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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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UNION TEXAS PETROLEUM HOLDINGS, INC.
(NAME OF SUBJECT COMPANY)
UNION TEXAS PETROLEUM HOLDINGS, INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $.05 PER SHARE
(TITLE OF CLASS OF SECURITIES)
908640105
(CUSIP NUMBER OF CLASS OF SECURITIES)
ALAN R. CRAIN, JR., ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
UNION TEXAS PETROLEUM HOLDINGS, INC.
1330 POST OAK BOULEVARD
HOUSTON, TEXAS 77056
(713) 623-6544
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING STATEMENT)
COPY TO:
CHRISTINE B. LAFOLLETTE, ESQ.
KING & SPALDING 1100 LOUISIANA, SUITE 3300
HOUSTON, TEXAS 77002-5219
(713) 751-3200
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Union Texas Petroleum Holdings, Inc., a
Delaware corporation (the "Company"), and the address of its principal
executive offices is 1330 Post Oak Boulevard, Houston, Texas 77056. The title
of the equity securities to which this Statement relates is the Common Stock,
par value $.05 per share, of the Company (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to a tender offer disclosed in the Tender Offer
Statement on Schedule 14D-1, dated May 8, 1998 (the "Schedule 14D-1"), of VWK
Acquisition Corp., a Delaware corporation (the "Purchaser") and a wholly owned
subsidiary of Atlantic Richfield Company, a Delaware corporation ("Parent"),
to purchase all the issued and outstanding Shares at $29.00 per Share (the
"Offer Price"), net to the seller in cash (the "Offer"), upon the terms and
subject to the conditions set forth in the Offer to Purchase dated May 8, 1998
and the related Letter of Transmittal (which together constitute the "Offer
Documents"). The principal executive offices of the Purchaser and Parent are
located at 515 South Flower Street, Los Angeles, California 90071-2201.
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of May 4, 1998 among the Purchaser, Parent and the Company (the "Merger
Agreement"), which provides, among other things, for the making of the Offer
by the Purchaser and, subject to the conditions and upon the terms of the
Merger Agreement, for the subsequent Merger of the Company and the Purchaser
(the "Merger").
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and address of the Company, which is the person filing this
statement, are set forth above in Item 1.
(b) (1) The following describes material contracts, agreements, arrangements
or understandings and any actual or potential conflict of interest between the
Company or its affiliates and the Company, its executive officers, directors
or affiliates:
Certain contracts, agreements, arrangements or understandings between the
Company and certain of its directors, executive officers or affiliates are
described in the sections entitled "Voting Securities and Certain Beneficial
Owners," "Executive Compensation and Other Information" and "Compensation
Committee Interlocks and Insider Participation" in the Company's proxy
statement dated March 24, 1998 for its 1998 Annual Meeting of Stockholders
(the "1998 Proxy Statement"). A copy of such sections of the 1998 Proxy
Statement along with Annex A to the 1998 Proxy Statement are filed as Exhibit
(c)(1) hereto. Annex A to the 1998 Proxy Statement includes the Amended and
Restated Union Texas Petroleum Holdings, Inc. 1994 Incentive Plan which was
adopted by the stockholders at the 1998 Annual Meeting of Stockholders on May
7, 1998.
Certain other contracts, agreements or understandings between the Company
and certain of its directors and executive officers are described below:
Pursuant to the Company stock ownership guidelines and in accordance with
the Company's securities compliance procedure, in February 1998, four of the
Company's independent directors purchased shares in the open market as
follows: Ambassador Robert L. Barry 4,000 Shares, Glenn A. Cox 5,000 Shares,
Wylie B. Pieper 3,000 Shares and Stanley P. Porter 2,000 Shares. Pursuant to
an arrangement adopted by the Company Board, the Company is authorized,
subject to applicable law, to repurchase Shares at the Offer Price from the
directors following consummation of the Offer. Pursuant to the terms of the
Merger Agreement, all vested and non-vested options will be fully vested and
exercisable in full upon consummation of the Offer and subject to a cash
payment equal to the excess of the Offer Price over the exercise price of such
option.
Pursuant to the authorization of the Company Board on May 3, 1998, John L.
Whitmire, Chairman of the Board and Chief Executive Officer, will be paid on
the date of consummation of the Offer an amount of $5 million plus an excise
tax gross-up amount. Pursuant to the same authorization, if Mr. Whitmire is
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terminated following consummation of the Offer, Mr. Whitmire will be provided
office space and certain support services and benefits for three years and
will be eligible for retiree medical coverage. At the same meeting, the
Company Board authorized that all officers be offered financial planning and
tax planning services for a two year period commencing on May 1, 1998.
(2) The following describes material contracts, agreements, arrangements or
understandings and any actual or potential conflict of interest between the
Company or its affiliates and the Purchaser, its executive officers, directors
or affiliates:
The Company and Parent are both in the oil and gas business and from time to
time enter into business transactions with one another in furtherance of their
respective business. A subsidiary of the Company and ARCO Alaska, Inc., a
wholly owned subsidiary of Parent ("ARCO Alaska"), are co-venturers with a
third party in the development of the Alpine oil field on the North Slope in
Alaska. ARCO Alaska is the operator of the Alpine field and the Company and
ARCO Alaska have 22% and 56% working interests, respectively, in the field. In
addition, a subsidiary of the Company, ARCO Trinidad Exploration and
Production Co., a wholly owned subsidiary of Parent ("ARCO Trinidad"), and a
third party signed a Production Sharing Contract dated February 18, 1998 with
the government of Trinidad and Tobago covering deep water Block 27. The
Company's subsidiary and ARCO Trinidad have 15% and 45% working interests,
respectively, in the block.
In connection with the Offer, (i) the Company has entered into the Merger
Agreement with Parent and the Purchaser and (ii) Petroleum Associates L.P., a
Delaware limited partnership, and KKR Partners II, L.P., a Delaware limited
partnership (such partnerships together, the "Tendering Stockholder") and
Parent have entered into a Stockholders Agreement, dated as of May 4, 1998
(the "Stockholder Agreement"). Summaries of the Merger Agreement and the
Stockholder Agreement are set forth below. Copies of such agreements are filed
herewith as Exhibits (c)(2) and (c)(3), respectively, and the following
summaries are qualified in their entirety by reference to the text of such
agreements.
Merger Agreement
The Merger Agreement provides that following the satisfaction or waiver of
the conditions described below under "Conditions to the Merger", the Purchaser
will be merged with and into the Company (or, at the option of Parent, the
Company will be merged with and into the Purchaser), and each issued Share
(other than Shares owned by Parent, the Purchaser or the Company or a wholly
owned subsidiary of Parent, the Purchaser or the Company or by stockholders,
if any, who are entitled to and who properly exercise appraisal rights under
Delaware law) will be converted into an amount in cash equal to the Offer
Price.
Vote Required To Approve Merger. The Delaware General Corporation Law (the
"DGCL") requires, among other things, that the adoption of any plan of merger
or consolidation of the Company must be approved by the Board of Directors of
the Company (the "Company Board") and, if the "short-form" merger procedure
described below is not available, approved by the holders of a majority of the
Company's outstanding voting securities. The Company Board has approved the
Offer, the Merger and the Merger Agreement; consequently, the only additional
action of the Company that may be necessary to effect the Merger is adoption
of the Merger Agreement by the Company's stockholders if such "short-form"
merger procedure is not available. Under the DGCL, if stockholder adoption of
the Merger Agreement is required in order to consummate the Merger, the vote
required is the affirmative vote of the holders of a majority of the
outstanding Shares (including any Shares owned by the Purchaser). If the
Purchaser acquires, through the Offer, the Merger Agreement, the Stockholder
Agreement or otherwise, voting power with respect to at least majority of the
outstanding Shares (which would be the case if the Minimum Tender Condition
(as defined in "Certain Conditions to the Offer") were satisfied and the
Purchaser were to accept for payment Shares tendered pursuant to the Offer),
it would have sufficient voting power to effect the Merger without the
affirmative vote of any other stockholder of the Company.
The DGCL also provides that if a parent company owns at least 90% of the
outstanding shares of each class of stock of a subsidiary, the parent company
may merge that subsidiary into the parent company, or the parent company may
merge itself into that subsidiary, pursuant to the "short-form" merger
procedures without
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prior notice to, or the approval of, the other stockholders of the subsidiary.
In order to consummate the Merger pursuant to these provisions of the DGCL,
the Purchaser would have to own at least 90% of the outstanding Shares and at
least 90% of the outstanding shares of the Series A Preferred Stock of the
Company.
Conditions to the Merger. The Merger Agreement provides that the respective
obligations of each party to effect the Merger are subject to the satisfaction
or waiver of certain conditions, including the following: (a) if required by
applicable law, the Merger Agreement having been approved and adopted by the
affirmative vote of the holders of a majority of the Shares; (b) the waiting
period (and any extension thereof) applicable to the Merger under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") having
terminated or expired and any consents, approvals and filings under any
foreign antitrust law (including, without limitation, the rules and
regulations of the Council of the European Communities (the "European
Council") and of the Commission of the European Communities (the "European
Commission," and the rules and regulations of the European Council and
European Commission, collectively, the "EC Regulations"), the absence of which
would prohibit the consummation of the Merger, having been obtained or made;
(c) no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger being in
effect; provided, however, that each of the Company, the Purchaser and Parent
has used all reasonable efforts to prevent the entry of any such injunction or
other order and to appeal as promptly as possible any such injunction or other
order that may have been entered; and (d) the Purchaser having previously
accepted for payment and paid for Shares pursuant to the Offer.
Termination of the Merger Agreement. The Merger Agreement may be terminated
at any time prior to the effective time of the Merger, whether before or after
adoption of the Merger Agreement by the stockholders of the Company:
(1) by mutual written consent of Parent, the Purchaser and the Company;
(2) by either Parent or the Company,
(a) if the Merger is not consummated on or before January 31, 1999,
unless the failure to consummate the Merger is the result of a wilful
and material breach of the Merger Agreement or the Stockholder
Agreement by the party seeking to terminate the Merger Agreement;
provided, however, that the passage of such period will be tolled for
any part thereof during which any party is subject to a nonfinal order,
decree, ruling or action restraining, enjoining or otherwise
prohibiting the consummation of the Merger;
(b) if any federal, state, local or foreign government or any court
of competent jurisdiction, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity") issues an order, decree or ruling or takes any
other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree, ruling or other action
has become final and nonappealable; or
(c) if as the result of the failure of any of the conditions to the
Offer described below under "Certain Conditions of the Offer", the
Offer has terminated or expired in accordance with its terms without
the Purchaser having purchased any Shares pursuant to the Offer;
(3) by Parent if, prior to the consummation of the Offer (unless Parent
has waived its right to the Company's performance of certain conditions of
the Offer by exercising its right to extend the Offer for up to 10 days
following the latest expiration date of the Offer that would otherwise be
permitted under the terms of the Merger Agreement), the Company breaches
any of its representations or warranties or fails to perform in any
material respect any of its covenants and obligations contained in the
Merger Agreement or the Stockholder Agreement, which breach or failure to
perform would give rise to the failure of a condition described under
"Certain Conditions of the Offer," provided that Parent is not then in
wilful and material breach of any representation, warranty or covenant in
the Merger Agreement or the Stockholder Agreement, and provided further,
that such breach or failure to perform is not capable of being cured by the
earlier of 15 days from the time it came to the knowledge of the Company
and the then scheduled expiration date of the Offer;
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(4) by the Company in accordance with the terms of the Merger Agreement
described in the second paragraph below under "Takeover Proposals",
provided it has complied with all provisions described in the second
paragraph under "Takeover Proposals", including the notice provisions
therein, and that it complies with the applicable requirements relating to
the payment (including the timing of any payment) of the Termination Fee
(as defined below under "Fees and Expenses");
(5) by the Company if, prior to the consummation of the Offer, Parent or
the Purchaser shall be in breach of any of their representations and
warranties or fail to perform in any material respect any of their
covenants and obligations contained in the Merger Agreement (provided, that
the Company is not then in wilful and material breach of any
representation, warranty or covenant contained in the Merger Agreement and
provided further, that such breach or failure to perform is not capable of
being cured by the earlier of 15 days from the time it came to the
knowledge of Parent and the then scheduled expiration date of the Offer);
(6) by the Company if the Offer has not been made in accordance with the
terms of the Merger Agreement; or
(7) by the Company if any event occurs which would result in the
condition set forth in paragraph (e) under "Certain Conditions of the
Offer" not being satisfied, and five business days have elapsed since such
occurrence, unless Parent has waived its right to terminate the Merger
Agreement and its right not to consummate the Offer for the failure of such
condition resulting from such event.
Takeover Proposals. The Merger Agreement provides that the Company will not,
nor will it permit any of its subsidiaries to, nor will it authorize any
officer, director or employee of, or any investment banker, attorney or other
advisor or representative of, the Company or any of its subsidiaries
(collectively, "Company Representatives") to, and will use its reasonable best
efforts to ensure that none of the Company Representatives will, (1) solicit,
initiate or encourage the submission of any Takeover Proposal (as defined
below), (2) enter into any agreement with respect to any Takeover Proposal or
(3) participate in any discussions or negotiations regarding, or furnish to
any person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes a
Takeover Proposal; provided, however, that, at any time during the period
following the date of the Merger Agreement and prior to the consummation of
the Offer (the "Applicable Period"), the Company may, in response to a
Superior Proposal (as defined below, including the determination by the
Company Board set forth in such definition) that was not solicited by the
Company or any Company Representative and that did not otherwise result from a
breach or a deemed breach of the provisions described in this paragraph, and
subject to providing prior written notice of its decision to take such action
to Parent (the "Company Notice") and compliance with the notification
provisions described in the second succeeding paragraph below, for a period of
no more than ten business days following delivery of the Company Notice (which
period shall be extended to the end of the 48-hour period following the
receipt by Parent of notice from the Company that it is prepared to accept a
Superior Proposal), (i) furnish information with respect to the Company to any
person making a Superior Proposal pursuant to a customary confidentiality
agreement as determined by the Company after consultation with its outside
counsel and (ii) participate in discussions or negotiations regarding such
Superior Proposal. The Merger Agreement provides that any action that is in
violation of or inconsistent with the restrictions set forth in the preceding
sentence by any executive officer of the Company or any of its subsidiaries or
any Company Representative or affiliate of the Company, whether or not such
person is purporting to act on behalf of the Company or any of its
subsidiaries or otherwise, shall be deemed to be a breach of the provisions
described in this paragraph by the Company. The Merger Agreement defines
"Takeover Proposal" as any inquiry, proposal or offer from any person relating
to any direct or indirect acquisition or purchase of a business that
constitutes 15% or more of the net revenues, net income or the assets of the
Company and its subsidiaries taken as a whole, or 15% or more of any class of
equity securities of the Company or any of its significant subsidiaries, any
tender offer or exchange offer that if consummated would result in any person
beneficially owning 15% or more of any class of equity securities of the
Company or any of its subsidiaries, or any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its subsidiaries, other than the transactions
contemplated by
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the Merger Agreement. The Company may deliver only one Company Notice with
respect to each person making a Superior Proposal.
The Merger Agreement provides further that, except as described below,
neither the Company Board nor any committee thereof may (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Parent, the
approval or recommendation by such Company Board or such committee of the
Offer, the Merger Agreement or the Merger, (ii) approve or cause the Company
to enter into any letter of intent, agreement in principle or any legally
binding acquisition agreement or similar agreement (an "Acquisition
Agreement") related to any Takeover Proposal or (iii) approve or recommend, or
propose to publicly approve or recommend, any Takeover Proposal.
Notwithstanding the foregoing, if the Company has received a Superior Proposal
and if the Purchaser has not accepted for payment any Shares pursuant to the
Offer, the Company Board may (subject to this and the following sentences)
terminate the Merger Agreement, but only at a time that is during the
Applicable Period and is more than 48 hours following Parent's receipt of
written notice advising Parent that the Company Board is prepared to accept
such Superior Proposal, specifying the material terms and conditions of such
Superior Proposal and identifying the person making such Superior Proposal;
provided, however, that (x) at the time of such termination, such proposal
continues to be a Superior Proposal, taking into account any amendment of the
terms of the Offer or the Merger by Parent or any proposal by Parent to amend
the terms of the Merger Agreement, the Offer or the Merger or any other
Takeover Proposal made by Parent (a "New Parent Proposal"), and (y)
concurrently with or immediately after such termination, the Company Board
shall cause the Company to enter into an Acquisition Agreement with respect to
such Superior Proposal. The Merger Agreement defines "Superior Proposal" as
any proposal made by a third party to acquire, directly or indirectly,
including pursuant to a tender offer, exchange offer, merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction, for consideration consisting of cash and/or securities, more than
50% of the outstanding Shares or all or substantially all the assets of the
Company and otherwise on terms which the Company Board determines in its good
faith judgment (after consultation with a financial advisor of nationally
recognized reputation) (x) is reasonably capable of being completed, taking
into account all legal, financial, regulatory and other aspects of the
proposal and the third party making such proposal, and (y) provides greater
value to the holders of Shares (specifically taking into account the expected
value of the consideration to be received by the holders of Shares on the date
such consideration is expected to be received by such holders) than the cash
consideration to be received by such stockholder pursuant to the Offer and the
Merger, as the Offer and the Merger may be amended from time to time, or the
value to the holders of Shares to be provided by any New Parent Proposal
(specifically taking into account the expected value of the consideration
expected to be received in the Offer, the Merger or any New Parent Proposal by
the holders of Shares on the date such consideration is expected to be
received by such holders).
In addition to the obligations of the Company described in the preceding two
paragraphs, the Merger Agreement provides that the Company will promptly
advise Parent orally and in writing of any Takeover Proposal or any inquiry or
request for information with respect to or that could reasonably be expected
to lead to any Takeover Proposal, the identity of the person making any such
Takeover Proposal or inquiry or request for information and the material terms
of any such Takeover Proposal or inquiry or request for information. The
Company is further required under the terms of the Merger Agreement to (i)
keep Parent fully informed of the status including any change to the material
terms of any such Takeover Proposal or inquiry or request for information and
(ii) provide to Parent as soon as practicable after receipt or delivery
thereof with copies of all correspondence and other written material sent or
provided to the Company or any Company Representative or any affiliate of the
Company from any third party in connection with any Takeover Proposal or
inquiry or request for information or sent or provided by the Company or any
Company Representative or any affiliate of the Company to any third party in
connection with any Takeover Proposal or inquiry or request for information;
provided, however, that the Company shall not be required to provide any
nonpublic information specified in this clause (ii) regarding the business or
financial condition or prospects of such third party if the Company is
prohibited from disclosing such information pursuant to a legally binding
confidentiality agreement.
