SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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/X/ Definitive Proxy Statement
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/ / Soliciting Material Pursuant to Section240.14a-12
KERR-MCGEE CORPORATION
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(Name of Registrant as Specified In Its Charter)
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NOTICE OF 2002
ANNUAL MEETING OF
STOCKHOLDERS AND
PROXY STATEMENT
2002
KERR-MCGEE CORPORATION
[KERR-MCGEE LOGO]
March 25, 2002
Dear Stockholders:
--------------------------
Tuesday, May 14, 2002 On behalf of the Board of Directors, it is my pleasure
9:00 a.m. to invite you to Kerr-McGee Corporation's 2002 Annual
Meeting of Stockholders, which will be held on Tuesday,
123 Robert S. Kerr Avenue May 14, 2002, in the Robert S. Kerr Auditorium,
Oklahoma City, Oklahoma Kerr-McGee Center, 123 Robert S. Kerr Avenue, Oklahoma
City, Oklahoma.
Attached is the Notice of Meeting and Proxy Statement,
which describes in detail the five matters on which you
are being asked to vote. Also enclosed is Kerr-McGee's
2001 Annual Report.
Your vote is important no matter how many shares you
own. Regardless of whether you plan to attend the
meeting, I encourage you to promptly vote by telephone
or Internet or complete and return the enclosed proxy
card to ensure that your shares will be represented at
the meeting.
Sincerely yours,
[LUKE R. CORBETT SIG]
Luke R. Corbett,
Chairman and Chief Executive Officer
[LOGO]
KERR-MCGEE CORPORATION
P. O. Box 25861 - OKLAHOMA CITY, OKLAHOMA 73125
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
March 25, 2002
To Our Stockholders:
Kerr-McGee Corporation's 2002 Annual Meeting of Stockholders will be held
at 9:00 a.m. on Tuesday, May 14, 2002, at the Robert S. Kerr Auditorium,
Kerr-McGee Center, 123 Robert S. Kerr Avenue, Oklahoma City, Oklahoma.
At the meeting, Stockholders will act on the following matters:
1. ELECTION OF THREE DIRECTORS;
2. RATIFICATION OF THE APPOINTMENT OF INDEPENDENT PUBLIC
ACCOUNTANTS;
3. APPROVAL OF THE 2002 ANNUAL INCENTIVE COMPENSATION PLAN;
4. APPROVAL OF THE 2002 LONG TERM INCENTIVE PLAN; AND
5. APPROVAL OF THE AMENDMENT OF THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF KERR-MCGEE OPERATING
CORPORATION.
These matters are described in detail in the Proxy Statement. The Board of
Directors recommends a vote FOR Items 1 through 5.
Stockholders of record of Kerr-McGee Corporation common stock at the close
of business on March 15, 2002, are entitled to receive notice of and to vote at
the meeting.
It is important that your shares be represented at the meeting. Regardless
of whether you plan to attend the meeting, please vote by telephone or Internet
or complete and return the proxy card in the enclosed envelope as soon as
possible.
Sincerely,
[GREGORY F. FISHER SIG]
Gregory F. Pilcher
Senior Vice President,
General Counsel and Secretary
KERR-MCGEE CORPORATION
KERR-MCGEE CENTER
P. O. BOX 25861
OKLAHOMA CITY, OKLAHOMA 73125
PROXY STATEMENT FOR THE
2002 ANNUAL MEETING OF STOCKHOLDERS
ON MAY 14, 2002 AT 9:00 A.M.
The accompanying proxy is solicited on behalf of the Board of Directors
(the "Board") of Kerr-McGee Corporation (the "Company"). This Proxy Statement
and the accompanying form of proxy are first being mailed to Stockholders on
March 25, 2002.
Stockholders of record may appoint proxies to vote their shares in one of
three ways:
1. Via Internet pursuant to the instructions on the Proxy Card;
2. Calling the toll-free number on the enclosed Proxy Card; or
3. Signing, dating and mailing the enclosed Proxy Card in the envelope
provided.
