnings Formula (1) (2)
Annual Average of Highest 3
Consecutive Calendar Years'
Salary and Highest 3 AICP Awards Years of Credited Service At Normal Retirement
in 10 Years Preceding Retirement ---------------------------------------------------------------------------------------
and Value of Special Awards (3) 20 25 30 35 40
- ----------------------------------------------------------------------------------------------------------------------------
1,000,000 320,000 400,000 480,000 560,000 640,000
1,500,000 480,000 600,000 720,000 840,000 960,000
2,000,000 640,000 800,000 960,000 1,120,000 1,280,000
2,500,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000
3,000,000 960,000 1,200,000 1,440,000 1,680,000 1,920,000
3,500,000 1,120,000 1,400,000 1,680,000 1,960,000 2,240,000
4,000,000 1,280,000 1,600,000 1,920,000 2,240,000 2,560,000
4,500,000 1,440,000 1,800,000 2,160,000 2,520,000 2,880,000
5,000,000 1,600,000 2,000,000 2,400,000 2,800,000 3,200,000
5,500,000 1,760,000 2,200,000 2,640,000 3,080,000 3,520,000
6,000,000 1,920,000 2,400,000 2,880,000 3,360,000 3,840,000
6,500,000 2,080,000 2,600,000 3,120,000 3,640,000 4,160,000
7,000,000 2,240,000 2,800,000 3,360,000 3,920,000 4,480,000
7,500,000 2,400,000 3,000,000 3,600,000 4,200,000 4,800,000
(1) By law, the retirement plan may not provide annual benefits above a
maximum amount or include, in benefit computations, compensation greater
than the amount the Internal Revenue Code specifies. Also, the Company may
reduce retirement plan benefits for those who also participate in the AICP
deferral program and the voluntary salary reduction program. Retirement
benefits also include the value of specified cash and restricted stock
awards. The Company will make supplemental payments, if necessary, to
provide the total benefits indicated on the table. The Company also
maintains, as a recruiting tool, a supplemental plan under which officers
and other executives who are hired mid-career may receive retirement
income beyond that which the retirement plan would provide for their
shorter Credited Service. However, total benefits under this supplemental
plan and the retirement plan will not exceed the benefits a full career
employee at similar salary levels would receive under the retirement plan.
The Company has funded these supplemental benefits in a grantor trust
designated for this purpose.
(2) With respect to the executive officers named in the Summary Compensation
Table, their years of credited service as of February 28, 2002, for
retirement purposes are: J. A. Carrig, 24 years; J. E. Lowe, 21 years; J.
J. Mulva, 30 years; B. Z. Parker, 33 years; and J. B. Whitworth, 36 years.
See the Summary Compensation Table for their current covered compensation.
T. C. Morris retired as an employee in May 2001 with 35 years of credited
service.
(3) AICP Awards are shown under the heading "Bonus" and the Special Awards are
shown in footnote 3 in the Summary Compensation Table. The value of the
restricted stock awards shown under the heading "Restricted Stock Awards"
in the Summary Compensation Table is includable when the restrictions
lapse on one-third of the shares in each of 2001, 2002 and 2003 for J. B.
Whitworth, and in 2005 for J. A. Carrig, J. E. Lowe and J. J. Mulva.
EXECUTIVE SEVERANCE PLAN 21
EXECUTIVE SEVERANCE PLAN
The Company's Executive Severance Plan pays certain severance benefits to
participants, including the Company's executive officers, if their employment
terminates within two years after a "change of control" of the Company either
(1) by the Company, other than for death, disability, transfer to another
employer, retirement, cause, as a result of certain sales of subsidiaries or
divisions, or (2) by the participant, within 90 days of an event constituting
good reason. The March 12, 2002 Stockholder approval of the Conoco merger
constituted a change of control under this plan. Upon completion of the merger,
ConocoPhillips will assume the plan.