The Merger Agreement provides that nothing contained therein will prohibit
the Company from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Securities
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Exchange Act of 1934, as amended (the "Exchange Act"), or from making any
disclosure to the Company's stockholders if, in the good faith judgment of the
Company Board, after consultation with outside counsel, failure so to disclose
would be inconsistent with applicable law; provided, however, that neither the
Company nor the Company Board nor any committee thereof may withdraw or
modify, or propose publicly to withdraw or modify, its position with respect
to the Offer, the Merger or the Merger Agreement or approve or recommend, or
propose publicly to approve or recommend, a Takeover Proposal so long as the
Merger Agreement is in effect.
Fees and Expenses. The Merger Agreement provides that, except as described
below, all fees and expenses incurred in connection with the Offer, the Merger
and the other transactions contemplated by the Merger Agreement and the
Stockholder Agreement will be paid by the party incurring such fees or
expenses, whether or not the Merger is consummated. The Merger Agreement
further provides that the Company will pay in same-day funds to Parent a fee
of $85,000,000 (the "Termination Fee") under the following circumstances: (a)
if the Company terminates the Merger Agreement in accordance with the
provisions described above in clause (4) under "Termination of the Merger
Agreement"; (b) if (i) after the date of the Merger Agreement and prior to the
termination of the Merger Agreement, any person makes a Takeover Proposal,
(ii) the Offer shall have remained open until the scheduled expiration date
immediately following the date such Takeover Proposal is made, (iii) the
Minimum Tender Condition is not satisfied at the expiration of the Offer, (iv)
the Merger Agreement is terminated by Parent or the Company in accordance with
the provisions described above in clause (2)(c) under "Termination of the
Merger Agreement" and (v) within 12 months of the date of termination of the
Merger Agreement, the Company executes a legally binding agreement or an
agreement in principle pursuant to which any person, entity or group (other
than Parent, the Purchaser or any of their affiliates), in one transaction or
a series of transactions, will acquire more than 50% of the outstanding Shares
or assets of the Company through any open market purchases, merger,
consolidation, tender or exchange offer, recapitalization, reorganization or
other business combination (an "Acquisition Event"); or (c) if (i)after the
date of the Merger Agreement and prior to the termination of the Merger
Agreement, any person makes a Takeover Proposal, (ii)the Merger Agreement is
terminated in accordance with the provisions described above in clause (2)(c)
under "Termination of the Merger Agreement" as a result of the failure of any
condition set forth in paragraphs (f) or (g) under "Certain Conditions to the
Offer," and (iii) an Acquisition Event occurs within 12 months of the date of
termination of the Merger Agreement. Any fee due pursuant to the provisions
described in this paragraph will be paid on the date of termination of the
Merger Agreement in the case of a fee due under clause (a) of the preceding
sentence, or on the date such Acquisition Event is consummated in the case of
a fee due under clause (b) or (c) of the preceding sentence.
Conduct of Business. The Merger Agreement provides that, except as
contemplated or permitted by the Merger Agreement or the Stockholder Agreement
or to the extent that Parent otherwise agrees, from May 4, 1998 to the
effective time of the Merger or earlier termination of the Merger Agreement:
(a) the Company will, and will cause its subsidiaries to, conduct their
respective business in the usual, regular and ordinary course consistent with
past practice except as required to comply with changes in applicable law
occurring after the date of the Merger Agreement (subject to the express
restrictions set forth below, including, without limitation, the restrictions
of clauses (e) and (f) below) and, to the extent consistent therewith, use all
commercially reasonable efforts to preserve intact their current business
organizations and keep available the services of their current officers and
employees to maintain their respective goodwill and ongoing business; (b) the
Company will not, and will not permit any of its subsidiaries to, (i) declare,
set aside or pay any dividends on, or make other distributions in respect of,
any of its capital stock (other than regular quarterly cash dividends not in
excess of $0.05 per Share with usual record and payment dates and in
accordance with the Company's present dividend policy and regular quarterly
cash dividends with respect to the Series A Preferred Stock), other than
dividends and distributions by a direct or indirect wholly owned subsidiary of
the Company to its parent, (ii) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock or
(iii) purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(c) the Company will not, and will not permit any of its subsidiaries to,
issue, deliver, sell or grant (i) any shares of its capital stock, (ii) any
bonds, debentures, notes or
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other indebtedness of the Company having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any matter
on which stockholders of the Company may vote or other voting securities,
(iii) any securities convertible into, or exchangeable for, or any options,
warrants or rights to acquire, any such shares, voting securities or
convertible or exchangeable securities or (iv) any "phantom" stock, "phantom"
stock rights, stock appreciation rights or stock-based performance units,
other than the issuance of Shares (and associated rights granted under the
Rights Agreement (as defined below under "Rights Agreement")) upon the
exercise of stock options outstanding on the date of the Merger Agreement or
under the Company's Savings Plan for Salaried Employees, Deferred Compensation
Plan or defined contribution retirement plan for employees of Virginia
Indonesia Company and in accordance with the present terms of such stock
options and plan; (d) the Company will not, and will not permit any of its
subsidiaries to, amend its certificate of incorporation or by-laws (or
comparable charter or organizational documents); (e) the Company will not, and
will not permit any of its subsidiaries to, enter into or amend any material
technical contract, long-term drilling rig contract, agreement to sell,
purchase or share seismic and other geological or geophysical data, or any
material contract for the purchase or sale of oil, gas, LPG, LNG, ethylene,
propylene or other hydrocarbon or petrochemical products other than in the
ordinary course of business consistent with past practice; (f) the Company
will not, and will not permit any of its subsidiaries to (i) enter into, or
amend, or negotiate to enter into or amend, any farm-out or farm-in
arrangement, area of mutual interest agreement, exploration license, lease,
concession agreement, production sharing contract, operating service agreement
or similar agreement or arrangement evidencing an interest in hydrocarbons, or
participate in any bidding group, bidding round or public hearing with respect
thereto, (ii) acquire, or negotiate to acquire, any interest in a corporation,
partnership or joint venture arrangement which holds an oil and gas interest
of the type described in the foregoing clause, (iii) sell, transfer, assign,
relinquish or terminate (other than relinquishments or terminations required
by the terms of existing agreements) or negotiate to take any such action with
respect to, the Company's interest (as of the date of the Merger Agreement) in
any oil and gas exploration license, lease, area of mutual interest agreement,
concession agreement, production sharing contract, operating service agreement
or other agreement or arrangement evidencing an interest in hydrocarbons, or
in the equity or debt securities of any corporation, partnership or joint
venture arrangement which holds such an interest, including, without
limitation, the imposition of any pledge, lien, charge, mortgage, encumbrance
or security interest of any kind or nature whatsoever (collectively, "Liens"),
other than Liens permitted by the Merger Agreement, on any of the foregoing,
(iv) give, or negotiate to give, any approvals relating to development plans,
work plans, budgets or capital expenditure commitments in connection with any
oil and gas interests of the type described in the foregoing clause, other
than expenditures in the Company's existing capital expenditure budget, or (v)
make any change in the Company's petrochemical business, including, without
limitation, the imposition of any Lien, other than Liens permitted by the
Merger Agreement, thereon, or enter into any agreements or negotiations to
acquire or build new petrochemicals capacity or expand existing petrochemicals
capacity, or dispose of (including by way of a contribution of assets or
otherwise), all or any portion of the Company's petrochemical business, or to
alter or amend, in any material respect, any contracts relating to the
Company's petrochemical business, other than in the ordinary course of
business consistent with past practice; (g) the Company will not, and will not
permit any of its subsidiaries to, acquire or agree to acquire (i) by merging
or consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
joint venture, association or other business organization or division thereof
or (ii) any assets that are material, individually or in the aggregate, to the
Company and its subsidiaries taken as a whole; (h) the Company will not, and
will not permit any of its subsidiaries, to (i) grant to any officer or
director of the Company or any of its subsidiaries any increase in
compensation, except in the ordinary course of business consistent with prior
practice or to the extent required under employment agreements in effect as of
the date of the most recent audited financial statements included in the
documents required to be filed by the Company under the Exchange Act which are
filed and publicly available prior to the date of the Merger Agreement (the
"Filed Company SEC Documents"), (ii) grant to any employee, officer or
director of the Company or any of its subsidiaries any increase in severance
or termination pay, except to the extent required under any agreement in
effect as of December 31, 1997, (iii) enter into any employment, consulting,
indemnification, severance or termination agreement with any such employee,
officer or director, (iv) establish, adopt, enter into or amend in any
material respect any collective bargaining agreement or benefit plan of the
Company specified the Merger Agreement or
7
(v) take any action to accelerate any rights or benefits, or make any material
determinations not in the ordinary course of business consistent with prior
practice, under any collective bargaining agreement or benefit plan of the
Company specified the Merger Agreement; (i) the Company will not, and will not
permit any of its subsidiaries to, make any change in accounting methods,
principles or practices materially affecting the reported consolidated assets,
liabilities or results of operations of the Company, except insofar as may
have been required by a change in generally accepted accounting principles or
by operation of law; (j) the Company will not, and will not permit any of its
subsidiaries to, sell, lease, license or otherwise dispose of, or subject to
any Lien, any properties or assets, except sales of inventory and excess or
obsolete assets in the ordinary course of business consistent with past
practice; (k) the Company will not, and will not permit any of its
subsidiaries to, (i) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another person or issue or sell any debt securities
or warrants or other rights to acquire any debt securities of the Company or
any of its subsidiaries, guarantee any debt securities of another person,
enter into any "keep-well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for short-term borrowings or
trade obligations incurred in the ordinary course of business consistent with
past practice, or (ii) make any loans, advances or capital contributions to,
or investments in, any other person, other than to or in the Company or any
direct or indirect wholly owned subsidiary of the Company; (l) the Company
will not, and will not permit any of its subsidiaries to, make or agree to
make any new capital expenditure or expenditures, other than expenditures in
the Company's existing capital expenditure budget, that, individually, is in
excess of $1,500,000 or, in the aggregate, are in excess of $5,000,000; (m)
the Company will not, and will not permit any of its subsidiaries to, make any
tax election or settle or compromise any material tax liability or refund,
consent to any extension or waiver of the statute of limitations period
applicable to any tax claim or action, if any such election, settlement,
compromise, consent or other action would have the effect of increasing the
tax liability or reducing any net operating loss, foreign tax credit, net
capital loss or any other credit or tax attribute of the Company or any of its
subsidiaries (including, without limitation, deductions and credits related to
alternative minimum taxes); (n) the Company will not, and will not permit any
of its subsidiaries to, enter into any hedging agreement or other financial
agreement or arrangement designed to protect the Company against fluctuations
in commodities prices or currency exchange rates, except agreements or
arrangements entered into in the ordinary course of business consistent with
past practice; (o) the Company will not, and will not permit any of its
subsidiaries to, (i) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the ordinary
course of business consistent with past practice or in accordance with their
terms or the terms of the Merger Agreement, of liabilities reflected or
reserved against in, or contemplated by, the most recent consolidated
financial statements (or notes thereto) of the Company included in the Filed
Company SEC Documents or incurred in the ordinary course of business
consistent with past practice, (ii) cancel any material indebtedness
(individually or in the aggregate) or waive any claims or rights of
substantial value or (iii) waive the benefits of, or agree to modify in any
manner, any confidentiality, standstill or similar agreement to which the
Company or any of its subsidiaries is a party; (p) the Company will not, and
will not permit any of its subsidiaries to, make any material change
(including failing to renew) in the amount or nature of the insurance policies
covering the Company and its subsidiaries, other than pursuant to the terms of
such existing policies as of the date of the Merger Agreement; (q) the Company
will not, and will not permit any of its subsidiaries to, enter into any
agreements in connection with, or negotiate to give any approvals to, the
amendment, extension, modification or waiver of any of the terms and
conditions (as in effect on the date of the Merger Agreement) of the
Indonesian Participating Units issued by Unimar Company, or any guarantee or
"keep well" or other agreement to maintain any financial condition with
respect thereto; and (r) the Company will not, and will not permit any of its
subsidiaries to, authorize any of, or commit or agree to take any of, the
foregoing actions.
In addition to the foregoing, in the Merger Agreement the Company and Parent
have agreed that they will not, and will not permit any of their respective
subsidiaries to, take any action that would, or that would reasonably be
expected to, result in (a) any of the representations and warranties of such
party set forth in the Merger Agreement and the Stockholder Agreement, to the
extent a party thereto, that is qualified as to materiality becoming untrue,
(b) any of such representations and warranties that is not so qualified
becoming untrue in any material respect or (c) any of the conditions described
under "Certain Conditions of the Offer"or any condition
8
to the Merger described under "Conditions to the Merger" above, not being
satisfied, subject to the Company's right to take actions specifically
permitted by the Merger Agreement described above in "Takeover Proposals".
In the Merger Agreement, the Company has also agreed to promptly advise
Parent orally and in writing of any change or event having, or which, insofar
as can reasonably be foreseen, would have, a material adverse effect on the
Company.
Board of Directors. The Merger Agreement provides that promptly upon the
acceptance for payment of, and payment for, Shares by the Purchaser pursuant
to the Offer, the Purchaser will be entitled to designate such number of
directors on the Company Board as will give the Purchaser, subject to
compliance with Section 14(f) of the Exchange Act, representation on the
Company Board equal to at least that number of directors, rounded up to the
next whole number, which is the product of (a) the total number of directors
on the Company Board (giving effect to the directors elected pursuant to this
sentence) multiplied by (b) the percentage that (i) such number of Shares so
accepted for payment and paid for by the Purchaser plus the number of Shares
otherwise owned by the Purchaser or any other subsidiary of Parent bears to
(ii) the number of such Shares outstanding, and the Company will, at such
time, cause the Purchaser's designees to be so elected; provided, however,
that in the event that the Purchaser's designees are appointed or elected to
the Company Board, until the effective time of the Merger, the Company Board
will include at least three directors who were directors of the Company as of
the date of the Merger Agreement and who are not officers of the Company.
Subject to applicable law, the Company has agreed to take all action requested
by Parent necessary to effect any such election, including mailing to its
stockholders the Information Statement containing the information required by
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, which
Information Statement is attached as Appendix A to this Schedule 14D-9.
Stock Options. The Merger Agreement provides that prior to the consummation
of the Offer, the Company Board (or, if appropriate, any committee
administering the Company Stock Plans (as defined below)) shall have adopted
such resolutions or taken such other actions as are required to ensure that
all Company Stock Options (as defined below) and all Company SARs (as defined
below) heretofore granted under any Company Stock Plan that are outstanding at
the effective time of the Merger shall not give the holder thereof the right
to receive any capital stock of Parent, the Company or the Surviving
Corporation (as defined below) after the effective time of the Merger or to
receive from Parent, the Company or the Surviving Corporation any
consideration other than an amount of cash equal to (i) (x) the excess, if
any, of the consideration payable pursuant to the Merger over the exercise
price per share of Common Stock subject to such Company Stock Option or
Company SAR, multiplied by (y) the number of shares of Common Stock for which
such Company Stock Option or Company SAR shall not theretofore have been
exercised, less (ii) such amounts as may be required to be deducted or
withheld with respect thereto under the Code or under any provision of state,
local or foreign tax law. The Merger Agreement defines (a) "Company Stock
Option" as any option to purchase Shares granted under any Company Stock Plan,
(b) "Company SAR" as any stock appreciation right linked to the price of the
Shares and granted under any Company Stock Plan, and (c) "Company Stock Plans"
as the plans providing for the grant of Company Stock Options or any other
issuance of capital stock of the Company as specified in the Merger Agreement.
The Merger Agreement further provides that, prior to the expiration of the
Offer, the Company will, subject to compliance with applicable law, make an
offer to pay each holder of a Company Stock Option that is not automatically
subject to a cash payment upon consummation of the Offer, promptly after the
consummation of the Offer and in exchange for the cancellation of such Company
Stock Option, an amount in cash equal to (x)(1) the excess, if any, of the
Offer Price over the exercise price per share of Common Stock subject to such
Company Stock Option multiplied by (2) the number of shares of Common Stock
for which such Company Stock Option shall not theretofore have been exercised,
less (y) such amounts as may be required to be deducted or withheld with
respect thereto under the Internal Revenue Code of 1986 and the regulations
promulgated thereunder or under any provision of state, local or foreign tax
law. In addition, the Merger Agreement provides that, subject to compliance
with applicable law, the Company may take any actions necessary to purchase
Shares from those officers of the Company and members of the Company Board as
are designated by the Company Board, and
9
such purchase shall take place after the consummation of the Offer at a price
per share equal to the Offer Price. See Item 3(b)(1) above.