Proxies will be voted as directed, unless revoked at or before the Annual
Meeting on May 14, 2002. Any Stockholder who attends the Annual Meeting and
elects to vote in person may at the meeting revoke a previously designated
proxy. Otherwise, a Stockholder must advise the Corporate Secretary in writing
of the revocation of a proxy.
Under Section 216 of the Delaware General Corporation Law and the
Kerr-McGee Corporation ByLaws (the "ByLaws"), a majority of the shares of the
common stock of the Company, present in person or represented by proxy, shall
constitute a quorum for purposes of the annual meeting. In all matters other
than the election of directors and the amendment of the certificate of
incorporation of Kerr-McGee Operating Corporation, the affirmative vote of the
majority of shares present in person or represented by proxy at the annual
meeting and entitled to vote on the subject matter shall be the act of the
Stockholders. Directors shall be elected by a plurality of the votes present in
person or represented by proxy at the annual meeting and entitled to vote on the
election of directors. Approval of the amendment of the certificate of
incorporation of Kerr-McGee Operating Corporation requires the affirmative vote
of a majority of the shares of the common stock of the Company. Abstentions will
have the effect of votes against a proposal; and broker nonvotes will have the
effect of votes against approval of the amendment of the certificate of
incorporation of Kerr-McGee Operating Corporation, but will have no effect on
the vote with respect to other proposals.
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VOTING SECURITIES
The Company's only class of voting securities is its common stock having a
par value of $1.00 per share ("Common Stock"), of which there were
100,231,560 shares outstanding as of the close of business on March 15, 2002,
the record date for Stockholders entitled to receive notice of and to vote at
this meeting. Each share is entitled to one vote. The number of shares
outstanding does not include treasury stock, which will not be voted.
CORPORATE REORGANIZATION
On August 1, 2001, in connection with its acquisition of HS
Resources, Inc., the Company completed a holding company reorganization in which
Kerr-McGee Operating Corporation, which was formerly known as Kerr-McGee
Corporation, changed its name and became a wholly owned subsidiary of the
Company. Reference in this Proxy Statement to the Company includes business and
Board activity conducted by the former Kerr-McGee Corporation before it
reorganized as a subsidiary of the Company and changed its name to Kerr-McGee
Operating Corporation.
AGENDA FOR ANNUAL MEETING
Five items of business are scheduled for the 2002 Annual Meeting, as
follows:
1. Election of three Directors;
2. Ratification of the appointment of Ernst & Young LLP as the
Company's independent public accountants;
3. Approval of the 2002 Annual Incentive Compensation Plan;
4. Approval of the 2002 Long Term Incentive Plan; and
5. Approval of the Amendment of the Amended and Restated Certificate of
Incorporation of Kerr-McGee Operating Corporation.
A discussion of all five of these items follows.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS YOU VOTE "FOR" EACH OF THESE
ITEMS.
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ITEM NO. 1
ELECTION OF THREE DIRECTORS
The Board of Directors has nominated Matthew R. Simmons, Nicholas J.
Sutton and Ian L. White-Thomson for election as Directors for a term expiring at
the 2005 Annual Meeting and in each case until their respective successors are
elected and qualified. The nominees are currently Directors of the Company whose
terms expire at the 2002 Annual Meeting. John J. Murphy attained the age of 70
before the 2002 Annual Meeting, and is therefore not standing for re-election to
the Board.
The Board of Directors has fixed the number of Directors at 11 following
the retirement of Mr. Murphy on May 14, 2002. The Company's Certificate of
Incorporation and ByLaws provide that Directors shall be divided into three
classes serving staggered three-year terms.
None of the nominees are related to any executive officer of the Company,
its subsidiaries, limited liability companies or affiliates. All nominees have
consented to serve, and the Company has no reason to believe any nominee will be
unavailable. Should any nominee become unavailable for any reason, the proxies
will be voted for a substitute nominee to be named by the Board unless the
number of Directors constituting a full board is reduced.
Biographical and other information about each of the nominees is set forth
in this Proxy Statement beginning on Page 4 under "Director Information".