"Group one" participants in the plan, which include the Company's Executive Vice
Presidents and Senior Vice Presidents and, until completion of the Conoco
merger, Mr. Mulva, receive severance benefits based on three years' pay, and
"group two" participants, including the Company's Vice Presidents, receive
benefits based on two years' pay. The severance benefits under the severance
plan consist of:
(1) a lump-sum payment of three or two times the sum of the participant's base
salary and the greater of (a) the bonus earned by the participant for the
last fiscal year before the termination date or (b) the highest target
award for the calendar year of the termination date; and
(2) continuation of medical and dental coverage for 18 months after the
termination date.
Participants will also be credited with additional years of service under
Phillips' retirement plans based upon the number of years represented by the
above lump-sum payment, and up to one year's worth of such lump-sum payment will
be treated as pensionable earnings.
In addition, if a participant institutes legal action to obtain or enforce any
right or benefit under the severance plan, the Company will reimburse the
participant's reasonable costs and expenses relating to the legal action,
including legal fees and expenses, unless a court determines that the
participant's position was frivolous. Finally, participants who relocate to
secure new employment are entitled to the home sale assistance benefits provided
under the Phillips Work Force Stabilization Plan.
If any payments or benefits are subject to the excise tax imposed under Section
4999 of the Internal Revenue Code, the Company will make additional payments to
restore participants to the after-tax position they would have occupied had the
excise tax not been imposed. However, the Company will not make additional
payments if a participant's payments or benefits do not exceed 110 percent of
the maximum amount the participant can receive without being subjected to the
golden parachute excise taxes. In that case, amounts payable under the severance
plan will be reduced to the maximum amount permissible to avoid imposition of
the tax. However, the Company does not expect any excise taxes of this sort.
If the Conoco merger were completed on July 1, 2002, and the Company terminated
the executive officers other than Mr. Mulva without cause immediately
thereafter, the estimated cash severance that would be payable under the
severance plan, plus the value of the additional retirement benefits described
above, based on certain assumptions and currently available information, to
Messrs. Carrig, Lowe, Parker, Whitworth, and all other executive officers would
be $2,867,013, $2,935,346, $3,954,556, $3,750,381, and $15,877,948,
respectively. After completion of the Conoco merger, Mr. Mulva will be
ineligible under the severance plan because his new employment agreement with
the Company and ConocoPhillips supersedes the severance plan.
TERMINATION OF EMPLOYMENT
AND
CHANGE-OF-CONTROL ARRANGEMENTS
The Work Force Stabilization Plan, authorized on April 26, 1988, provides that
all Company employees, including executive officers, who are laid off (as
defined in the plan) within two years after a change of control of the Company
(as defined below) are entitled to severance benefits equal to four weeks' pay
for each year of service, subject to a maximum of 104 weeks. "Pay" is determined
by adding the employee's current base salary, regularly scheduled overtime pay
and most recent Annual Incentive Compensation Plan or Performance Incentive
Programs award (or target award, if greater). The Company will reduce the Work
Force Stabilization Plan benefits payable to employees who also participate in
the Executive Severance Plan, by the amount of benefits those employees receive
under the Executive Severance Plan.
Company-sponsored medical and dental programs would be continued for affected
employees. The period of time which severance benefits cover would be added to
service for purposes of Retirement Income Plan calculations, and all affected
employees would immediately be vested. In addition, affected employees could
require the Company to purchase their principal residences under a
formula-pricing arrangement intended to protect them from loss of value, and
could receive reimbursement of legal expenses incurred in connection with
certain claims for benefits under the plan.
A change of control occurs if there is:
(1) an acquisition (other than directly from the Company) of 20 percent or
more of the beneficial interest in the Company's voting stock by a party
other than the Company, a subsidiary or a Company-sponsored benefit plan;
22 PROPOSAL 1
(2) a change in the Board of Directors such that the current directors
(together with the successors which they nominate or approve for
nomination) no longer comprise a majority of the Board;
(3) stockholder approval of a complete liquidation or dissolution of the
Company; or
(4) stockholder approval of a reorganization, merger, consolidation, sale or
other disposition of all or substantially all of the Company's assets, or
the acquisition of the assets of another entity, unless after such
transaction, each of the following is true:
(a) Company stockholders from before the transaction continue to
beneficially own at least 60 percent of the resulting corporation's
stock and voting securities;
(b no person (other than employee benefit plans of the Company or the
resulting corporation) beneficially owns more than 20 percent of the
resulting corporation's stock and voting securities; and
(c) a majority of the Board of Directors of the resulting corporation were
Company directors immediately before the transaction.