Benefit Plans. The Merger Agreement provides that Parent will cause the
corporation surviving the Merger (the "Surviving Corporation") to (a) maintain
for a period of one year after the effective time of the Merger the benefit
plans of the Company, as specified in the Merger Agreement (other than plans
providing for the issuance of capital stock of the Company or based on the
value of capital stock of the Company) in effect on the date of the Merger
Agreement or (b) make available to employees of the Company and its
subsidiaries (including employees transferred to employment with Parent or
other subsidiaries of Parent) the employee benefit plans of Parent and its
subsidiaries that are provided to similarly situated employees of Parent and
its subsidiaries. The Merger Agreement also provides that (i) following the
effective time of the Merger, Parent will cause the Company and its
subsidiaries to honor (subject to the provisions described in this paragraph
and under "Indemnification") all obligations under any contracts, agreements
and commitments of the Company and its subsidiaries prior to the date of the
Merger Agreement (or as established or amended in accordance with or permitted
by the Merger Agreement) the existence of which does not constitute a
violation of the terms of the Merger Agreement, which apply to any current or
former employee, or current or former director of the parties to the Merger
Agreement or any of their subsidiaries; provided, however, that this
undertaking is not intended to prevent the Company or any subsidiary of the
Company from enforcing such contracts, agreements and commitments in
accordance with their terms, including, any reserved right to amend, modify,
suspend, revoke or terminate any such contract, agreement or commitment; (ii)
for purposes of any of the Company's benefit plans conferring rights on a
current or former employee, officer or director as a result of a change of
control of the Company, the consummation of the Merger shall be deemed to
constitute a "Change of Control" (as that term is defined in such benefit
plans of the Company); (iii) if any employee or officer of the Company or any
of its subsidiaries becomes a participant in any employee benefit plan,
program, practice or policy of Parent or any subsidiary of Parent or the
Surviving Corporation, such employee or officer shall be given credit
thereunder for all service prior to the effective time of the Merger with the
Company and its subsidiaries or any predecessor employer (to the extent such
credit was given by the Company) for purposes of eligibility and vesting (but
not for benefit accrual purposes), except to the extent that crediting such
service would result in duplication of benefits; (iv) for a period of two
years from the consummation of the Offer, if any segment or business of the
Company or its subsidiaries (a "Segment") is sold or otherwise disposed of,
Parent agrees, and shall cause the Surviving Corporation to agree, to provide,
or cause the buyer of or other successor to such Segment to provide, each
employee whose employment is involuntarily terminated after such sale or other
disposition with severance benefits which are no less favorable than the
severance benefits to which such employee would have been entitled had such
employee's employment instead then been involuntarily terminated by the
Company or its subsidiaries, pursuant to the Company's benefit plans existing
as of the date of the Merger Agreement, but only to the extent that the
obligations of the Company and its subsidiaries under the Company's benefit
plans have not been discharged prior to such involuntary termination of
employment (for the purposes of this clause, the term "involuntarily
terminated" shall be used as such term is used in the relevant benefit plans
of the Company); (v) on or before 90 days after the consummation of the
Merger, Parent will (x) notify each management employee who is a participant
in the Company's Executive Severance Plan as to whether Parent intends to
continue the employment of such participant or to terminate the employment of
such participant, (y) with respect to each participant whose employment Parent
intends to terminate, notify such participant of the effective date of such
termination and the details of the terms and conditions of such participant's
employment intended by Parent to be applicable prior to the date of such
termination, and (z) with respect to each participant to whom Parent intends
to offer continued employment, notify such participant of any desired changes
Parent would make in the terms and conditions of such participant's
employment; (vi) Parent shall maintain, or shall cause the Surviving
Corporation or its successors to maintain, with respect to employees and
former employees (and their eligible dependents) of the Company and its
subsidiaries who are participating in the Company's retiree medical plan as of
the effective time of the Merger or who should be eligible to participate in
the Company's retiree medical plan if they retired as of the later of (x) the
effective time of the Merger or (y) in the case of an employee who is
involuntarily terminated for purposes of any Company severance plan (as
currently in effect), as of the end of the salary continuation period under
such severance plan, retiree medical coverage that is consistent with the
10
retiree medical coverage provided to similarly situated employees and former
employees of Parent and its subsidiaries at such time; (vii) without regard to
whether the Company's Salaried Employees' Pension Plan (the "CSEPP") or the
Company's Supplemental Retirement Plan II (the "SERP") are continued following
the effective time of the Merger, Parent shall cause certain benefits provided
by the CSEPP and the SERP (pertaining to additional service credit under such
plans for certain participants who are involuntarily terminated), with respect
to employees of the Company as of the effective time of the Merger who are
involuntarily terminated from employment with Parent or any subsidiary of
Parent within two years after the effective time of the Merger, to be
continued for a period of not less than two years following the effective time
of the Merger; (viii) at Parent's election, the Company shall amend the CSEPP
and Savings Plan for Salaried Employees to cause all employees of the Company
and its subsidiaries to become 100% vested in their accrued benefits under
such plans as of the effective time of the Merger, provided that in all cases,
any employee of the Company or any of its subsidiaries who is a participant in
the CSEPP or the Savings Plan for Salaried Employees as of the effective time
of the Merger shall become 100% vested in his or her accrued benefits under
such plans if and when such employee is involuntarily terminated within two
years of the effective time of the Merger. The Merger Agreement further
provides that nothing therein shall be construed as giving any employee of the
Company or any subsidiary of the Company any right to continued employment
following the effective time of the Merger.
Indemnification. In the Merger Agreement, Parent has agreed, to the fullest
extent permitted by law, (a) to cause the Surviving Corporation to honor all
the Company's obligations to indemnify (including any obligations to advance
funds for expenses) the current or former directors or officers of the Company
and its subsidiaries for acts or omissions by such directors and officers
occurring at or prior to the effective time of the Merger to the extent that
such obligations of the Company exist on the date of the Merger Agreement,
whether pursuant to the Restated Certificate of Incorporation, as amended, or
By-laws, as amended, of the Company, individual indemnity agreements or
otherwise; (b) that such obligations will survive the Merger and will continue
in full force and effect in accordance with the terms of the Restated
Certificate of Incorporation, as amended, and By-laws, as amended, of the
Company and such individual indemnity agreements from the effective time of
the Merger until the expiration of the applicable statute of limitations with
respect to any claims against such directors or officers arising out of such
acts or omissions; and (c) for a period of six years after the effective time
of the Merger, to cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by the Company
(provided that Parent may substitute therefor policies with reputable and
financially sound carriers of at least the same coverage and amounts
containing terms and conditions which are no less advantageous) with respect
to claims arising from or related to facts or events which occurred at or
before the effective time of the Merger; provided, however, that Parent will
not be obligated to make annual premium payments for such insurance to the
extent such premiums exceed 300% of the annual premiums paid as of the date
hereof by the Company for such insurance (such 300% amount, the "Maximum
Amount"). If such insurance coverage cannot be obtained at all, or can only be
obtained at an annual premium in excess of the Maximum Amount, Parent will
maintain the most advantageous policies of directors' and officers' insurance
obtainable for an annual premium equal to such amount; provided, however, that
if such insurance coverage cannot be obtained at all, Parent shall purchase
all available extended reporting periods with respect to pre-existing
insurance in an amount which, together with all other insurance purchased
pursuant to clause (c) above, does not exceed the Maximum Premium. The Merger
Agreement further provides that Parent will not, and will cause the Company
not to, take any action that would have the effect of limiting the aggregate
amount of insurance coverage required to be maintained for the individuals
referred to in clause (c) above.
In the Merger Agreement, Parent has also agreed that (a) from and after the
consummation of the Offer, to the full extent permitted by law, Parent will,
and will cause the Company (or any successor to the Company), to indemnify,
defend and hold harmless the present officers and directors of the Company and
its subsidiaries (each an "Indemnified Party") against all losses, claims,
damages, liabilities, fees and expenses (including attorneys' fees and
disbursements), judgments, fines and amounts paid in settlement (collectively,
"Losses") arising out of actions or omissions occurring at or prior to the
effective time of the Merger in connection with the Merger Agreement, the
Stockholder Agreement, the Offer, the Merger and the other transactions
contemplated by the Merger Agreement and the Stockholder Agreement; provided,
however, that an Indemnified Party shall not be
11
entitled to indemnification under this clause (a) for Losses arising out of
actions or omissions by the Indemnified Party constituting (i) a breach of the
Merger Agreement or the Stockholder Agreement, (ii) criminal conduct or (iii)
any violation of federal, state or foreign securities laws; and provided
further, however, that in order to be entitled to indemnification under this
clause (a), an Indemnified Party must give Parent and the Company prompt
written notice of any third party claim which may give rise to any indemnity
obligation under this clause (a), and Parent and the Company shall have the
right to assume the defense of any such claim through counsel of their own
choosing (subject to such counsel's reasonable judgment that separate defenses
that would create a conflict of interest on the part of such counsel are not
available), provided that if Parent and the Company do not assume any such
defense, they shall be liable for all reasonable costs and expenses of
defending such claim incurred by the Indemnified Party, including reasonable
fees and disbursements of counsel and shall advance such reasonable costs and
expenses to the Indemnified Party; provided, however, that such advance shall
be made only after receiving an undertaking from the Indemnified Party that
such advance shall be repaid if it is determined that such Indemnified Party
is not entitled to indemnification therefor and that neither Parent nor the
Company shall be liable under this clause (a) for any Losses resulting from
any settlement, compromise or offer to settle or compromise any such claim or
litigation or other action, without the prior written consent of Parent and
the Company; (b) the Company shall not, and Parent shall not permit the
Company to, amend or repeal any provision of the Restated Certificate of
Incorporation, as amended, or By-laws, as amended, of the Company after the
consummation of the Offer if such action would adversely affect the rights of
individuals who on or prior to the consummation of the Offer were entitled to
advances, indemnification or exculpation thereunder, for actions or omissions
by such individuals prior to the effective time of the Merger; and (c) in the
event the Surviving Corporation or any successor to the Surviving Corporation
(i) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity in such consolidation or merger
or (ii) transfers all or substantially all its properties and assets to any
person, then, and in each case, proper provision shall be made so that the
successors of the Surviving Corporation honor the obligations of the Company
set forth in the provisions of the Merger Agreement described in this and the
immediately preceding paragraph.
Reasonable Efforts; Notification. The Merger Agreement provides that upon
the terms and subject to the conditions set forth in the Merger Agreement,
each of the Company, Parent and the Purchaser will use all reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done,
and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Offer, the Merger and the other
transactions contemplated by the Merger Agreement and the Stockholder
Agreement, including (i) the obtaining of all necessary actions or nonactions,
waivers, consents and approvals from Governmental Entities and the making of
all necessary registrations and filings (including filings with Governmental
Entities, if any) and the taking of all reasonable steps as may be necessary
to obtain an approval or waiver from, or to avoid an action or proceeding by,
any Governmental Entity, (ii) the obtaining of all necessary consents,
approvals or waivers from third parties, (iii) the defending of any lawsuits
or other legal proceedings, whether judicial or administrative, challenging
the Merger Agreement or the Stockholder Agreement or the consummation of the
transactions contemplated thereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by the
Merger Agreement and the Stockholder Agreement and to fully carry out the
purposes of the Merger Agreement and the Stockholder Agreement. In connection
with the foregoing sentence, the Company and the Company Board will (i) take
all action necessary to ensure that no state takeover statute or similar
statute or regulation is or becomes applicable to the Merger Agreement or the
Stockholder Agreement or any transaction contemplated thereby and (ii) if any
state takeover statute or similar statute or regulation becomes applicable to
the Merger Agreement or the Stockholder Agreement, take all action necessary
to ensure that the transactions contemplated thereby may be consummated as
promptly as practicable on the terms contemplated by the Merger Agreement and
the Stockholder Agreement and otherwise to minimize the effect of such statute
or regulation on the transactions contemplated thereby; provided, however,
that nothing in the Merger Agreement will require any party to waive any
substantial rights or agree to any substantial limitation on its operations or
to take any action that would result in any of the consequences referred to in
paragraph (a) under "Certain Conditions of the Offer." The Merger Agreement
further provides that the
12
Company shall give prompt notice to Parent and Parent or the Purchaser shall
give prompt notice to the Company, of (i) any representation or warranty made
by it contained in the Merger Agreement or the Stockholder Agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect or
any such representation or warranty that is not so qualified becoming untrue
or inaccurate in any material respect or (ii) the failure by it to comply with
or satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under the Merger Agreement or the Stockholder
Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under the Merger Agreement or the
Stockholder Agreement.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties.
Procedure for Termination, Amendment, Extension or Waiver. The Merger
Agreement provides that following the election or appointment of the
Purchaser's designees to the Company Board as described above under "Board of
Directors", prior to the effective time of the Merger, any amendment or
termination of the Merger Agreement, extension for the performance or waiver
of the obligations of Parent or the Purchaser or waiver of the Company's
rights thereunder will require the concurrence of a majority of the directors
of the Company who were directors on the date of the Merger Agreement and who
are not officers of the Company.
Certain Conditions of the Offer. Notwithstanding any other term of the Offer
or the Merger Agreement, the Purchaser will not be required to accept for
payment or, subject to any applicable rules and regulations of the Commission,
including Rule14e-1(c) under the Exchange Act (relating to the Purchaser's
obligation to pay for or return tendered Shares promptly after the termination
or withdrawal of the Offer), to pay for any Shares tendered pursuant to the
Offer unless (i) there have been validly tendered and not withdrawn prior to
the expiration of the Offer the number of Shares which would represent at
least a majority of the Fully Diluted Shares, as defined below (the "Minimum
Tender Condition"), (ii) any waiting period under the HSR Act applicable to
the purchase of Shares pursuant to the Offer has expired or been terminated
and (iii) any waiting period or other period under the EC Regulations
applicable to the Offer or the Merger, or the exercise by Parent or the
Purchaser of full ownership and voting rights with respect to such Shares
acquired pursuant to the Offer and the Merger, shall have expired or been
terminated, and European Council and the European Commission shall have taken
all such action as shall be required so that Parent and the Purchaser may
consummate the Offer and the Merger and exercise full ownership and voting
rights with respect to the Shares to be acquired pursuant to the Offer and the
Merger. For purposes of the Minimum Tender Condition, the Merger Agreement
defines "Fully Diluted Shares" as all outstanding securities entitled
generally to vote in the election of directors of the Company on a fully
diluted basis, after giving effect to the exercise or conversion of all
options, rights and securities exercisable or convertible into such voting
securities, other than potential dilution attributable to the Rights.
Furthermore, notwithstanding any other term of the Offer or the Merger
Agreement, the Purchaser will not be required to commence the Offer, accept
for payment or, subject as aforesaid, to pay for any Shares not theretofore
accepted for payment or paid for, and may terminate or amend the Offer, with
the consent of the Company or if, at any time on or after the date of the
Merger Agreement and before the acceptance of Shares for payment or the
payment therefor, any of the following conditions exists:
(a) there shall be threatened or pending any suit, action or proceeding
by any Governmental Entity in any of the significant geographical regions
in which the Company or any of its subsidiaries operates or before the
European Commission (i) challenging the acquisition by Parent or the
Purchaser of any Shares, seeking to restrain or prohibit the making or
consummation of the Offer or the Merger or any other transaction
contemplated by the Merger Agreement or the Stockholder Agreement, or
seeking to obtain from the Company, Parent or the Purchaser any damages in
connection with the Offer, the Merger or the Merger Agreement that are
material in relation to the Company and its subsidiaries taken as a whole,
(ii) seeking to prohibit or limit the ownership or operation by the
Company, Parent or any of their respective subsidiaries of any material
portion of the business or assets of the Company, Parent or any of their
respective subsidiaries, or to compel the Company, Parent or any of their
respective subsidiaries, to dispose of or hold separate any material
portion of the business or assets of the Company, Parent or any of their
respective
13
subsidiaries, as a result of the Offer, the Merger or any other transaction
contemplated by the Merger Agreement or the Stockholder Agreement, (iii)
seeking to impose limitations on the ability of Parent or the Purchaser to
acquire or hold, or exercise full rights of ownership of, any Shares,
including the right to vote the Shares purchased by it on all matters
properly presented to the stockholders of the Company, (iv) seeking to
prohibit Parent or any of its subsidiaries from effectively controlling in
any material respect the business or operations of the Company and its
subsidiaries in connection with the Offer, the Merger or the Merger
Agreement or (v) which otherwise is reasonably likely to have a Material
Adverse Effect. The Merger Agreement defines "Material Adverse Effect" as
(a) any materially adverse effect on the business, assets, properties,
financial condition or results of operations of the Company and its
subsidiaries taken as a whole, or (b) any prevention or material delay in
the ability of the Company to consummate the Offer, the Merger and the
other transactions contemplated by the Merger Agreement and the Stockholder
Agreement, which has occurred or would reasonably be expected to occur as a
result of any change, effect, event, occurrence or state of facts;
provided, however, with respect to clauses (a) and (b), other than any
change, effect, event, occurrence or state of facts, to the extent such
change, effect, event, occurrence or state of facts is the result of
adverse changes in economic conditions, or of conditions or adverse changes
in or affecting the worldwide energy industry generally, including, but not
limited to, changes in markets and prices for oil, gas and other
hydrocarbons or hydrocarbon products.
(b) any statute, rule, regulation, legislation, interpretation, judgment,
order or injunction shall be enacted, entered, enforced, promulgated,
amended or issued in any of the significant geographical regions in which
the Company or any of its subsidiaries operates or by the European Council
or the European Commission with respect to, or shall be deemed applicable
to, or any consent or approval shall be withheld with respect to, (i)
Parent, the Company or any of their respective subsidiaries or (ii) the
Offer, the Merger or any of the other transactions contemplated by the
Merger Agreement or the Stockholder Agreement, by any Governmental Entity
that is reasonably likely to result, directly or indirectly, in any of the
consequences referred to in paragraph (a) above;
(c) since the date of the Merger Agreement, there shall have occurred any
event, change, effect or development that, individually or in the
aggregate, has had or would be reasonably expected to have a Material
Adverse Effect, and if a Material Adverse Effect has occurred, it shall be
continuing;
(d) there shall be any temporary, preliminary or permanent restraining
order or injunction or other legal restraint or prohibition by any
Governmental Entity that prevents or makes illegal the consummation of the
Offer, the Merger or any of the other transactions contemplated by the
Merger Agreement or the Stockholder Agreement;
(e) there shall have occurred and continued for at least three calendar
days: (i) a general suspension of trading in, or limitation on prices for,
securities on the New York Stock Exchange, any national securities exchange
or the Nasdaq National Market System (excluding suspensions or limitations
resulting from physical damage or interference with such exchanges not
related to market conditions); (ii) a decline of at least 30% in the Dow
Jones Industrial Index; (iii) a declaration of a banking moratorium or
suspension of payments in respect of banks in the United States; (iv) a
mandatory limitation by the United States Government or a change in the
general financial, banking or capital markets which materially and
adversely affects the ability of major financial institutions in the United
States to extend credit; (v) a commencement of a war, armed hostilities or
other major national or international crisis directly involving the United
States (other than an action involving personnel of the United Nations) or
(vi) in the case of any of the foregoing existing on the date of the Merger
Agreement, a material acceleration or worsening thereof;
(f) any representation and warranty of the Company or any other party
(other than Parent and the Purchaser) in the Merger Agreement or the
Stockholder Agreement shall not be true and correct in all material
respects (provided that any representation or warranty of the Company or
any other party (other than Parent and the Purchaser) contained in the
Merger Agreement or the Stockholder Agreement that is qualified by a
materiality standard or a material adverse effect qualification shall not
be further qualified by this condition) as of the date of the Merger
Agreement and (except with respect to the representation and warranty
relating to title to properties and to the extent such representations or
warranties expressly relate to an earlier date) as of the scheduled or
extended expiration of the Offer;
14
(g) the Company shall have failed to comply with the terms of the Merger
Agreement described in clause (f) under "Conduct of Business" or the
Company or any other party (other than Parent and the Purchaser) shall have
failed to comply with any agreement or covenant in any material respect of
the Company or any other party (other than Parent and the Purchaser) to be
performed or complied with by any of them under the Merger Agreement or the
Stockholder Agreement;
(h) there shall have been issued, delivered, sold or granted any Common
Stock pursuant to the Rights Agreement; or
(i) the Merger Agreement shall have been terminated in accordance with
its terms; which in the sole judgment of the Purchaser or Parent, in the
case of any such condition, and regardless of the circumstances giving rise
to any such condition (including any action or inaction by Parent or any of
its affiliates), makes it inadvisable to proceed with such acceptance for
payment or payment.