At the Annual Meeting the Stockholders will vote on the election of each
of the nominees to the Board. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" THE ELECTION TO THE BOARD OF EACH OF THE NOMINEES.
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DIRECTOR INFORMATION
The following contains information concerning the Company's directors,
including the three nominees standing for election at the Annual Meeting and the
director who is retiring from the Board as of the Company's 2002 Annual Meeting
of Stockholders. All information is as of March 1, 2002. Information about each
director's ownership of Company common stock is contained on Page 8 under the
caption "Security Ownership". Information about director compensation is
contained on Page 9 under the caption "Information About the Board of
Directors - Compensation".
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NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
(FOR A TERM ENDING 2005)
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MATTHEW R. SIMMONS, 58, is President of Simmons & Company
[SIMMONS PHOTO] International, a specialized investment banking firm that
serves the worldwide energy services industry, a position he
has held since the firm's founding in 1974. Mr. Simmons has
served on the Company's Board of Directors since 1999. He
chairs the Board's Executive Compensation Committee and is a
member of the Board's Audit, Finance and Nominating
Committees.
NICHOLAS J. SUTTON, 57, was founder, Chairman and Chief
[SUTTON PHOTO] Executive Officer of HS Resources, Inc., an independent
energy company from 1978 to August 2001, when the company
was acquired by Kerr-McGee Corporation. Mr. Sutton has
served on the Company's Board of Directors since
January 2002. He is a member of the Board's Executive
Compensation and Public Responsibility Committees.
IAN L. WHITE-THOMSON, 65, retired as Chairman of the Board
[WHITE-THOMSON PHOTO] of U. S. Borax, Inc., a provider of borax and borate
products, in June 1999, after serving in that position since
1996. In addition, he was President and Chief Executive
Officer of U. S. Borax, Inc. from 1988 to 1999, and Chief
Executive Officer of Rio Tinto Borax Ltd. from 1995 to June
1999. In September of 2001, Mr. White-Thomson retired as
Executive Director of the Los Angeles Opera, a position he
had held since 2000. Mr. White-Thomson has served on the
Company's Board of Directors since 1999. He chairs the
Board's Public Responsibility Committee and is a member of
the Board's Audit and Executive Compensation Committees.
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CONTINUING DIRECTORS
(TERM EXPIRES AT THE 2003 ANNUAL MEETING)
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SYLVIA A. EARLE, 66, is Chair of Deep Ocean Exploration and
[EARLE PHOTO] Research, Inc., a position she has held since 1992, and
since 1998 has been Explorer-in-Residence for the National
Geographic Society. Dr. Earle has been a member of the
Company's Board of Directors since 1999. She chairs the
Board's Nominating Committee and is a member of the Board's
Executive Compensation and Public Responsibility Committees.
MARTIN C. JISCHKE, 60, is President of Purdue University, a
[JISCHKE PHOTO] position he has held since 2000. He was President of Iowa
State University from 1991 to 2000. Dr. Jischke has served
on the Company's Board of Directors since 1993. He is a
member of the Board's Executive Compensation and Nominating
Committees. Dr. Jischke also serves on the Board of
Directors of Wabash National Corporation.
LEROY C. RICHIE, 60, is Chairman and Chief Executive Officer
[RICHIE PHOTO] of Q Standards World Wide, Inc., a provider of publication
and library services for technical standards, a position he
has held since 2000. From 1999 to 2000 he served as Chairman
and Chief Executive Officer of Capitol Coating
Technologies, Inc. He was President of Intrepid World
Communications from 1998 to 1999. From 1990 through 1997,
Mr. Richie was Vice President and General Counsel for
Automotive Legal Affairs of Chrysler Corporation.
Mr. Richie has served on the Company's Board of Directors
since 1998. He chairs the Board's Audit Committee and is a
member of the Board's Executive Compensation, Finance and
Nominating Committees. Mr. Richie serves on the Board of
Directors of Infiniti, Inc. He also serves on the Boards of
Directors of the companies in the Seligman family of
investment companies, with the exception of Seligman Cash
Management Fund, Inc.