The March 12, 2002 Stockholder approval of the Conoco merger constituted a
change of control under the Work Force Stabilization Plan.
Other Change-of-Control Arrangements
Upon a change of control, benefits to officers and other employees
are accelerated under each of the 1993 Omnibus Securities Plan, the 1986 Stock
Plan, the 1990 Stock Plan, the Annual Incentive Compensation Plan, and the 2002
Omnibus Securities Plan. The March 12, 2002 Stockholder approval of the Conoco
merger constituted such a change of control.
PROPOSAL 1 - BY THE COMPANY
The Board of Directors unanimously recommends a vote FOR adoption of the
following resolution, which will be presented at the meeting:
------------------------------------
RESOLVED, that the Board of Directors' designation of Ernst & Young LLP to serve
as the independent auditors to audit the books, records and accounts of the
Company for the 2002 fiscal year be and hereby is approved.
------------------------------------
Upon the recommendation of the Audit Committee, the Board of Directors has
designated Ernst & Young LLP for the purpose stated above and, in accordance
with the Bylaws of the Company, has directed that a vote of stockholders be
taken to determine their approval or disapproval.
As provided in the Company's Bylaws, in the event of stockholder disapproval,
the Board must then determine whether to replace the independent auditors before
the end of the current year and shall designate other independent auditors for
the following year.
Fees of Ernst & Young LLP for the annual audit for the year ended December 31,
2001, were $4,447,000, and all other fees were $2,975,000, including
audit-related services of $1,843,000; and other non-audit services of
$1,132,000. Audit-related services generally include fees for pension,
subsidiary-company and statutory audits, accounting consultations and U.S.
Securities and Exchange Commission registration statements. The Company paid
Ernst & Young LLP no fees in 2001 for financial information systems design and
implementation services.
Ernst & Young LLP has served as the Company's independent auditors since 1949
and is familiar with the Company's operations, accounting policies and
procedures. In the Company's opinion, Ernst & Young LLP is well-qualified to act
in this capacity. Ernst & Young LLP representatives will be present at the
meeting to make any statement they desire and to answer appropriate questions
directed to them.
PROPOSAL 2 - BY TWO STOCKHOLDERS
This proposal was submitted by Green Century Capital Management, Inc., on
behalf of the Green Century Balanced Fund, 29 Temple Place, Suite 200, Boston,
Massachusetts 02111, and The Missionary Oblates of Mary Immaculate,
391 Washington Avenue NE, Washington, DC 20017-1516. Stock ownership
information regarding the proponents will be promptly provided by the Company
upon receiving an oral or written request.
------------------------------------
"WHEREAS: the Arctic National Wildlife Refuge is the only conservation area in
the nation that provides a complete range of Arctic and sub-Arctic ecosystems
balanced with a wide variety of wildlife, including large population of caribou,
muskoxen, polar bears, snow geese and 180 species of other migratory birds;
the U.S. Fish and Wildlife Service considers the Arctic Refuge one of the finest
examples of wilderness left on the planet; and
the Coastal Plain of the Arctic Refuge is the only section of Alaska's entire
North Slope not open for oil and gas leasing, exploration and production;
RESOLVED, the Shareholders request that the Board of Directors prepare a report,
at reasonable cost and omitting proprietary information, on the potential
environmental damage that would result from the company drilling for oil and gas
in the Coastal Plain of the Arctic National Wildlife
23
Refuge. The report should also cover the financial costs of the plan and the
expected return."