The foregoing conditions are for the sole benefit of the Purchaser and
Parent and may be asserted by the Purchaser or Parent regardless of the
circumstances giving rise to such condition or may be waived by the Purchaser
and Parent in whole or in part at any time and from time to time in their sole
discretion. The failure by Parent, the Purchaser or any other affiliate of
Parent at any time to exercise any of the foregoing rights shall not be deemed
a waiver of any such right, the waiver of any such right with respect to
particular facts and circumstances shall not be deemed a waiver with respect
to any other facts and circumstances and each such right shall be deemed an
ongoing right that may be asserted at any time and from time to time.
The foregoing summary of the Merger Agreement is qualified in its entirety
by reference to the Merger Agreement, a copy of which is filed as Exhibit
(c)(2) hereto. The Merger Agreement should be read in its entirety for a more
complete description of the matters summarized above.
Rights Agreement
The Rights Agreement, dated September12, 1997, between the Company and First
Chicago Trust Company of New York as Rights Agent (the "Rights Agreement") has
been amended as of May 3, 1998 (the "Amendment") to exempt the Merger
Agreement, the Stockholder Agreement, the acquisition of Shares by Parent or
the Purchaser pursuant to the Offer or the Stockholder Agreement and the other
transactions contemplated by the Merger Agreement and the Stockholder
Agreement from the provisions of the Rights Agreement. The Company has agreed
that neither it nor the Company Board will, without the prior consent of
Parent, (i) further amend the Rights Agreement, (ii) redeem the rights issued
pursuant to the Rights Agreement or (iii) take any action with respect to, or
make any determination under, the Rights Agreement.
The foregoing summary of the Amendment is qualified in its entirety by
reference to the Amendment, a copy of which is filed as Exhibit (c)(5) hereto.
The Amendment should be read in its entirety for a more complete description
of the matters summarized above.
The Stockholder Agreement
Pursuant to the Stockholder Agreement, Petroleum Associates, L.P. and KKR
Partners II, L.P., each a Delaware limited partnership, who collectively own
25.6% of the outstanding Shares (the "Principal Stockholders"), have
unconditionally agreed to tender into the Offer, and not to withdraw
therefrom, all the Shares over which the Principal Stockholders had voting and
dispositive control on May 4, 1998 (comprising 21,833,334 Shares), as well as
any Shares acquired by the Principal Stockholders after such time.
The Principal Stockholders have further agreed in the Stockholder Agreement
that they will not (a) transfer (which term for purposes of the Stockholder
Agreement includes any sale, gift, pledge or other disposition), or consent to
any transfer of, any or all of the Shares subject to the Stockholder Agreement
or any interest therein, (b) enter into any contract, option or other
agreement or understanding with respect to any transfer of any or all of the
Shares subject to the Stockholder Agreement or any interest therein, (c) grant
any proxy, power-of-attorney or other authorization in or with respect to the
Shares subject to the Stockholder Agreement, (d) deposit the
15
Shares subject to the Stockholder Agreement into a voting trust or enter into
a voting agreement or arrangement with respect to such Shares or (e) take any
other action that would in any way restrict, limit or interfere with the
performance of the Principal Stockholders' obligations under the Stockholder
Agreement or the transactions contemplated by the Stockholder Agreement or the
Merger Agreement. The Principal Stockholders have also agreed in the
Stockholder Agreement that they will not, nor will they authorize or permit
any officer, director, partner, affiliate or employee of, or any investment
banker, attorney or other advisor or representative of, the Principal
Stockholders to, solicit, initiate or encourage the submission of, enter into
any agreement with respect to, or participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Takeover Proposal, in each case subject to certain exceptions applicable in
the event the Company is entitled to take such action with regard to any
Takeover Proposal.
In addition, the Principal Stockholders have granted Parent an irrevocable
option to purchase the Shares subject to the Stockholder Agreement at a price
per Share of $29.00 in cash (the "Option"). The Option becomes exercisable, in
whole but not in part, by Parent if, and only if, the Principal Stockholders
breach or otherwise fail to comply with their obligations to tender into the
Offer, and not to withdraw therefrom, the Shares subject to the Stockholder
Agreement and the Purchaser has otherwise accepted the Shares for purchase
pursuant to the Offer.
Under the Stockholder Agreement, the Principal Stockholders have also
granted to Parent and certain individuals designated by Parent a proxy which
is irrevocable during the term of the Stockholder Agreement with respect to
the Shares subject to the Stockholder Agreement to vote such Shares in favor
of the Merger, the adoption of the Merger Agreement and the approval of the
other transactions contemplated by the Merger Agreement and against (i) any
merger agreement or merger (other than the Merger Agreement and the Merger),
consolidation, combination, sale of substantial assets, reorganization,
recapitalization, dissolution, liquidation or winding up of or by the Company,
(ii) any Takeover Proposal and (iii) any amendment of the Company's Restated
Certificate of Incorporation, as amended, or its By-laws, as amended, or other
proposal or transaction involving the Company or any subsidiary of the
Company, which amendment or other proposal or transaction would in any manner
impede, frustrate, prevent or nullify any provision of the Merger Agreement,
the Stockholder Agreement, the Merger or any other transaction contemplated by
the Merger Agreement or change in any manner the voting rights of any class of
capital stock of the Company. The Principal Stockholders have agreed not to
commit or agree to take any action inconsistent with the foregoing.
The Stockholder Agreement (including the Option) will terminate upon the
earlier of (i) the effective time of the Merger and (ii) the termination of
the Merger Agreement in accordance with its terms. Upon any termination of the
Stockholder Agreement, the Stockholder Agreement (including the Option) will
thereupon become void and of no further force and effect, and there shall be
no liability in respect of the Stockholder Agreement or of any transactions
contemplated thereby or by the Merger Agreement on the part of any party
thereto or any of its directors, officers, partners, stockholders, employees,
agents, advisors, representatives, or affiliates; provided, however, that
nothing in the Stockholder Agreement shall relieve any party thereto from any
liability for such party's wilful breach of the Stockholder Agreement.
The foregoing summary of the Stockholder Agreement is qualified in its
entirety by reference to the Stockholder Agreement, a copy of which is filed
as Exhibit (c)(3) hereto. The Stockholder Agreement should be read in its
entirety for a more complete description of the matters summarized above.
Appraisal Rights
The holders of Shares do not have appraisal rights as a result of the Offer.
However, if the Merger is consummated, holders of Shares and holders of Series
A Preferred Stock at the effective time of the Merger will have certain rights
pursuant to the provisions of Section 262 of the DGCL ("Section 262") to
dissent and demand appraisal of their Shares or Series A Preferred Stock, as
the case may be. Under Section 262, dissenting stockholders who comply with
the applicable statutory procedures will be entitled to receive a judicial
16
determination of the fair value of their Shares or Series A Preferred Stock
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger) and to receive payment of such fair value in cash,
together with a fair rate of interest, if any. Any such judicial determination
of the fair value of Shares or Series A Preferred Stock could be based upon
factors other than, or in addition to, the price per Share to be paid in the
Merger or the market value of the Shares or Series A Preferred Stock. The
value so determined could be more or less than the price per Share to be paid
in the Merger.
The foregoing summary of Section 262 does not purport to be complete and is
qualified in its entirety by reference to Section 262. FAILURE TO FOLLOW THE
STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING APPRAISAL RIGHTS MAY
RESULT IN THE LOSS OF SUCH RIGHTS.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) The Company Board met to consider the proposed structure for a possible
business combination with the Purchaser and to consider the terms of the Offer
at meetings held on April 17, 24 and 27, 1998 and on May 3, 1998. At its
meeting held on May 3, 1998, the Company Board unanimously determined that the
Merger Agreement, the Stockholder Agreement, the Offer, the Merger and the
other transactions contemplated by the Merger Agreement and the Stockholder
Agreement are fair to and in the best interests of the Company and its
stockholders, authorized the Company to enter into the Merger Agreement with
Parent and the Purchaser, approved the Offer and the Merger and agreed to
recommend the acceptance of the Offer to the Company's stockholders. A copy of
the letter to the stockholders of the Company dated May 8, 1998 from John L.
Whitmire, Chairman of the Board, containing the recommendation of the Company
Board, is filed as Exhibit (a)(1) hereto and is incorporated herein by
reference.
As set forth in the Purchaser's Offer to Purchase, the Purchaser will
purchase Shares tendered prior to the close of the Offer if at least a
majority of the outstanding Shares have been tendered by that time and all
conditions to the Offer have been satisfied. Stockholders considering not
tendering their Shares in order to wait for the Merger should note that the
Purchaser is not obligated to purchase any Shares, and can terminate the Offer
and the Merger Agreement and not proceed with the Merger, if fewer than a
majority of the outstanding Shares are tendered prior to the expiration of the
Offer or if any of the other Offer conditions are not satisfied. The Offer is
scheduled to expire at 12:00 Midnight, New York City time, on Friday, June 5,
1998, unless the Purchaser, in its sole discretion, elects to extend the
period of time for which the Offer is open. The Purchaser may (i) extend the
Offer if at the scheduled expiration date of the Offer any of the conditions
to the Purchaser's obligation to purchase Shares are not satisfied until such
time as such conditions are satisfied or waived or (ii) extend the Offer for
any period required by any rule, regulation, interpretation or position of the
SEC or the staff thereof applicable to the Offer, (iii) extend the Offer for
any reason for a period of not more than 10 business days beyond the latest
expiration date that would otherwise be permitted under clause (i) or (ii) of
this sentence, provided, in the case of clause (iii), that the Purchaser shall
waive certain conditions to the Offer during such extension. In addition, the
Purchaser has agreed that it shall, at the request of the Company, extend the
Offer one or more times for up to 30 days in the aggregate if any of the
conditions to the Offer are not satisfied on the expiration date of the Offer
provided that such conditions are reasonably capable of being satisfied and
provided that the Company has not received a Company Takeover Proposal. A copy
of the press release issued by Parent and the Company announcing the Merger
and the Offer is filed as Exhibit (a)(2) hereto and is incorporated herein by
reference.
(b) On Thursday, April 16, 1998, William E. Wade, Jr., President of Parent,
visited John Whitmire, Chairman and Chief Executive Officer of the Company, at
Mr. Whitmire's office in Houston. During that visit Mr. Wade asked Mr.
Whitmire to consider an all cash purchase of the Company by Parent in a
negotiated transaction at $28.50 per share. At a telephonic board meeting the
next day, Mr. Whitmire informed the Company Board of Mr. Wade's proposal. The
Company Board authorized Mr. Whitmire to retain Salomon Brothers Inc, now
doing business as Salomon Smith Barney (collectively, with all other entities
doing business as Salomon Smith Barney, "Salomon Smith Barney") and Petrie
Parkman & Co., Inc. ("'Petrie Parkman"), as its financial advisors (the
"Advisors"), to review Parent's proposal, to study alternative transactions
that might be available with other companies and to make a recommendation to
the Company Board as to whether a sale of the Company
17
at the offered price should be considered. Following such meeting and during
the week of April 20, 1998, Mr. Whitmire had discussions with several other
oil and gas companies regarding a possible transaction. Management of the
Company and the Advisors met with two additional companies and had ongoing
discussions. On Monday, April 20, 1998, Mr. Whitmire called Mr. Wade and
informed him that the Company had retained financial and legal advisors and
that the Company's Board would meet on Friday, April 24th to consider the
proposal.
On Friday, April 24, 1998, the Company Board met in Houston and received a
presentation from Salomon Smith Barney and a presentation from Petrie Parkman.
Mr. Whitmire and the Advisors reported to the Company Board that several other
companies had expressed an interest in the Company and that there had been
discussions with such companies as to whether any of them would be willing to
make a proposal. Mr. Whitmire and the Advisors reported that one of these
companies was considering a potential transaction in the form of an all stock
merger and a second company was considering a cash offer. At this meeting, the
Company Board authorized Mr. Whitmire and the Advisors to continue discussions
regarding both cash and stock transactions, and to make a recommendation to
the Company Board on the following Monday.
Following the April 24, 1998 Company Board meeting, Mr. Whitmire telephoned
Mr. Wade and advised him that, while Parent's proposal was attractive, he was
not authorized by the Company Board to enter into exclusive negotiations with
Parent. On Sunday, April 26, 1998, representatives of the Company and Parent
met in Houston to review certain information provided by the Company, which
included data regarding the Company's exploration and operating activities
outside the United States and its petrochemical business. During that weekend,
representatives of the Company also met with representatives of the
independent oil and gas company with which the Company was discussing an all
stock merger.
On Monday, April 27, 1998, the Company Board met telephonically and received
a report from Mr. Whitmire and the Advisors concerning Parent's cash proposal,
the terms of the potential transaction with the independent oil and gas
company in the form of an all stock merger and the results of discussions with
other companies. Mr. Whitmire reported to the Company Board that Parent had
increased its offer to $29.00 per Share in cash and that Mr. Wade had informed
Mr. Whitmire that $29.00 per Share was Parent's best offer. After discussion,
the Company Board authorized Mr. Whitmire and the Company's management to
enter into negotiations with Parent for an all cash merger at $29.00 per
Share. Later that evening, Parent's legal advisors sent to the Company and its
legal advisors drafts of the Merger Agreement and related documents. On
Tuesday, April 28, 1998, Mr. Whitmire and Mr. Wade met in New York to discuss
the proposed transaction. After such meeting, the Company immediately
commenced negotiations with Parent. On Sunday, May 3, 1998, the Company Board
met to review the Merger Agreement. At the May 3, 1998 meeting, at which all
of the directors other than Mr. Kravis were present, the Company Board
received opinions of the Advisors, dated May 3, 1998 that, based upon and
subject to various considerations and assumptions (and the analyses presented
to the Company Board underlying such opinions) set forth in such opinions, as
of the date of such opinions, the $29.00 per Share consideration to be
received by the holders of the Shares in the Offer and the Merger is fair from
a financial point of view to such holders. After review of the Merger
Agreement and receipt of such opinions, the Company Board unanimously approved
the Offer, the Merger, the Merger Agreement and other transactions
contemplated by the Merger Agreement. The Merger Agreement was executed and
delivered by the parties, and the Company and Parent publicly announced the
transaction before the opening of trading on the New York Stock Exchange
("NYSE") on Monday, May 4, 1998.
In reaching its conclusions described in Item 4(a) above, the Company Board
considered a number of factors, including, without limitation, the following:
(i) that the $29.00 per Share Offer Price represented a premium of
approximately 40% over the last reported sales price of the Shares on the NYSE
Composite Transactions Tape on May 1, 1998 of $20.50 per Share (the last
trading day prior to announcement of the Merger Agreement); (ii) the terms of
the Merger Agreement, including the Company's ability to terminate the Merger
Agreement and accept a Superior Proposal and the absence of any financing
contingency on the part of Parent; (iii) the opinions of Salomon Smith Barney
and Petrie Parkman, dated May 3, 1998, that, based upon and subject to various
considerations and assumptions, as of such date the $29.00 per Share in cash
to be received by the holders of the Shares in the Offer and the Merger is
fair from a financial point of view to such holders; (iv) the results of
management's discussions with other potential purchasers of the Company;
(v) information with
18
respect to the financial condition, results of operations and business of the
Company, on both a historical and a prospective basis, current industry,
economic and market conditions and historical and various projected ranges of
prices for oil and gas; (vi) the historical market prices and recent trading
patterns of the Shares and the market prices and financial data relating to
other companies engaged in the same business as the Company; (vii) the prices
paid in other recent acquisition transactions, including acquisitions in the
industry in which the Company does business; and (viii) alternatives to the
Offer and the Merger that might be available to the Company and its
stockholders, particularly the Company remaining independent and continuing to
pursue its long-term growth strategy. The Company Board did not assign
relative weights to the foregoing factors or determine that any factor was of
more importance than other factors. Rather, the Company Board viewed its
position and recommendation as being based on the totality of the information
presented to it and considered by it.
In analyzing the Offer and the Merger, the Company Board was assisted and
advised at its meetings on April 24 and 27, 1998 and May 3, 1998 by
representatives of Salomon Smith Barney and Petrie Parkman, who reviewed
various financial considerations, and representatives of the Company's legal
counsel, who reviewed various legal and other considerations, as well as the
terms of the Merger Agreement and related agreements, with the Company Board.
Salomon Smith Barney and Petrie Parkman are investment banking firms engaged
in the evaluation of businesses and their securities in connection with
mergers and acquisitions, negotiated primary and secondary underwritings,
private placements and valuations for corporate and other purposes. The
Company selected Salomon Smith Barney and Petrie Parkman as its financial
advisors based upon Salomon Smith Barney and Petrie Parkman's familiarity with
the Company and the industry in which the Company operates and their
experience, ability and reputation with respect to mergers and acquisitions.
Copies of the written opinions of Salomon Smith Barney and Petrie Parkman,
each dated May 3, 1998, describing the assumptions made, matters considered
and the scope of the review undertaken and procedures followed by each firm,
are filed as Exhibits(a)(3) and (a)(4) hereto, respectively, and are
incorporated herein by reference. STOCKHOLDERS ARE ENCOURAGED TO READ SUCH
OPINIONS IN THEIR ENTIRETY.
Based upon the foregoing, at its May 3, 1998 meeting, the Company Board
unanimously determined that the terms of the Offer and the Merger are fair to
and in the best interests of the Company and its stockholders, approved the
Offer and the Merger and recommended that stockholders of the Company accept
the Offer as set forth above.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Salomon Smith Barney and Petrie Parkman are acting as the Company's
financial advisors in connection with the Offer and the Merger. Pursuant to
their respective agreements with the Company, Salomon Smith Barney and Petrie
Parkman are entitled to transaction fees of $7.7 million and $2.75 million,
respectively, each of which shall become payable upon consummation of the
transactions contemplated by the Merger Agreement. The Advisors are also
entitled to receive an additional fee in the event the holders of the Shares
ultimately receive in excess of $29.00 per Share. In addition, whether or not
the Offer or the Merger is completed, the Company has agreed to reimburse each
of Salomon Smith Barney and Petrie Parkman periodically for reasonable out-of-
pocket expenses, including the fees and disbursements of its counsel, and to
indemnify each of Salomon Smith Barney and Petrie Parkman against certain
expenses and liabilities incurred in connection with its engagement, including
liabilities under Federal securities laws.
The Advisors have each previously rendered certain investment banking and
financial advisory services to the Company and Parent and certain of its
affiliates, for which each Advisor received customary compensation. The
Advisors each may have other business relationships with the Company or
Parent. In the ordinary course of its business, Salomon Smith Barney may
actively trade the debt and equity securities of the Company for its own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities. In the ordinary course of
business, Petrie Parkman may actively trade the debt and equity securities of
the Company for the accounts of customers.
19
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or compensated, or currently intends to employ,
retain or compensate, any person to make solicitations or recommendations to
the stockholders of the Company on its behalf with respect to the Offer.
19--1
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Common Stock of the Company have been effected in
the past 60 days by the Company or any affiliate or subsidiary of the Company,
or, to the best knowledge of the Company, by any executive officer or director
of the Company, with the exception of (x) purchases by the administrator of
the Company's 401(k) plan of approximately: (i) 311 Shares for the account of
John L. Whitmire, Chairman of the Board and Chief Executive Officer; (ii) 247
Shares for the account of William M. Krips, Senior Vice President; (iii) 284
Shares for the account of Arthur W. Peabody, Jr., Senior Vice President; (iv)
424 Shares for the account of Larry D. Kalmbach, Vice President and Chief
Financial Officer; (v) 171 Shares for the account of Alan R. Crain, Jr.,
Vice President and General Counsel; (vi) 147 Shares for the account of Richard
A. Cunningham, Regional Vice President; (vii) 237 Shares for the account of
James E. Knight, Regional Vice President; (viii) 119 Shares for the account of
Michael N. Markowitz, Vice President and Treasurer; (ix) 123 Shares for the
account of Donald M. McMullan, Vice President and Controller; (x) 273 Shares
for the account of Roger W. Pierce, Vice President Exploration; (xi) 228
Shares for the account of Newton W. Wilson, III, Regional Vice President; and
(xii) 230 Shares for the account of John M. Zimmerman, Vice President, all
pursuant to previous elections made by such officers under the 401(k) plan and
(y) the exercise by Alan R. Crain, Jr., Vice President and General Counsel of
the Company on April 7, 1998, of an outstanding stock option, which would have
expired April 14, 1998, for 4,500 Shares under a stock option plan of the
Company.
(b) To the best knowledge of the Company, each principal executive officer
and director of the Company currently intends to tender, pursuant to the
Offer, all unrestricted Shares which are held of record or beneficially owned
by such person (other than the Shares of the four directors described in Item
3 above).
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as described under Item 3(b), the Company is not engaged in any
negotiations in response to the Offer which relate to or would result in: (i)
an extraordinary transaction, such as a merger or reorganization, involving
the Company or any subsidiary of the Company; (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary of
the Company; (iii) a tender offer for or other acquisition of securities by or
of the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as described under Item 4, there are no transactions, board
resolutions, agreements in principle, or signed contracts in response to the
Offer, other than those described under Item 3(b), which relate to or would
result in one or more of the matters referred to in this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The information statement attached as Annex I hereto is being furnished in
connection with the possible designation by the Purchaser, pursuant to the
Merger Agreement, of certain persons to be appointed to the Company Board
other than at a meeting of the Company's stockholders.
The Company, the Company Board and Parent are defendants in two purported
class actions filed on May 6, 1998, each filed in the Chancery Court of the
State of Delaware in and for New Castle County. The actions are styled Dorthy
M. McMullen v. Union Texas Petroleum Holdings, Inc.; John L. Whitmire; Sellers
Stough; Richard R. Shinn; George R. Roberts; Stanley P. Porter; Wylie B.
Pieper; Michael W. Michelson; Henry R. Kravis; James H. Greene, Jr.; Edward A.
Gilhuly; Glenn A Cox; Robert L. Barry; and Atlantic Richfield Company and
Byron S. Squyres and Mary Falcon Squyres v. Robert L. Barry; Wylie Bernard
Pieper, John L. Whitmire, Glenn A. Cox, James H. Greene, Jr., Edward A.
Gilhuly, Richard R. Shinn, Sellers Stough, Henry R. Kravis, George S. Roberts,
Michael W. Michelson, Stanley P. Porter, Union Texas Petroleum Holdings, Inc.,
Kohlberg Kravis Roberts & Co. L.P. and Atlantic Richfield Company. These
actions, both of which are filed by alleged owners of Shares, both claim,
among other things, that certain individual directors of the Company have
20
breached their fiduciary duties to stockholders by failing to consider
strategic alternatives to the Merger that would maximize value to the
stockholders. In addition, the Squyres action claims that Parent aided and
abetted in the breaches of fiduciary duty committed by these individual
directors and that the Principal Stockholders breached their duty of loyalty
to the stockholders by arranging a transaction that unfairly benefits them to
the detriment of the other stockholders. Both complaints seek declaratory and
injunctive relief and attorneys' fees and experts' fees. The Company believes
that the suits are without merit. The Company will take all appropriate action
to respond to such litigation.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following Exhibits are filed herewith:
(a)(1) Recommendation Letter to the Stockholders of the Company, dated May
8, 1998, from John L. Whitmire, Chairman of the Board of the
Company.*
(a)(2) Press Release issued jointly by the Company and Atlantic Richfield
Company announcing the Merger and the Offer.
(a)(3) Opinion of Salomon Smith Barney, dated May 3, 1998.*
(a)(4) Opinion of Petrie Parkman & Co., dated May 3, 1998.*
(b) None.
(c)(1) "Voting Securities and Certain Beneficial Owners," "Executive
Compensation and Other Information," "Compensation Committee
Interlocks and Insider Participation" and "Annex A: Amended and
Restated Union Texas Petroleum Holdings, Inc. 1994 Incentive Plan"
sections of the Proxy Statement of the Company filed with the
Commission on March 24, 1998.
(c)(2) Agreement and Plan of Merger, dated May 4, 1998, between the Company,
Atlantic Richfield Company and VWK Acquisition Corp.
(c)(3) Stockholders Agreement, dated May 4, 1998, between the Atlantic
Richfield Company, Petroleum Associates, L.P. and KKR Partners II,
L.P.
(c)(4) Rights Agreement dated as of September 12, 1997 between the Company
and First Chicago Trust Company of New York, as Rights Agent, which
includes as Exhibit A the Form of Rights Certificate and as Exhibit B
the Summary of Rights to Purchase Common Stock (filed as Exhibit 1 to
the Company's Form 8-A Registration Statement filed September 15,
1997 (Commission File No. 1-9019) and as Exhibit 4.1 to the Company's
10-Q for the quarter ended September 30, 1997 (Commission File No. 1-
9019) and incorporated herein by reference).
(c)(5) Amendment to Rights Agreement, dated May 3, 1998, between the Company
and First Chicago Trust Company of New York, as Rights Agent.
- --------
* Included in copies mailed to stockholders.
21
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
accurate.
UNION TEXAS PETROLEUM HOLDINGS, INC.
By: /s/ John L. Whitmire
-------------------------------------
Name: John L. Whitmire
Title: Chairman of the Board
and Chief Executive Officer
Dated: May 8, 1998
ANNEX I
UNION TEXAS PETROLEUM HOLDINGS, INC.
1330 POST OAK BOULEVARD
HOUSTON, TEXAS 77056
----------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
----------------
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND
YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY
----------------
This Information Statement, which is being mailed on or about May 8, 1998 to
the holders of shares of the Common Stock, par value $.05 per share (the
"Company Common Stock"), of Union Texas Petroleum Holdings, Inc., a Delaware
corporation (the "Company"), is being furnished in connection with the
designation by Atlantic Richfield Company, a Delaware corporation ("Parent"),
and VWK Acquisition Corp., a Delaware corporation and wholly owned subsidiary
of Parent ("Sub"), of persons to the Board of Directors of the Company (the
"Board"). Such designation is to be made pursuant to an Agreement and Plan of
Merger dated as of May 4, 1998 (the "Merger Agreement") among the Company,
Parent and Sub. Pursuant to the Merger Agreement, among other things, Parent
is to commence a cash tender offer no later than May 8, 1998 to purchase all
of the issued and outstanding shares of Company Common Stock at $29.00 per
share, net to the seller in cash, as described in Parent's Offer to Purchase
dated May 8, 1998 (the "Offer to Purchase") and the related Letter of
Transmittal (which Offer to Purchase and related Letter of Transmittal
together constitute the "Offer"). The Offer is scheduled to expire at 12:00
midnight, New York City time, on Friday, June 5, 1998, unless extended. The
Offer is conditioned on, among other things, a majority of the outstanding
shares of Company Common Stock on a fully diluted basis being validly tendered
prior to the expiration of the Offer and not withdrawn (the "Minimum
Condition"). The Merger Agreement also provides for the merger (the "Merger")
of Sub with and into the Company as soon as practicable after consummation of
the Offer. Following the consummation of the Merger (the "Effective Time"),
the Company will be the surviving corporation (the "Surviving Corporation")
and a wholly owned subsidiary of Parent. In the Merger, each share of Company
Common Stock issued and outstanding immediately prior to the Effective Time
(other than shares of Company Common Stock held in the treasury of the Company
or by Parent, Sub or any direct or indirect wholly owned subsidiary of Parent
or the Company, all of which will be canceled, and other than shares of
Company Common Stock, if any, held by stockholders who have perfected rights
as dissenting stockholders under Delaware law) will be converted into the
right to receive cash in the amount of $29.00.
The Merger Agreement provides that promptly upon the purchase by Sub of any
of the outstanding shares of Company Common Stock pursuant to the Offer, Sub
shall be entitled to designate the number of directors on the Board equal to
at least the number of directors, rounded up to the next whole number, which
is the product of (a) the total number of directors on the Board (giving
effect to the directors elected pursuant to this sentence) multiplied by (b)
the percentage that (i) such number of shares of Company Common Stock so
purchased by Sub plus the number of such shares otherwise owned by Sub or any
other subsidiary of Parent bears to (ii) the
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number of such shares of Company Common Stock outstanding. The Company's
obligations to cause such designees (the "Sub Designees") to be elected to the
Board shall be subject to Section 14(f) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and Rule 14f-1 promulgated thereunder.
Notwithstanding the above, until the Effective Time the Company shall have
at least three directors who were directors as of the date of the Merger
Agreement and who are not officers of the Company (the "Independent
Directors"). If the number of Independent Directors falls below three, the
remaining Independent Directors (or if no Independent Directors remain the
other directors) shall be entitled to designate persons who are not officers,
stockholders or affiliates of the Company, Parent or Sub to fill the
vacancies.
Following the election of the Sub Designees and prior to the Effective Time,
the approval of a majority of the Independent Directors or their successors
will be required to authorize any termination of the Merger Agreement by the
Company, any amendment of the Merger Agreement requiring action by the Board,
any extension of time for the performance or waiver of any of the obligations
of Sub or Parent, or any waiver of the Company's rights under the Merger
Agreement.
The terms of the Merger Agreement, a summary of the events leading up to the
Offer and the execution of the Merger Agreement and other information
concerning the Offer and the Merger are contained in the Offer to Purchase and
in the Solicitation/Recommendation Statement on Schedule 14D-9 of the Company
(the "Schedule 14D-9") with respect to the Offer, copies of which are being
delivered to stockholders of the Company contemporaneously herewith. Certain
other documents (including the Merger Agreement) were filed with the
Securities and Exchange Commission (the "SEC") as exhibits to the Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1") of Sub and as exhibits to
the Schedule 14D-9. The exhibits to the Schedule 14D-1 and the Schedule 14D-9
may be examined at and copies thereof may be obtained from the SEC in the
manner set forth in Section 8 of the Offer to Purchase. Parent intends to
finance the purchase of Company Common Stock in the Offer and the Merger from
the proceeds of the sale of commercial paper and other short-term borrowings
backed by an existing and an additional bank facility.
No action is required by the stockholders of the Company in connection with
the election of the Sub Designees to the Board. However, Section 14(f) of the
Exchange Act requires the mailing to the Company's stockholders of the
information set forth in this Information Statement prior to a change in a
majority of the Company's directors otherwise than at a meeting of the
Company's stockholders.
The information contained in this Information Statement concerning Parent,
Sub and the Sub Designees has been furnished to the Company by such persons,
and the Company assumes no responsibility for the accuracy or completeness of
such information. The principal executive offices of Parent and Sub are
located at 515 South Flower Street, Los Angeles, California 90071-2201.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
At the close of business on May 1, 1998, there were issued and outstanding
85,285,286 shares of Company Common Stock, excluding Company Common Stock held
by the Company, each share being entitled to one vote upon matters to be voted
upon at a stockholders meeting. There are no other voting securities
outstanding. The table below sets forth certain information as of May 1, 1998
regarding the beneficial ownership of Company Common Stock, excluding Common
Stock held by the Company, by (i) each person known by the Company to own
beneficially more than 5% of its outstanding shares of Company Common Stock,
(ii) each director of the Company, (iii) the five executive officers of the
Company named in the Summary Compensation Table and (iv) all executive
officers and directors of the Company as a group.
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AMOUNT AND
NATURE OF PERCENTAGE OF
BENEFICIAL SHARES OF COMMON
NAME OWNERSHIP(1) STOCK OUTSTANDING
---- ------------ -----------------
Petroleum Associates, L.P.(2)................... 21,833,334 25.6%
KKR Partners II, L.P.(2)........................
9 West 57th Street
New York, New York 10019
GSB Investment Management, Inc.(3).............. 4,424,912 5.2%
301 Commerce Street
Fort Worth, Texas 76102
Robert L. Barry, Director(4).................... 9,000 *
Glenn A. Cox, Director(4)(5).................... 24,000 *
Edward A. Gilhuly, Director(2).................. 0 --
James H. Greene, Jr., Director(2)............... 0 --
Henry R. Kravis, Director(2).................... 0 --
Michael W. Michelson, Director(2)............... 0 --
Wylie B. Pieper, Director(4).................... 10,000 *
Stanley P. Porter, Director(4).................. 17,000 *
George R. Roberts, Director(2).................. 0 --
Richard R. Shinn, Director(4)................... 19,000 *
Sellers Stough, Director(4)..................... 18,000 *
John L. Whitmire(4)(6)(7)....................... 228,172 *
Chairman of the Board and Chief Executive Offi-
cer
William M. Krips, Senior Vice President(4)(6)... 205,687 *
Arthur W. Peabody, Jr., Senior Vice Presi-
dent(4)(6)..................................... 269,858 *
Newton W. Wilson, III, Regional Vice Presi-
dent(4)(6)..................................... 140,109 *
Larry D. Kalmbach(4)(6)......................... 92,333 *
Vice President and Chief Financial Officer
All executive officers and directors as a group,
including the above
(group equals 23 percent)(4)(6)(8)............. 1,404,107 1.7%
- --------
*Less than 1%.
(1) Beneficial ownership of Common Stock, except as noted.
(2) KKR Associates is the sole general partner of Petroleum Associates, L.P.
("Petroleum Associates") and KKR Partners II, L.P. (collectively, the "KKR
Partnerships") and possesses sole voting power and investment power with
respect to the 21,833,334 shares owned by such stockholders. KKR
Associates is a limited partnership of which Henry R. Kravis, George R.
Roberts, Michael W. Michelson, James H. Greene, Jr., Edward A. Gilhuly
(all directors of the Company), Robert I. MacDonnell, Paul E. Raether,
Michael T. Tokarz, Perry Golkin, Clifton S. Robbins and Scott Stuart are
the general partners, and Messrs. Kravis and Roberts are also members of
the Executive Committee of KKR Associates. None of the aforementioned
individuals beneficially owns any other shares of Company Common Stock.
Petroleum Associates made its investment in the Company in 1985. The
limited partnership agreement pursuant to which Petroleum Associates was
organized expired on December 31, 1997 in accordance with the terms of the
limited partnership agreement. The terminated Petroleum Associates
partnership continues to be in existence for a winding-up period after
such date. The limited partnership agreement provides that, in connection
with the dissolution and winding up of Petroleum Associates, KKR
Associates has the sole discretion regarding the timing (which may be one
or more years after the expiration of the limited partnership agreement)
and the manner of disposition of the Company Common Stock owned by
Petroleum Associates, including public or private sales of such Company
Common Stock, the distribution of such Company Common Stock to the limited
partners of Petroleum Associates or a combination of the foregoing. If
shares of Company Common Stock are distributed to the limited partners of
Petroleum Associates, each limited partner will thereafter have sole
discretion with respect to its Company Common Stock. In addition, pursuant
to the limited
A-3
partnership agreement, Petroleum Associates will distribute to KKR
Associates for its own account, concurrently with any sales of shares owned
by Petroleum Associates, cash and/or shares of Company Common Stock that
together have a fair market value equal to approximately 20% of the profits
realized with respect to the shares sold and distributed. The Company has
agreed that, upon the request of KKR Partnerships, the Company will
register under the Securities Act and applicable state securities laws the
sale of the Company Common Stock owned by the KKR Partnerships as to which
registration has been requested. The Company's obligation is subject to
certain limitations relating to a minimum amount required for registration,
the timing of a registration and other similar matters. The Company is
obligated to pay any registration expenses incidental to such
registrations, excluding underwriters' commissions and discounts.