------------------------------------
Supporting Statement:
"'Ninety-five percent of Alaska's most promising oil-bearing lands are
already open for development, but it is imperative that we continue to
protect the wildlife, fish and wilderness that make up the rest of this
invaluable part of our American heritage.' -- President Jimmy Carter (1995)
Once part of the largest intact wilderness area in the United States, the North
Slope now hosts one of the world's largest industrial complexes. In fact, oil
companies already have access to 95 percent of Alaska's North Slope. More than
1,500 miles of roads and pipelines and thousands of acres of industrial
facilities sprawl over some 400 square miles of once pristine arctic tundra. Oil
operations on the North Slope annually emit roughly 43,000 tons of nitrogen
oxide and 100,000 metric tons of methane, emissions that contribute to smog,
acid rain and global warming.
The Coastal Plain is the biological heart of the Refuge, to which the vast
Porcupine River caribou herd migrates each spring to give birth. The Department
of Interior has concluded that development in the Coastal Plain would result in
major adverse impacts on the caribou population. According to biologists from
the Alaska Department of Fish and Game, caribou inhabiting the oil fields do not
thrive as well as members of the same herd that seldom encounter oil-related
facilities.
The Coastal Plain is also the most important onshore denning area for the entire
South Beaufort Sea polar bear population, and serves as crucial habitat for
muskoxen and for at least 180 bird species that gather there for breeding,
nesting and migratory activities.
Balanced against these priceless resources is the small potential for
economically recoverable oil in the Coastal Plain. In fact, the most recent
federal estimate predicted that only 3.2 billion barrels would be economically
recoverable in the Coastal Plain -- less than 6 months' worth of oil for the
United States.
Vote YES for this proposal, which will improve our Company's reputation as a
leader in environmentally responsible energy recovery."
------------------------------------
The Board of Directors unanimously recommends a vote AGAINST adoption of this
proposal for the following reasons:
This proposal would require a purely speculative report on the possible
financial costs, expected returns and potential environmental damage that could
result if the Company were to drill for oil and gas in the Coastal Plain of the
Arctic National Wildlife Refuge ("ANWR"). ANWR is an area of approximately 19
million acres located on Alaska's northernmost coast. The Coastal Plain makes up
about 1.5 million acres within ANWR, or approximately 8 percent. The Company
does not own, and has never owned, any land or mineral interests in the Coastal
Plain (or anywhere in ANWR), and is not currently pursuing acquisition of any
rights in oil or gas exploration or production there. Furthermore, federal law
prohibits the Company from exploring or drilling for oil and gas in the Coastal
Plain. For these reasons, the report called for by this proposal would be
entirely hypothetical and premature. The Board believes that preparing
speculative reports on hypothetical exploration and drilling projects that, even
if contemplated, would be impossible for the Company to conduct, is an
inappropriate use of valuable corporate resources and would provide stockholders
no useful information.
PROPOSAL 3 - BY A STOCKHOLDER
This proposal was submitted by Antonio L. Quintas, Salgados, 2640-577 Mafra,
Portugal, whose stock ownership information the Company will promptly provide
upon receiving an oral or written request.
------------------------------------
"Chairman Mulva awoke Phillips from a lethargic period and reshaped the
executive team to a higher level of statesmanship. Phillips is a bigger oil and
gas company, but still occupies a modest place in the rank the world largest
energy companies. This century will bring, no doubt, important changes to the
way energy is produced and consumed. To assist with the gradual transformation
of Phillips into one of the world's leading energy companies, it is requested to
the Board of Directors an increase of three per cent of the annual basic salary
of the Chairman and the other executive officers in future compensation
agreements, for every position increase in the ranking of the world's largest
energy companies, measured by their market value."
------------------------------------
The Board of Directors unanimously recommends a vote AGAINST adoption of this
proposal for the following reasons:
This proposal would deprive your Board of Directors and its Compensation
Committee of the necessary authority to establish fair and appropriate executive
compensation. The Board and the Compensation Committee strive to design
compensation programs for Mr. Mulva and the other officers that reward strong
performance, encourage greater achievement and are competitive with our industry
peers. These compensation decisions result from careful consideration of
pertinent criteria (described in the Compensation Committee Report appearing
earlier in this Proxy Statement) and independent expert advice. These decisions
are not, and should not be, based upon blind
24 PROXY STATEMENT
application of formulas or percentages of the sort suggested in the proposal,
which are not designed to build long-term stockholder value, motivate executives
or be competitive with our peers.