The KKR Partnerships currently own approximately 25.6% of the issued and
outstanding shares of Company Common Stock, excluding shares held by the
Company. As a result, the KKR Partnerships and their general partners may
be able to exercise substantial influence over the Company, through their
representation on the Board and by reason of their significant voting power
with respect to the election of directors and actions submitted to a vote
of stockholders. See also "Compensation Committee Interlocks and Insider
Participation."
(3) GSB Investment Management, Inc. is a registered investment advisor that
pursuant to a Schedule 13G dated February 10, 1998 reported such shares.
(4) Includes the following shares issuable upon the exercise of outstanding or
issuable stock options that are exercisable within 60 days after May 1,
1998: (i) 14,000 for each of Messrs. Cox, Porter, Shinn and Stough; (ii)
5,000 for Messrs. Pieper and Barry; (iii) 142,500 for Mr. Whitmire;
172,894 for Mr. Krips; 168,694 for Mr. Peabody; 129,293 for Mr. Wilson;
75,026 for Mr. Kalmbach; and (iv) 1,031,931 for all executive officers and
directors as a group. Excludes shares issuable upon the exercise of
options that became exercisable upon a change in control.
(5) Voting and investment power are shared with Veronica Cox with respect to
10,000 shares, all of which are held in the Glenn A. Cox Trust, UTA.
(6) Shares held by executive officers in the Company's Savings Plan for
Salaried Employees are included in the table.
(7) Voting and investment power are shared with Virginia Whitmire with respect
to 9,700 shares, all of which are held in the Virginia Kempton Whitmire
Revocable Trust dated September 7, 1995.
(8) As of May 1, 1998, the executive officers of the Company include the five
executive officers named in the Summary Compensation Table and the other
officers listed as Executive Officers. See "Executive Officers."
DIRECTORS AND EXECUTIVE OFFICERS
The Sub Designees. Sub has selected William E. Wade, Jr., Marie L. Knowles,
Michael E. Wiley and Donald R. Voelte, Jr. as the Sub Designees. All of the
Sub Designees are officers of Parent, and all except Mr. Wiley are executive
officers and/or directors of Sub. Certain information regarding the Sub
Designees is contained in Schedule I annexed hereto. To the best knowledge of
the Company, none of the Sub Designees or their associates beneficially owns
any equity securities, or rights to acquire any equity securities, of the
Company or has been involved in any transactions with the Company or any
directors or executive officers thereof that are required to be disclosed
pursuant to the rules and regulations of the SEC.
Current and Continuing Directors. The following table sets forth certain
information with respect to the current directors of the Company:
Robert L. Barry--Age 63, Director since December 1997. Ambassador Barry
retired from the United States (U.S.) Foreign Service in 1995 after 34 years
of service. Ambassador Barry held numerous positions of increasing
responsibility during his Foreign Service career, including U.S. Ambassador to
Indonesia from 1992 to 1995. He is a principal in Phoenix International, an
electric power development company focused on projects
A-4
in Indonesia, and his own international consulting firm, Robert Barry and
Associates, which specializes in Indonesia, Eastern Europe and the independent
states of the former Soviet Union. Ambassador Barry currently heads the
mission of the Organization for Security and Cooperation in Europe, where he
is responsible for elections, human rights, arms control and democracy
initiatives in Bosnia-Hercegovinia.
Glenn A. Cox--Age 68, Director since January 1993. Mr. Cox is a retired
President and Chief Operating Officer of Phillips Petroleum Company
("Phillips"), a position he held from 1985 until December 1991. Phillips is a
corporation involved in petroleum exploration, production and refining and
also in the manufacturing and distribution of a variety of chemicals. Mr. Cox
is also a director of BOK Financial Corp., Bank of Oklahoma, The Williams
Companies and Helmerich & Payne, Inc. Member of the Audit Committee and the
Section 16 Committee.
Edward A. Gilhuly--Age 38, Director since December 1992. Mr. Gilhuly was an
associate of Kohlberg Kravis Roberts & Co. ("KKR") from 1986 until 1995, when
he became a partner. He is also a director of Layne Christensen Company,
Owens-Illinois Group, Inc. and Owens-Illinois, Inc. Member of the Organization
and Compensation Committee.
James H. Greene, Jr.--Age 47, Director since December 1992. Mr. Greene was
an associate of KKR from 1986 until 1993, when he became a partner. He is also
a director of Bruno's, Inc., Owens-Illinois Group, Inc., Owens-Illinois, Inc.,
Randall's Food Markets, Inc. and Safeway, Inc.
Henry R. Kravis--Age 54, Director since July 1985. Mr. Kravis has been a
partner in KKR since its organization in 1976. He is also a director of
Amphenol Corporation, Borden, Inc., Bruno's, Inc., Evenflo & Spalding Holdings
Corporation, The Gillette Company, IDEX Corporation, Inc., Kinder Care
Learning Centers, Inc., KSL Recreation Group, Inc., Newsquest Capital plc.,
Owens-Illinois, Inc., Owens-Illinois Group, Inc., PRIMEDIA Inc., Randall's
Food Markets, Inc., Reltec Corporation, Safeway, Inc., Sotheby's Holdings,
Inc. and World Color Press, Inc. Mr. Kravis is a first cousin of Mr. Roberts.
Michael W. Michelson--Age 46, Director since July 1985. Mr. Michelson has
been a partner of KKR since January 1987, and prior to that he had been an
associate of KKR. Mr. Michelson is also a director of Amphenol Corporation,
AutoZone, Inc., Owens-Illinois, Inc., Owens-Illinois Group, Inc. and Promus
Hotel Corporation. Member of the Organization and Compensation Committee.
Wylie B. Pieper--Age 65, Director since May 1997. Mr. Pieper is a retired
Vice Chairman and Chief Operating Officer of Halliburton Company
("Halliburton"). Mr. Pieper served in a number of executive capacities
throughout his 38 year career with Halliburton and its subsidiary, Brown &
Root, Inc. Mr. Pieper serves on the Board of Governors, the George R. Brown
School of Engineering Advisory Board and the Jones Graduate School of
Administration Council of Overseers at Rice University. Mr. Pieper is also a
director at Highlands Insurance Group, Inc.
Stanley P. Porter--Age 79, Director since July 1985. Mr. Porter is a retired
Vice Chairman of Arthur Young & Company. Mr. Porter was a director of
AlliedSignal Inc. (collectively with its predecessor, Allied Corporation,
"Allied") from 1980 until April 1989. Allied is an advanced technology
company. Mr. Porter is a former director of Fiber Industries, Inc. and
Engraph, Inc. Member of the Audit Committee.
George R. Roberts--Age 54, Director since July 1985. Mr. Roberts has been a
partner in KKR since its organization in 1976. He is also a director of
Amphenol Corporation, Borden, Inc., Bruno's Inc., Evenflo & Spalding Holdings
Corporation, IDEX Corporation, KinderCare Learning Centers, Inc., KSL
Recreation Group, Inc., Owens-Illinois Group, Inc. Owens-Illinois, Inc.,
PRIMEDIA INC., Randall's Food Markets, Inc., Safeway Inc. and World Color
Press, Inc. Mr. Roberts is a first cousin of Mr. Kravis.
Richard R. Shinn--Age 80, Director since May 1988. Mr. Shinn was Executive
Vice Chairman of the New York Stock Exchange from May 1985 through December
1990. Mr. Shinn retired as Chairman and Chief
A-5
Executive Officer of Metropolitan Life Insurance Company in 1983. Mr. Shinn
was a director of Allied from 1973 until April 1988. Mr. Shinn is also a
director of Grey Advertising, Inc. Member of the Audit Committee, the
Organization and Compensation Committee and the Section 16 Committee.
Sellers Stough--Age 75, Director since March 1988. Mr. Stough is a retired
Vice President, Finance of Chevron Corporation. Mr. Stough also served on the
Executive Committee of Chevron Corporation from August 1986 until his
retirement in December 1987. Mr. Stough was a consultant to the law firm of
Pillsbury Madison & Sutro from February 1988 until December 1990 and served as
Executive Director of the firm from November 1989 through December 1990. Mr.
Stough was a director of Amax, Inc. from 1982 until 1987. Member of the Audit
Committee.
John L. Whitmire--Age 57, Chairman of the Board and Chief Executive Officer
since January 1996. Mr. Whitmire has responsibility for the overall management
of the Company. Mr. Whitmire served as Executive Vice President--Exploration
and Production and as a director of Phillips from January 1994 to January
1996, when he retired. Prior thereto, Mr. Whitmire served in a number of
executive capacities throughout his 30 year career with Phillips.
If a majority of the outstanding Shares are purchased by the Purchaser
pursuant to the Offer, Parent currently intends to request the Company to
reduce the number of its directors to not more than seven and to designate the
four Sub Designees as a majority of the Board. The current directors of the
Company who would be removed pursuant to this reduction in the size of the
Board have not yet been identified. If a greater number of Shares are
purchased by Sub pursuant to the Offer, Sub may, pursuant to the terms of the
Merger Agreement, designate additional directors to the Board.
The Board has standing audit, organization and compensation and Section 16
committees that are composed of directors of the Company. The functions of the
Audit Committee (the "Audit Committee") include reviewing external financial
reporting, both annual and quarterly reports, and other financial portions of
external reporting of the Company, recommending engagement of the Company's
independent accountants, reviewing and approving the terms of engagement of
the independent accountants, reviewing the independence of such accountants,
reviewing with the independent accountants the plan, scope and results of the
auditing engagement, and reviewing the scope and results of the Company's
procedures for internal auditing and the adequacy of the Company's internal
accounting controls.
The functions of the Organization and Compensation Committee (the
"Compensation Committee") include establishing compensation for executive
officers, monitoring compensation arrangements of certain management employees
for consistency with corporate objectives and to enhance shareholder value,
recommending remuneration arrangements for senior management, serving as the
Stock Option Committee under the Company's 1985, 1987 and 1992 Stock Option
Plans and the Company's 1994 Incentive Plan, administering the Incentive
Compensation Plan and Deferred Plan, and making recommendations with respect
to employee benefit plans.
The functions of the Section 16 Committee, established to comply with
amendments to the rules promulgated under Section 16 of the Exchange Act, as
well as Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), include approving grants of options, stock, stock appreciation rights
and other types of awards to and certain deferrals by officers of the Company
that are subject to or intended for compliance with the Exchange Act or the
Code (the "Section 16 Officers").
In addition, although the Board does not have a standing nominating
committee, the Compensation Committee considers and makes recommendations to
the Board regarding persons to be nominated for election as directors by the
Board to fill vacancies that arise between annual meetings of stockholders.
Stockholders wishing to recommend a person for consideration as a nominee for
election to the Board can do so in accordance with the Company's Bylaws by
providing timely written notice to the Secretary of the Company at 1330 Post
Oak Blvd., Houston, Texas 77056, providing such nominee's name, appropriate
biographical information and
A-6
any other information that would be required in a proxy statement. Any such
recommendation should be accompanied by a written statement from the person
recommended, giving his or her consent to be named as a nominee and, if
nominated and elected, to serve as a director. A notice must be delivered to
the Secretary not later than the close of business on the 60th day nor earlier
than the close of business on the 90th day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is more than 30 days before or more than 60
days after such anniversary date, notice by the stockholder must be so
delivered not earlier than the close of business on the 90th day prior to such
annual meeting and not later than the close of business on the later of the
60th day prior to such annual meeting or the close of business on the 10th day
following the day on which public announcement of the date of such meeting is
first made by the Company. Such notice to the Secretary must set forth the
name and address of the stockholder that is giving the notice and the
beneficial owner, if any, on whose behalf the nomination is made and the
number of shares that are owned beneficially by such stockholder and, if any,
such beneficial owner.
During the year ended December 31, 1997, the Board held a total of fourteen
meetings, the Audit Committee held three meetings, the Compensation Committee
held four meetings and the Section 16 Committee held one meeting and acted
once by written consent. Messrs. Gilhuly, Greene, Kravis and Roberts attended
less than 75% of the Board meetings.
Compensation Committee Interlocks and Insider Participation. Two of the
current members of the Compensation Committee, Mr. Michelson and Mr. Gilhuly,
are affiliates of KKR and the KKR Partnerships. The KKR Partnerships
collectively own approximately 25.6% of the outstanding Company Stock. In
connection with the 1985 Stock Acquisition, the Company agreed to pay each of
KKR and Allied a fee for financial advisory services of $250,000 per year,
increasing at a compound rate of 10% per annum. The Company is obligated to
continue to pay this annual advisory service fee to KKR until KKR or its
affiliates own less than 20% of the number of shares of Company Common Stock
outstanding. During 1997, KKR was paid $748,943 for such financial advisory
services pursuant to this agreement.
DIRECTOR COMPENSATION
All directors who are not officers of the Company receive $40,000 per annum
for serving on the Board. In addition, all directors are reimbursed for out-
of-pocket costs of attending Board and committee meetings. Messrs. Gilhuly,
Greene, Kravis, Michelson and Roberts are directors affiliated with KKR.
Under the 1994 Incentive Plan, as in effect and amended in accordance with
Proposal 3 of the Company's Proxy Statement dated March 24, 1998, each person
who becomes a director who is not then an employee of the Company or any
subsidiary or is not affiliated with KKR (an "Eligible Director") for the
first time is granted an option to purchase 5,000 shares of Common Stock
effective as of the date the individual becomes an Eligible Director. Each
incumbent Eligible Director also receives an option to purchase 3,000 shares
of Common Stock effective as of the date of each annual meeting of
stockholders. During 1997, each Eligible Director, other than Mr. Pieper and
Ambassador Barry, who were not directors as of such date, received an annual
grant of an option to purchase 3,000 shares of Common Stock at $19.75 per
share under the 1994 Incentive Plan. Effective May 9, 1997 and December 19,
1997, Mr. Pieper and Ambassador Barry each received an option to purchase
5,000 shares of Common Stock at $19.75 and $20.6875 per share, respectively,
under the 1994 Incentive Plan. Each such option is fully vested and
exercisable and has a term of ten years, but must be exercised within six
months of termination of service on the Board for any reason other than death
or disability or retirement after at least five years of continuous Board
service, in which event such option must be exercised within two years of
death or disability and within three years of retirement. The price per share
to be paid by the holder of such an option is equal to the fair market value
per share of Common Stock on the date the option is granted. Except transfers
to family members, family entities or private foundations, no transfer, sale
or other disposition of Common Stock acquired upon option exercise is
permitted, except in an amount necessary to satisfy tax withholding liability,
until the Eligible Director terminates service as an Eligible Director of the
Company, unless a prior extraordinary corporate transaction occurs.
A-7
In May 1997, the Board approved the establishment of stock ownership
guidelines for Eligible Directors and executives to further strengthen the tie
between executive officers, directors and the stockholders of the Company. The
ownership level for Eligible Directors was set at three times the annual
retainer fee, with the recommendation that the Eligible Directors meet this
ownership guideline within a five year period based on beneficial ownership of
Common Stock. Such guideline and suggested ownership levels are subject to
annual review by the Compensation Committee. As of December 31, 1997, two of
the six Eligible Directors had met the guideline.
To encourage stock ownership opportunities, the Board also approved at its
May 1997 meeting the Union Texas Petroleum Holdings, Inc. Deferred
Compensation Plan, as amended and restated at its February 1998 meeting (the
"Deferred Plan") to give key employees and directors the ability to defer
compensation on an elective basis in the form of restricted shares of Common
Stock or in phantom shares of Common Stock. Other options available for
interest accrual on deferred amounts include a mutual fund program account and
an interest account. Directors may defer up to 100% of their annual retainer
fees, in increments of 25%. Ambassador Barry and Messrs. Gilhuly, Greene,
Kravis, Michelson and Whitmire have elected to participate in the Deferred
Plan for 1998.
Executive Officers. Set forth below is the age at May 1, 1998 and certain
other information concerning each person, including their principal
occupations and positions for the past five years, currently serving as an
executive officer of the Company.
John L. Whitmire--Age 57, Chairman of the Board and Chief Executive Officer
since January 1996. Mr. Whitmire has responsibility for the overall management
of the Company. Mr. Whitmire served as Executive Vice President--Exploration
and Production and as a director of Phillips Petroleum Company ("Phillips")
from January 1994 to January 1996 when he retired. Prior thereto, Mr. Whitmire
served in a number of executive capacities throughout his 30 year career with
Phillips.
William M. Krips--Age 58, Senior Vice President since May 1994, after having
served as Senior Vice President Exploration and Production, Senior Vice
President and General Manager--U.S. Exploration and Production, Senior Vice
President and General Manager--Hydrocarbon Products Group and Vice President
and General Manager--International Operations. Mr. Krips has responsibility
for the Regional Business Units and Technical Services. Mr. Krips joined
Allied in 1964, and served in a number of management positions in planning,
financing, marketing and operations. Mr. Krips is also a member of the
Management Board of Unimar Company, a partnership that is half owned by the
Company, and a director of ENSTAR Corporation ("ENSTAR"), a corporation owned
by Unimar Company, and of VICO 7.5, Inc., ENSTAR Indonesia, Inc., Virginia
International Company and Virginia Indonesia Company, which entities are
subsidiaries of ENSTAR.
Arthur W. Peabody, Jr.--Age 55, Senior Vice President since May 1994, after
having served as Senior Vice President--Exploration and Production, Senior
Vice President and General Manager--Hydrocarbon Products Group, Vice
President--Planning and Administration and Vice President--Acquisitions and
Planning. Mr. Peabody has responsibility for Exploration, Acquisitions,
Enhanced Production Ventures, Information Technology and Portfolio Management.
Mr. Peabody is also a member of the Unimar Company Management Board, and a
director of ENSTAR, ENSTAR Indonesia, Inc., VICO 7.5, Inc. and Virginia
International Company, which entities are subsidiaries of ENSTAR. Mr. Peabody
joined Allied in 1981 and, prior to assuming his current position, held
various positions in management and in planning and development with Allied
and thereafter with the Company.
Larry D. Kalmbach--Age 46, Vice President and Chief Financial Officer since
February 1995, after having served as Vice President--Finance and Vice
President and Controller of the Company. Mr. Kalmbach has responsibility for
Accounting, Tax, Treasury, Audit, Risk Management, Corporate Planning,
Purchasing, Administration and Investor Relations. He joined the Company in
1974 and has held various financial management positions with the Company. He
is also a member of the Unimar Company Management Board, and a director of
ENSTAR and of VICO 7.5, Inc., Virginia International Company and Virginia
Indonesia Company, which entities are subsidiaries of ENSTAR.
A-8
Alan R. Crain, Jr.--Age 46, Vice President and General Counsel since May
1996, after having served as Assistant General Counsel from September 1988
until he assumed his current position. Mr. Crain has responsibility for Law,
Commercial Negotiations, Government Affairs and Security. Mr. Crain joined the
Company in March 1988.
Richard A. Cunningham--Age 46, Regional Vice President since May 1996, after
having served as General Manager Worldwide Business Development from September
1991 until he assumed his current position. Mr. Cunningham has responsibility
for the Asia Pacific regional business unit. Mr. Cunningham joined the Company
in 1981 and, prior to assuming his current position, held various positions in
negotiations and business development as well as serving as President of VICO
Indonesia.
James E. Knight--Age 52, Regional Vice President since May 1996, after
having served as Vice President, Technical Services from December 1991 until
he assumed his current position. Mr. Knight has responsibility for the Europe,
Middle East, Africa and Central Asia regional business unit. Mr. Knight joined
the Company in 1980 and, prior to assuming his current position, held various
positions in management in gas processing, engineering and international
operations.
Michael N. Markowitz--Age 51, Vice President and Treasurer since July 1985,
after having served as Treasurer from August 1983 until he assumed his current
position. Mr. Markowitz has responsibility for Treasury and Tax. Mr. Markowitz
joined the Company in 1972 and, prior to assuming his current position, held
various positions of increasing responsibility in tax and treasury.
Donald M. McMullan--Age 49, Vice President and Controller since June 1993,
after having served as Assistant Treasurer and Director Finance from July 1988
until he assumed his current position. Mr. McMullan has responsibility for
Accounting and Corporate Planning. Mr. McMullan joined the Company in 1980
and, prior to assuming his current position, held various management positions
in finance, treasury and acquisitions.
Roger W. Pierce--Age 48, Vice President Exploration since May 1996, after
having served as General Manager Exploration Operations from December 1994
until he assumed his current position. Mr. Pierce has responsibility for
worldwide Exploration. Mr. Pierce joined the Company in 1976 and, prior to
assuming his current position, held various positions in domestic and
international exploration operations.
Newton W. Wilson, III--Age 47, Regional Vice President since May 1996, after
having served as General Counsel, Vice President--Administration and Secretary
from January 1993 until he assumed his current position. Mr. Wilson has
responsibility for the Americas regional business unit. Mr. Wilson joined the
Company in 1985 as Vice President, General Counsel and Secretary.
John M. Zimmerman--Age 51, Vice President--Investor Relations since May
1996, and Vice President--Planning and Investor Relations from April 1990
until he assumed his current position. Mr. Zimmerman joined the Company in
April 1983.
Certain of the executive officers also serve as directors of certain of the
Company's subsidiaries and affiliates in addition to those named above. The
Company's Bylaws provide that each officer shall hold office until the
officer's successor is elected or appointed or until the officer's death,
resignation or removal by the Board.
A-9
EXECUTIVE COMPENSATION
The following table sets forth information regarding aggregate cash
compensation, stock option awards and other compensation earned by the
Company's Chief Executive Officer and the four other most highly compensated
executive officers for services rendered in all capacities to the Company and
its subsidiaries in the years 1995 to 1997.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------- -----------------------
NUMBER OF SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING OPTIONS/SARS ALL OTHER
POSITION YEAR SALARY BONUS(1) COMPENSATION(2) GRANTED(3) COMPENSATION(4)
------------------ ---- -------- -------- --------------- ----------------------- ---------------
John L. Whitmire........ 1997 $600,000 $600,000 -- 175,000 $48,000
Chairman of the Board 1996 $586,957 $565,500 $577,873(5) 345,000 $28,000
and Chief Executive
Officer
William M. Krips........ 1997 $324,000 $198,500 -- 61,000 $25,920
Senior Vice President 1996 $314,667 $205,300 -- 39,100 $25,173
1995 $305,000 $193,000 -- 39,100 $24,400
Arthur W. Peabody, Jr... 1997 $320,500 $198,500 -- 61,000 $25,640
Senior Vice President 1996 $310,000 $205,300 -- 39,100 $24,800
1995 $296,250 $193,000 -- 39,100 $23,700
Newton W. Wilson, III... 1997 $304,000 $197,100 -- 41,000 $24,320
Regional Vice President 1996 $294,667 $170,000 -- 31,600 $23,574
1995 $285,000 $170,000 -- 31,600 $22,800
Larry D. Kalmbach....... 1997 $272,000 $169,300 -- 37,000 $21,760
Vice President and 1996 $267,000 $154,900 -- 31,600 $21,360
Chief Financial Officer 1995 $255,833 $150,000 -- 31,600 $20,467
- --------
(1) Includes compensation under the Company's Incentive Compensation Plan (the
"Incentive Compensation Plan"), which program is under the 1994 Incentive
Plan and provides cash awards for executive officers and employees of the
Company. Awards are paid currently in a lump sum or may be deferred
pursuant to the Deferred Plan. No incentive compensation accrued in 1997,
1996 or 1995 was deferred by any of the executive officers to later years,
except for the Chief Executive Officer who deferred 100% of his 1997 award
into restricted shares of Common Stock under the Deferred Plan.
(2) During each of the three years ended December 31, 1995, 1996 and 1997,
perquisites for each individual named in the Summary Compensation Table,
other than Mr. Whitmire in 1996, aggregated less than 10% of the total
annual salary and bonus reported for such individual in the Summary
Compensation Table, or $50,000, if lower. Accordingly, no such amounts are
included in the Summary Compensation Table.
(3) Each option granted included an equal number of stock appreciation rights
("SARs").
(4) Information in this column includes amounts contributed by the Company
under the Company's Savings Plan for Salaried Employees (the "Savings
Plan") and Supplemental Non-Qualified Savings Plan for Executive Employees
(the "Supplemental Savings Plan"). The Company's matching contributions to
the Savings Plan for 1997 were in the respective amounts of: $9,500.00 for
Mr. Whitmire, $9,500.00 for Mr. Krips, $9,500.00 for Mr. Peabody,
$8,486.64 for Mr. Wilson, and $9,500.00 for Mr. Kalmbach. The Company's
matching contributions to the Supplemental Saving Plan for 1997 were in
the respective amounts of: $38,500.00 for Mr. Whitmire; $16,420.00 for Mr.
Krips; $16,140.01 for Mr. Peabody, $15,833.36 for Mr. Wilson, and
$12,259.97 for Mr. Kalmbach.
(5) Includes certain amounts in connection with Mr. Whitmire's employment in
January 1996, including the purchase of Mr. Whitmire's home in
Bartlesville, Oklahoma at its appraised value of $388,000 and special
payment of $170,000 related to relocation to Houston, Texas by the
Company.
Pursuant to the authorization of the Company Board on May 3, 1998, John L.
Whitmire, Chairman of the Board and Chief Executive Officer, will be paid on
the date of consummation of the Offer in an amount of $5 million plus an
excise tax gross-up amount. Pursuant to the same authorization, if Mr.
Whitmire is terminated following consummation of the Offer, Mr. Whitmire will
be provided office space and certain support services and benefits for three
years and will be eligible for retiree medical coverage. At the same meeting,
the Company Board authorized that all officers be offered financial planning
and tax planning services for a two year period commencing on May 1, 1998.
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OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth information with respect to the executive
officers named in the Summary Compensation Table concerning the exercise of
options and SARs during 1997 and unexercised options and SARs held as of the
end of 1997, which includes grants made under the Company's 1985 and 1992
Stock Option Plans and the 1994 Incentive Plan.
AGGREGATED OPTION/SAR EXERCISES IN 1997
AND OPTION/SAR VALUES AT DECEMBER 31, 1997
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
SECURITIES OPTIONS/SARS HELD AT 1997 HELD AT 1997 FISCAL
UNDERLYING FISCAL YEAR-END YEAR-END(2)
OPTIONS/SARS VALUE ------------------------- -------------------------
NAME EXERCISED REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- ------------- ----------- -------------
John L. Whitmire........ 0 $ 0 142,500 377,500 $158,203 $158,203
William M. Krips........ 31,330 $262,388.75 172,894 126,450 $502,257 $ 71,174
Arthur W. Peabody, Jr... 23,800 $299,075.00 192,494 126,450 $684,519 $ 71,174
Newton W. Wilson, III... 19,330 $166,117.21 138,958 93,900 $426,438 $ 57,522
Larry D. Kalmbach....... 0 $ 0 75,026 85,275 $163,409 $ 52,157
- --------
(1) Market value of the Company's Common Stock at the time of exercise, minus
the exercise price, multiplied by the number of shares underlying the
options or SARs exercised.
(2) Value calculated by subtracting the exercise price from the market value
of the Company's Common Stock on December 31 1997, which was $20.71875
based on the average of the high and low sales price on December 31, 1997
on the New York Stock Exchange, multiplied by the number of shares
underlying the unexercised options or SARs.
PENSION PLANS
Certain employees of the Company, including each of its executive officers,
are participants in the Company's Salaried Employees' Pension Plan (the
"Pension Plan"). The table below illustrates the annual straight-life annuity
benefits payable to an employee under the Pension Plan as if the employee were
age 65 in 1997.
ESTIMATED ANNUAL PENSION BENEFIT FOR YEARS OF CREDITED SERVICE
INDICATED
---------------------------------------------------------------
AVERAGE 5 10 15 20 25 30 35 40
ANNUAL PAY YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS
---------- ------- ------- ------- ------- ------- ------- ------- -------
$ 300,000..... 24,600 49,200 73,800 98,400 123,000 147,600 172,200 196,800
400,000..... 32,800 65,600 98,400 131,200 164,000 196,800 229,600 262,400
500,000..... 41,000 82,000 123,000 164,000 205,000 246,000 287,000 328,000
600,000..... 49,200 98,400 147,600 196,800 246,000 295,200 344,400 393,600
700,000..... 57,400 114,800 172,200 229,600 287,000 244,400 401,800 459,200
800,000..... 65,600 131,200 196,800 262,400 328,000 393,600 459,200 524,800
900,000..... 73,800 147,600 221,400 295,200 369,000 442,800 516,600 590,400
1,000,000..... 82,000 164,000 246,000 328,000 410,000 492,000 574,000 656,000
1,100,000..... 90,200 180,400 270,600 360,800 451,000 541,200 631,400 721,600
1,200,000..... 98,400 196,800 295,200 393,600 492,000 590,400 688,800 787,200
1,300,000..... 106,600 213,200 319,800 426,400 533,000 639,600 746,200 852,800
1,400,000..... 114,800 229,600 344,400 459,200 574,000 688,800 803,600 918,400
1,500,000..... 123,000 246,000 369,000 492,000 615,000 738,000 861,000 984,000
The Pension Plan is a noncontributory, tax-qualified plan and provides that
the normal retirement age is 65. The benefits listed in the table above are
not subject to any reduction for Social Security benefits or, with respect to
the executive officers named in the Summary Compensation Table, for other
offset amounts. The amount of pension payable at normal or later retirement
under the Pension Plan is based on an employee's years of credited
A-11
service and the employee's average pay (including salary, Incentive
Compensation Plan payments that are not deferred, elective deferrals made
under the Company's Savings Plan or Section 125 cafeteria plans, and severance
pay (excluding officers), but excluding amounts deferred under a deferred
compensation plan, income from an exercise of a stock option or SAR and
certain other fringe benefits as specified in the Pension Plan) during the
most highly paid five consecutive years of the employee's last ten years of
employment. An employee who was employed by the Company on or after April 29,
1990, may elect to receive a lump sum payment at retirement in lieu of a
pension.
The Code places certain maximum limitations on the amount of benefits that
may be payable under tax-qualified plans, such as the Pension Plan. Any excess
over such maximum limitation calculated in accordance with the provisions of
the Pension Plan will be paid separately by the Company through one or more
unfunded excess benefit plans. Such excess benefit plans also provide benefits
to certain employees in excess of those provided under the Pension Plan, based
upon deferred compensation, severance pay and certain additional service that
is not taken into account under the Pension Plan and to the extent the formula
in effect for the Pension Plan prior to 1989 would produce a larger benefit
than the current formula. Such additional benefits are calculated and included
in the table above, with the exception of benefits related to the formula in
effect prior to 1989 and a special supplemental benefit to Mr. Whitmire. In
1988, the Company adopted a trust pursuant to which the Company may, at its
discretion, including in the event of a change of control, contribute amounts
to the trust to provide for all or part of the benefits the Company is
obligated to pay pursuant to the excess benefit plans. Any assets placed in
the trust will remain subject to the general unsecured creditors of the
Company.
At December 31, 1997, the following individuals had the number of years of
credited service indicated: Mr. Whitmire, 1; Mr. Krips, 33; Mr. Peabody, 16;
Mr. Wilson, 12; and Mr. Kalmbach, 23. Mr. Whitmire is also entitled to receive
a special supplemental benefit to ensure that he receives compensation for any
loss of total pension benefit as a result of his retirement from his previous
employer.
A-12
STOCK PRICE PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in the
cumulative total stockholder return (change in year-end stock price plus
reinvested dividends) on the Company's Common Stock against the cumulative
total return of the Standard & Poor's 500 Stock Index and the Dow Jones
Secondary Oil Industry Index for the period of five years ended December 31,
1997.
1992 1993 1994 1995 1996 1997
- -----------------------------------------------------------------------------
United Texas 100.0 109.6 112.8 106.4 124.2 116.6
S&P 500 100.0 110.1 111.5 153.5 188.7 251.6
Dow Jones Secondary Oil 100.0 113.0 112.2 128.8 158.7 170.1
- -----------------------------------------------------------------------------
Assumes $100 invested December 31, 1992, in the Company's Common Stock, S&P
500 Stock Index and Dow Jones Secondary Oil Industry Index (dividends
reinvested).
There can be no assurance that the Company's stock performance will continue
into the future with the same or similar trends depicted in the graph above.
The Company will not make or endorse any predictions as to future stock
performance.
A-13
REPORT OF THE ORGANIZATION AND COMPENSATION COMMITTEE AND THE SECTION 16
COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
COMPENSATION PROGRAM
The Company's compensation program for all executives, including the
executive officers named in the Summary Compensation Table, is administered by
the Compensation Committee and the Section 16 Committee of the Company's
Board. The Compensation Committee currently consists of three members, all of
who are non-employee directors and two of whom are affiliated with the KKR
Partnerships, which collectively own approximately 25.6% of the Company's
Common Stock. The Section 16 Committee currently consists of two members, both
of whom are non-employee directors as defined under the Exchange Act, and
approves grants of options, stock, stock appreciation rights and other types
of awards to Section 16 Officers. Set forth below is a report collectively
submitted by the Compensation Committee and the Section 16 Committee
(collectively, the "Committees" and individually a "Committee") addressing the
Company's executive compensation program for 1997.
The Company's executive compensation program is designed to attract,
motivate and retain executives critical to the long-term success of the
Company. An important consideration in this philosophy is to relate the
interests of the executive officers with those of the stockholders. In
connection with this philosophy, the Compensation Committee approved a new
compensation program for 1997, which places more emphasis on variable
performance-based pay that is tied directly to the results of the Company. The
new program strengthens, and the Company's proposed amendment to the 1994
Incentive Plan is intended to continue, the alignment between compensation and
stockholder wealth creation.
The program is composed of four elements: a base salary, an annual bonus,
long-term incentives in the form of stock options, and a comprehensive
benefits program. The goal of the new program for all employees, including
executive officers, is to establish base salaries at the market median, target
bonus opportunities at the 65th percentile and grant stock options to all
employees. All employees participate in the Company's annual incentive
compensation program, which is based entirely on the Company meeting
predetermined financial and strategic goals as approved by the Compensation
Committee. Individual personal objections for executive officers and other key
employees have been eliminated. Specific award opportunities vary depending on
the Company's performance level and the employee's salary grade. If the
Company meets or exceeds its goals, then the expectation is that each
employee's total direct compensation (i.e., salary, bonus and annualized long-
term incentives) will be well above the market median (50th percentile).
The Committees annually review the Company's executive compensation program
on the basis of information provided by the Company, as well as studies, data
and reports provided by independent consultants. Each component of the
executive compensation program is described below.
BASE SALARIES
The objective of the Company's base salary program for key management
positions is to provide its executives with base salary opportunities that are
competitive with similar positions in companies similar in size to the
Company, based on annual revenues (referred to in this report as "comparable
companies"). In order to motivate and retain key executives critical to the
long-term success of the Company, the Company has established certain
practices in regard both to base salary and to the relationship of incentive
bonus to predetermined performance-oriented goals for the Company. The base
salaries established for 1997 for the executive officers of the Company were
reviewed at the January meeting of the Compensation Committee. In setting such
base salaries, the Compensation Committee reviewed compensation data for
comparable companies, including a comparison of market compensation data from
a December 1996 comprehensive study that included detailed market data
regarding base salaries, annual incentives and long-term incentives, prepared
by Towers Perrin, an independent consultant (the "Consultant Study"), and
analyzed the Company's executive compensation program. The Consultant Study
included data collected from nationally recognized private and
A-14
published compensation surveys of energy and other industry companies of
comparable size to the Company for fiscal year 1996, but did not necessarily
include data from proxy statements published in 1996 for fiscal year 1995 for
the companies included in the Dow Jones Secondary Oil Industry published
index.
The data obtained from the foregoing surveys is more reflective of
competitive compensation among companies of similar size, based on annual
revenues, than the data pertaining to companies included in the Dow Jones
Secondary Oil Industry published index for purposes of the Company's Stock
Price Performance Graph, which index includes several companies that are much
larger and other companies that are smaller than the Company in terms of
annual revenues. The energy and other industry survey data provide more detail
about actual current compensation practices and levels to the Compensation
Committee than information from proxy statements published in prior years.