You also should understand that, in the Company's opinion, this proposal is in
furtherance of the proponent's personal grievances against the Company. The
Company terminated Mr. Quintas more than 11 years ago. Since then, Mr. Quintas
has waged an extensive correspondence campaign with the Company's Board and
senior executives. He also has submitted five previous proposals over the past
six years, the last three of which dealt with executive compensation. The
Company, with the Securities and Exchange Commission's concurrence, has excluded
each of these proposals from its proxy materials because they related to the
"redress of a personal grievance against the Company or any other person, or
(was) designed to ... further a personal interest which is not shared by other
stockholders at large." The Company believes the current proposal to be no
different and intended solely to permit Mr. Quintas yet another opportunity to
press his personal grievances with the Company's Management. You should vote
against this proposal.
OTHER MATTERS
The Company knows of no matters to be presented at the meeting other than those
included in the Notice preceding this Proxy Statement. If other matters should
come before the meeting that require a stockholder vote, the Company intends for
the proxy holders to use their own discretion in voting on such other matters.
DATE FOR RECEIPT OF STOCKHOLDER PROPOSALS
We must receive at the Company's executive offices in Bartlesville, Oklahoma,
any stockholder proposals you intend to present at the 2003 Annual Meeting by
November 29, 2002. Proposals received after that date will not be included in
the Company's Proxy Statement and form of proxy for the 2003 Annual Meeting.
When the merger with Conoco closes, Phillips will cease to be a publicly-held
company, and will no longer solicit proxies or furnish a proxy statement.
By Order of the Board of Directors,
/s/ Dale J. Billam
Dale J. Billam
Secretary
Bartlesville, Oklahoma 74004
April 1, 2002
[PHILLIPS 66 LOGO]
Annual Meeting Attendance
If you are a stockholder of record and plan to attend the Annual Meeting, please
indicate this when you vote. The lower portion of the Proxy Card will be your
admission ticket. If you are a beneficial owner of Phillips common stock held by
a broker, banker or other nominee, you will need proof of ownership to be
admitted to the meeting. A recent brokerage or benefit plan statement or a
letter from a bank or broker are examples of proof of ownership. If you want to
vote your Phillips common stock held in nominee name in person, you must get a
written proxy in your name from the broker, bank or other nominee that holds
your shares. If you are an employee, your employee identification badge will
serve as your admission ticket.
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PHILLIPS PETROLEUM COMPANY
Annual Meeting May 6, 2002
The undersigned hereby appoints J. MULVA, R. DEVLIN and S. ROY as proxy holders
with power of substitution, or, if all do not act on a matter, those who do act,
to vote all stock which the undersigned could vote at the Company's Annual
Stockholders' Meeting to be held at the Adams Building, 4th Street and Keeler
Avenue, Bartlesville, Oklahoma, on May 6, 2002, at 10 a.m., and at any
adjournment thereof, in the manner stated herein as to the following matters and
in their discretion on any other matters that come before the meeting, all as
described in the Notice and Proxy Statement.
This Proxy is Continued on the Reverse Side
Please Sign on the Reverse Side and Return Promptly
Comments:_______________________________________________________________________
_______________________________________________________________________
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
You can vote in one of two ways:
Telephone
1-800-840-1208
Call toll-free 1-800-840-1208 on a
touch-tone telephone in the United
States, Puerto Rico
or Canada, and follow the
instructions on the reverse side.
There is NO CHARGE to you
for this call.
OR
Mail
Mark, sign and date
your proxy card
and return it promptly in the
enclosed envelope. If you are
outside the United States,
Puerto Rico or Canada, you must
return your proxy card by
mail to vote.
PLEASE VOTE
In order to reduce the costs associated with producing and mailing your Annual
Report and Proxy Statement in future years, we urge you to elect on your proxy
card that you would like to view your Annual Report and Proxy Statement
electronically via the Internet. Your election can be revoked at any time by
calling 1-800-840-1208. You will continue to receive your proxy card in the
mail, regardless of your election.
If you vote your proxy by telephone, you do NOT
need to mail back your proxy card.
This Proxy will be voted or not voted as you direct below. In the absence of
such direction, it will be voted FOR Directors, and FOR Proposal 1 and
AGAINST Proposals 2 and 3.
Please mark
your votes as
indicated in
this example |X|
The Board of Directors recommends votes FOR the Election of Directors and
Proposal 1
ELECTION OF WITHHOLD
DIRECTORS FOR | | FOR ALL | |
01 Norman R. Augustine 06 J.J. Mulva
02 David L. Boren 07 J. Stapleton Roy
03 Robert E. Chappell, Jr. 08 Randall L. Tobias
04 Robert M. Devlin 09 Victoria J. Tschinkel
05 Larry D. Horner 10 Kathryn C. Turner
WITHHELD FOR (Write nominee name(s) in the space provided below):
- -----------------------------------------------------------------
Proposal 1 - APPOINTMENT OF INDEPENDENT
AUDITORS
FOR AGAINST ABSTAIN
| | | | | |
The Board of Directors recommends votes AGAINST
Stockholder Proposals 2 and 3
Proposal 2 - ANWR REPORT FOR AGAINST ABSTAIN
| | | | | |
Proposal 3 - EXECUTIVE
COMPENSATION | | | | | |
I consent to future access of the Annual Reports and Proxy
Statements electronically via the Internet. I understand that the
Company may no longer distribute printed materials to me for any | |
future Stockholder Meeting until such consent is revoked.
I PLAN TO ATTEND THE ANNUAL MEETING | |
Please mark, date, sign and return this proxy
card promptly. To vote in accordance with the
Company's recommendations no boxes need be checked.
Dated:_________________________________________________________, 2002
_____________________________________________________________________
_____________________________________________________________________
Signature(s) of Stockholder(s)
Your signature on this proxy form should be exactly the same as the
name(s) imprinted hereon. Persons signing as executors, administrators,
trustees, or in similar capabilities, should so indicate.
FOLD AND DETACH HERE
IF YOU WISH TO VOTE BY TELEPHONE IN THE UNITED STATES, PUERTO RICO OR CANADA,
PLEASE FOLLOW THE INSTRUCTIONS BELOW. IF YOU VOTE BY TELEPHONE, PLEASE DO
NOT RETURN YOUR CARD BY MAIL.
HAVE YOUR VOTING DIRECTION CARD IN HAND.
TO VOTE BY PHONE THROUGH OUR TABULATOR, MELLON INVESTOR SERVICES LLC:
o On a touch-tone telephone call Toll Free 1-800-840-1208 -- 24 hours a day --
7 days a week.
o Enter your eleven-digit Control Number which is indicated below.
Option 1: To vote as the Board of Directors recommends, press 1. If you wish to
vote separately for the Election of Directors or any Proposal, press 0.
When you press 1, your vote will be confirmed and cast as you directed. END OF
CALL
Option 2: If you choose to vote separately for the Election of Directors or
Proposals 1, 2 or 3, you will hear the following instructions:
Election of To VOTE FOR ALL nominees, press 1;
Directors: To WITHHOLD FOR ALL nominees, press 9;
To WITHHOLD FOR AN INDIVIDUAL nominee, press 0, enter the two
digit number that appears next to the name of the nominee for
whom you DO NOT wish to vote.
Proposals 1, 2 You may make your selection at any time.
and 3: To vote FOR, press 1;
To vote AGAINST, press 9;
To ABSTAIN, press 0.
Your vote will be repeated and you will have an opportunity to confirm it.
THANK YOU FOR VOTING
[Phillips logo] Phillips Petroleum Company Annual
Meeting May 6, 2002 Admission Ticket