With the data collected, the Compensation Committee's objective for 1997 was
to establish the executives' salary at the market median (50th percentile) and
bonus opportunities at the 65th percentile in an effort to be competitive with
compensation provided to executives at comparable companies. The Company
believes it is crucial to provide strongly competitive salaries in order to
attract and retain managers who are highly talented. The specific competitive
markets considered depend on the nature and level of the particular positions
and the labor markets from which qualified individuals would be recruited for
such positions. Base salary levels also reflect the performance of each
individual employee over time. Thus, employees with higher levels of
performance sustained over time will be paid correspondingly higher salaries.
The Chief Executive Officer and the senior human resources executive of the
Company reviewed with the Compensation Committee a proposed 1997 salary plan
for the Company's executive officers, following with the Compensation
Committee approved the proposed plan at the January 1997 meeting. Three
executive officers, including one of the executive officers named in the
Summary Compensation Table, received salary increases at levels considered
appropriate in view of the duties and scope of responsibilities of each such
officer's position and were in a range generally consistent with the market
median (50th percentile) of comparable companies.
ANNUAL INCENTIVES
The objective of the Company's annual incentive bonus, a pay-for-performance
program under the 1994 Incentive Plan, is to motivate and reward individuals
based on contributions to business results. The Compensation Committee
administers the Company's incentive program, recommends to the Board the
aggregate amount of incentive compensation and approves individual officer
awards. The Board approves the aggregate amount of the incentive compensation
awards to all participants.
The annual bonus in 1997 was tied directly to the results of the Company and
was based upon achievement of performance-oriented goals, 65% of which were
financial measures and 35% of which were strategic objectives. These goals and
their weightings were approved by the Compensation Committee at its January
1997 meeting. In addition, a target bonus was approved for each employee based
on salary grade. The target is adjusted based on the Company's achievement of
these goals. Annual bonus target as a percentage of salary ranged from 40% to
50% for each of the executive officers named in the Summary Compensation
Table, except for the Chief Executive Officer. See "Chief Executive Officer
Compensation" below. If the Company exceeds its goals, such executive officers
may receive a maximum of up to 80% to 100% of their salary as their bonus and,
conversely, such officers may receive a reduced bonus or no bonus payment if
the Company does not attain the goals. Each employee's award, including for
executive officers, can be adjusted up or down by as much as 25% depending on
individual performance to allow the Company discretion in rewarding individual
performance.
For 1997, the financial measures considered in the incentive compensation
program included net income, net cash flow, reserve replacement, total
shareholder return and economic value added from reserves. The total
shareholder return measure compared the Company's return relative to the
return of the companies in the Dow Jones Secondary Oil Industry published
index. Financial results were measured against predetermined target
performance levels approved by the Compensation Committee. The remaining
portion of the awards was based on the achievement of certain strategic
objectives, which were performance-oriented goals that directly supported the
Company's overall business objectives, which included the development of a
risk balanced exploration
A-15
portfolio, the initiation of a significant industry project, the development
of enhanced production ventures, the acquisition of producing or developing
reserves and the control of cash operating costs and expenses. The
accomplishment of such measures and objectives, as well as other significant
growth initiatives achieved during the year, was evaluated by the Chief
Executive Officer. The results of this evaluation were reflected in a
recommended award for each employee, including executive officers.
All employees, including the executive officers, received a bonus on the
basis of percentage award levels previously approved by the Compensation
Committee at its January 1997 meeting. In certain cases, an award to an
employee, including an officer, was adjusted upward or downward by senior
management, as much as 25% in either direction, to allow senior management
discretion in rewarding performance. These adjustments were subject to
approval by the Chief Executive Officer, and with respect to adjustments to
awards for officers, approval by the Compensation Committee. The Chief
Executive Officer reviewed all of the calculated awards for certain key
salaried employees, including officers, adjusted such awards as he deemed
appropriate and reviewed with the Compensation Committee at the February 1998
meeting a list of recommended awards for all officers of the Company. Bonuses
as a percentage of salary ranged from 61% to 65% for each of the officers
named in the Summary compensation Table, excluding the Chief Executive
Officer. See "Chief Executive Officer Compensation" below. Such awards were
above target because the Company on a weighted completion basis exceeded its
financial measures and strategic objectives in 1997. The awards resulted in
total cash compensation (base salary plus bonus) for executive officers
generally reflective of the 65th percentile of comparable companies.
LONG-TERM INCENTIVES
Another important consideration in the compensation philosophy of the
Company is to align the interests of the directors, key executive officers and
employees with the long-term interests of the stockholders of the Company. The
1994 Incentive Plan provides authority for the Committees to use a range of
long-term incentive awards in various forms as part of the company's overall
compensation program. In connection with this philosophy, the Company
historically has attempted to periodically award its employees with the stock
options whose value depends upon an increase in the value of the Common Stock
of the Company. The use of stock options is an integral part of the entire
compensation package of the employees of the Company, which also serves as a
pay-for-performance plan. Through providing the executives an opportunity for
stock ownership, stock options reward executives, on the basis of the
Company's future performance reflected in increased stock price, for long-term
service to the Company and for enhancing shareholder value. Accordingly, the
long-term stock options are granted to vest over time without regard to the
number of options held currently by each executive officer on the date of
grant. By working to increase the Company's stock value, one of the Company's
performance goals is met, and the executives and employees are likewise
compensated through increased option value. See "Director Compensation."
On October 23, 1997, the Committees granted a total of 1,613,200 stock
options pursuant to the 1994 Incentive Plan, which plan was previously
approved by the stockholders. Options were received by all U.S.-based
employees, including the named executive officers as described in the Summary
Compensation Table and the Option/SAR Grants in 1997 Table. The option
exercise price is equal to the fair market value of the stock on October 23,
1997, the date of the grants. The 1997 option grants vest at a rate of 25% per
year beginning one year after the grant date.
Consistent with the Company's objective that each employee's total direct
compensation be well above the market median, the Committees' overall stock
option grant guidelines for employees, including officers were generally to
position grants at the 75th percentile of the competitors. At its October 1997
meeting, the Committees reviewed a September 1997 update of the Consultant
Study and analyzed the executive compensation program. The results of the
updated study indicated that the officers total direct compensation levels
were generally competitive with the 65th percentile of the market. A history
of stock options granted to officers from 1985 to such October 1997 meeting
was also provided. The number of shares subject to option
A-16
grants varied based on job grade classification. In recognition of the success
of the Company in implementing the Company's growth strategies, the 1997 stock
option grants were at the market 75th percentile, except for the Chief
Executive Officer. See "Chief Executive Officer Compensation" below.
Consistent with the Company's philosophy that compensation should be
significantly aligned to stockholder value, the Committees have proposed the
Amended 1994 Plan for stockholder approval. A copy of the plan document is
provided as Appendix A to this Proxy Statement. The proposed amendment
increases the number of shares of Common Stock available for award from four
million to a total of eight million. If the Amended 1994 Plan is approved by
the stockholders, grants of stock options or other awards will allow the
Committees to continue to use stock options under such plan as a long-term
incentive to motivate, attract and retain high-quality executive talent.
STOCK OWNERSHIP PHILOSOPHY
To further strengthen the tie between directors, key executive officers and
the long-term interests of stockholders, the Compensation committee at its May
1997 meeting approved a program designed to build stock ownership among the
directors and key executive officers. The various aspects of the program are
discussed below.
First, stock ownership guidelines were established for officers and Eligible
Directors. Guidelines for the Chief Executive Officer were set at three times
his annual salary, and for other officers at two or one times their annual
salary, depending on position, with the expectation that the executives would
attain their respective ownership levels within a five year period. The
guidelines and each officer's individual ownership level in relationship with
the guidelines are reviewed with the Compensation Committee annually. As of
December 31, 1997, each of the executive officers in the Summary Compensation
Table, except the Chief Executive Officer and Chief Financial Officer, have
met the applicable guidelines; however, as of the date of this report, the
Chief Executive Officer has met the guidelines with the deferral of his 1997
incentive bonus into restricted shares of the Company's Common Stock pursuant
to the Deferred Plan. See "Chief Executive Officer Compensation" below.
Second, the Committees approved the adoption of a non-qualified deferred
compensation plan (the "Deferred Plan") to provide the opportunity for
directors to defer up to 100% of their annual retainer fee in increments of
25%, officers and certain key employees to defer up to 50% of their base
salaries in increments of 10% and key employees, including officers, to defer
up to 100% of their annual incentive awards in increments of 25%. In addition,
to provide more opportunities to build personal stock ownership, officers, key
employees and directors are eligible to defer a portion or all of their annual
incentive award and annual retainer fee, respectively, into restricted shares
of the Company's Common Stock. Restrictions on the shares of stock received
lapse at a rate no more quickly than 25% per year from the award date. In
addition to the restricted share option election, participants in the Deferred
Plan are allowed to select one of the following interest accrual options:
Company phantom stock account, mutual funds program account or an interest
account. A trust was established to secure these deferred compensation
amounts. Any assets placed in the trust will remain subject to the general
unsecured creditors of the Company. Currently, Mr. Whitmire has elected to
participate in the Deferred Plan for 1998.
OTHER COMPENSATION PROGRAMS AND POLICIES
Another aspect of the Company's compensation package is to encourage
employees to save for the future through the Savings Plan. The Savings Plan
permits most regular salaried employees of the Company to contribute a
percentage of their annual base salary to the Savings Plan on a before-tax
basis. A participant's contributions to the Savings Plan are matched by the
Company. Generally, the Company's basic matching contribution is an amount
equal to 100% of the first 8% of the participant's base salary contributed to
the Savings Plan, which 8% is referred to as the participant's basic
contribution. To encourage alignment of the employees' and stockholders' long-
term financial interests, all of the Company's contributions to the Savings
Plan are
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invested in the Company's Common Stock, and participants may elect to invest
their contributions in ten investment funds, including the one invested in the
Company's Common Stock. The Code places certain maximum limitations on the
amount of contributions which otherwise could be contributed to the Savings
Plan. Highly compensated participants limited by such provisions, which
include all of the executive officers, may contribute to the Supplemental
Savings Plan and have their contributions matched by the Company in cash in
accordance with the terms of the Supplemental Savings Plan. The Supplemental
Savings Plan is unfunded, and benefits are paid from the general assets of the
Company. Company contributions to the Supplemental Savings Plan in 1997 were
$214,985.07, and 1997 contributions of $214,985.07 were made by the
participants. See the Summary Compensation Table for information with respect
to each named executive officer.
The Company has certain broad-based employee benefit plans in which all
employees, including the executives, participate, such as life and health
insurance plans and the company's Matching Gifts Program, under which program
the Company currently will match a maximum of $10,000 of gifts by employees
and directors to eligible institutions per participant per year. Also, the
executives of the Company are provided director and officer insurance
coverage. The incremental cost to the Company of the executives' benefits
provided under these plans is not material to the Company. For employee
participants (which include all of the executive officers) whose benefits
under the Savings Plan or Pension Plan are reduced or restricted due to tax
law limits, the Company has applicable excess supplemental benefit plans.
Benefits under these plans are not directly or indirectly tied to Company
performance.
Section 162(m) of the Code limits the tax deduction that the Company may
take with respect to the compensation of certain executive officers, unless
the compensation is "performance based" as defined in the Code. The Company's
1997 executive compensation, other than with respect to the Chief Executive
Officer, was within the provisions for the $1 million deductibility cap set
forth in Section 162(m) of the Code. Stock options granted under the 1992
Stock Option Plan and the 1994 Incentive Plan are intended to qualify for
exemption from the cap. To the extent a committee has discretion in its
decision making that is not permissible under the Code, certain awards such as
annual incentive bonuses will not meet the requirement of deductibility under
the Code. The Committees intend to continue to monitor developments under the
tax law and consider actions that may be taken in the future that would enable
any compensation in excess of $1 million paid to its executives who are
"covered persons" under the provisions of Section 162(m) will be paid without
regard to the limitation on deductibility thereunder.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Whitmire participates in the same compensation program as do the other
executives of the Company. In accordance with the discussion above of the
Company's philosophy for executive compensation, a significant portion of the
compensation for the Chief Executive Officer is based upon the Company's
performance. Mr. Whitmire's annual base salary remained at $600,000 for 1997
and his annual cash bonus target under the Company's incentive compensation
program was 70% of his base salary. On October 23, 1997, Mr. Whitmire was
granted options to purchase 175,000 shares of Common Stock at $23.03125 per
share under the 1994 Incentive Plan. Such grant was above the 75th percentile
of the market to reflect his significant contribution to the Company over the
past year in advancing the various growth strategies of the Company. Mr.
Whitmire currently owns 85,388 shares of Company Common Stock and has been
granted a total of 520,000 stock options. Mr. Whitmire also will receive a
special supplemental benefit to ensure that he receives compensation for any
loss of total pension benefit as a result of his early retirement from his
former employer to become the Chief Executive Officer of the Company.
Mr. Whitmire's discretionary annual incentive bonus for 1997 was $600,000,
which was 100% of his base salary and approximated 50% of his combined bonus
and salary compensation for 1997. His annual incentive compensation was based
on the achievement of financial and strategic objectives by the Company, as
described above. The Compensation Committee evaluated the attainment of the
Company's financial and strategic objectives and approved Mr. Whitmire's 1997
bonus. His award was above target because the Company
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exceeded on a weighted completion basis its financial measures and strategic
objectives in 1997. The Committee also approved an upward adjustment to his
award to reward Mr. Whitmire's performance over the past year. Mr. Whitmire
elected to defer all of his 1997 incentive bonus into restricted shares of
Common Stock pursuant to the Deferred Plan. Also, Mr. Whitmire participated in
the Supplemental Savings Plan as reflected in the Summary Compensation Table.
Mr. Whitmire's compensation in excess of $1 million for 1997 did not qualify
for deductibility under the provisions of Section 162(m) of the Code. Since
the Compensation Committee applied discretion to its decision making for 1997
awards that is not permissible under the Code, its annual incentive bonus to
Mr. Whitmire did not and was not intended to meet the requirements for
deductibility under the Code. The Compensation Committee believes the payment
of the annual incentive bonus was in the best interests of the Company.
Although the excess amount was not deductible, it was not material.
The report of the Committees shall not be deemed incorporated by reference
by any general statement incorporating by reference the 1998 Proxy Statement
into any filing under the Securities Act or under the Exchange Act, except to
the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
Organization and Compensation Committee:
Edward A. Gilhuly
Michael W. Michelson
Richard R. Shinn
Section 16 Committee:
Glenn A. Cox
Richard R. Shinn
February 26, 1998
SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file initial reports of ownership and reports
of changes in ownership (Forms 3, 4 and 5) of Common Stock and other equity
securities of the Company with the SEC and the New York Stock Exchange.
Officers, directors and greater-than-10% beneficial holders are required by
SEC regulation to furnish the Company with copies of all such forms that they
file.
To the Company's knowledge, based solely on the Company's review of the
copies of such reports received by the Company and, if applicable, written
representations from certain reporting persons, that no reports on Form 5 were
required. The Company believes that during the fiscal year ended December 31,
1997, its officers, directors and greater-than-10% beneficial owners complied
with all applicable Section 16(a) filing requirements.
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SCHEDULE I
SUB DESIGNEES
The name, business address, present principal occupation or employment and
employment history of each of the Sub Designees designated by Sub to serve on
the Company's Board are set forth below. All such Sub Designees are citizens
of the United States. Unless otherwise indicated, the principal business
address of each Sub Designee is Atlantic Richfield Company, 515 South Flower
Street, Los Angeles 90071.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, AGE AND BUSINESS ADDRESSMATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
--------------------------------------------------------------------------------
William E. Wade, Jr. (55).... President of ARCO since January 1998. Mr. Wade
was a director of ARCO from June 1993 to May
1998. Mr. Wade served as an Executive Vice
President from June 1993 to January 1998 and a
Senior Vice President of ARCO from May 1987 to
May 1993, President of ARCO Oil and Gas Company
from October 1990 to May 1993, President of
ARCO Alaska, Inc. from July 1987 to July 1990,
a Vice President of ARCO from 1985 to 1987 and
a Vice President of ARCO Exploration Company
from 1981 to 1985. Mr. Wade has been an officer
of ARCO since 1985. Mr. Wade also serves as a
Director of Vastar Resources, Inc.
Marie L. Knowles (51)........ Executive Vice President and Chief Financial
Officer of ARCO since July 1996. Mrs. Knowles
was a director of ARCO from July 1996 to May
1998. Mrs. Knowles served as a Senior Vice
President of ARCO and President of ARCO
Transportation Company from June 1993 to July
1996, Vice President and Controller of ARCO
from July 1990 to May 1993, Vice President of
Finance, Control and Planning of ARCO
International Oil and Gas Company from July
1988 to July 1990, and Assistant Treasurer of
Banking of ARCO from October 1986 to July 1988.
Mrs. Knowles has been an officer of ARCO since
1990. Mrs. Knowles also serves as a Director of
ARCO Chemical Company and Vastar Resources,
Inc.
Michael E. Wiley (47)........ Executive Vice President of ARCO since March
1997. Mr. Wiley was a director of ARCO from
June 1997 to May 1998. Mr. Wiley served as
Chief Executive Officer of Vastar Resources,
Inc. from January 1994 to March 1997 and
President from September 1993 to March 1997.
Prior to the formation of Vastar Resources,
Inc., Mr. Wiley was Senior Vice President of
ARCO from June 1993 to June 1994, President of
ARCO Oil and Gas Company from June 1993 to
October 1993 and Vice President of ARCO and
Manager of ARCO Exploration and Production
Technology from 1991 to 1993. Mr. Wiley has
been an officer of ARCO since 1997. Mr. Wiley
also serves as Chairman of the Board of Vastar
Resources, Inc.
Donald R. Voelte, Jr. (45)... Senior Vice President of ARCO since April 1997.
Mr. Voelte previously worked for the Mobil
Corporation for 22 years. Mr. Voelte's most
recent position was President of Mobil Oil
Company's New Exploration and Producing
Ventures from 1994 to April 1997. Mr. Voelte
has been an officer of ARCO since 1997.