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CONTINUING DIRECTORS
(TERM EXPIRES AT THE 2004 ANNUAL MEETING)
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WILLIAM E. BRADFORD, 67, is retired from Halliburton
[BRADFORD PHOTO] Company, a provider of energy and energy services, where he
served as Chairman of the Board from 1998 to 2000. From 1996
to 1998, Mr. Bradford served as Chairman of the Board and
Chief Executive Officer of Dresser Industries, Inc., now
merged with Halliburton Company. Mr. Bradford has served on
the Company's Board of Directors since 1999. He chairs the
Board's Finance Committee and is a member of the Board's
Executive Compensation and Nominating Committees.
Mr. Bradford also serves on the Board of Directors of Valero
Energy Corporation.
LUKE R. CORBETT, 55, is Chairman of the Board and Chief
[CORBETT PHOTO] Executive Officer of the Company. He has served in that
capacity since May 1999 and also from February 1997 to
February 1999. Between February 1999 and May 1999, he
served as Chief Executive Officer, and from 1995 to 1997, he
served as President and Chief Operating Officer.
Mr. Corbett, a member of the Company's Board of Directors
since 1995, is an ex officio member of the Board's Finance
and Public Responsibility Committees. He also serves on the
Boards of Directors of OGE Energy Corp., BOK Financial
Corporation and Noble Drilling Corporation.
DAVID C. GENEVER-WATLING, 56, is President of GW Enterprises
[GENEVER-WATLING PHOTO] LLC, an investment and management firm, a position he has
held since 1998. From 1997 to 2000, he was a Managing
Director of SMG Management L.L.C., an investment firm, and
from 1992 to 1995, he served as President and Chief
Executive Officer of General Electric Industrial and Power
Systems. Mr. Genever-Watling has served on the Company's
Board of Directors since 1999. He is a member of the Board's
Executive Compensation and Public Responsibility Committees.
6
WILLIAM C. MORRIS, 63, is Chairman of the Board of J. & W.
[MORRIS PHOTO] Seligman & Co. Incorporated, Chairman of the Board of
Tri-Continental Corporation and Chairman of the Boards of
the companies in the Seligman family of investment
companies, positions he has held since 1988. He also is
Chairman of the Board of Carbo Ceramics, Inc., a position
he has held since 1987. Mr. Morris has served on the
Company's Board of Directors since 1977. He is a member of
the Board's Executive Compensation, Finance and Public
Responsibility Committees.
FARAH M. WALTERS, 57, is President and Chief Executive
[WALTERS PHOTO] Officer of University Hospitals Health System, Cleveland,
Ohio, a position she has held since 1992. Ms. Walters has
served on the Company's Board of Directors since 1993. She
is a member of the Board's Audit, Executive Compensation
and Public Responsibility Committees. Ms. Walters also
serves on the Board of Directors of PolyOne Corporation.
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RETIRING DIRECTOR
(TERM EXPIRES AT THE 2002 ANNUAL MEETING)
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JOHN J. MURPHY, 70, retired as Chairman of the Board of
[MURPHY PHOTO] Dresser Industries, Inc., a provider of hydrocarbon energy
products and services, in 1996 after serving in that
position since 1983. From January 1997 to 2000, he was a
Managing Director of SMG Management L.L.C., an investment
firm. Mr. Murphy has served on the Company's Board of
Directors since 1990 and will retire from the Board on
May 14, 2002. He is a member of the Board's Audit, Executive
Compensation and Finance Committees. Mr. Murphy also serves
on the Boards of Directors of Carbo Ceramics, Inc.;
PepsiCo Inc.; W. R. Grace & Co.; and Shaw Industries, Ltd.
7
SECURITY OWNERSHIP
The following table sets forth the number of shares of Common Stock
beneficially owned as of December 31, 2001, by each director and nominee, each
of the executive officers named in the Summary Compensation Table and all
directors and officers as a group, and the percentage represented by such shares
of the total Common Stock outstanding on that date:
NUMBER OF SHARES PERCENT
BENEFICIALLY OF
NAME OR GROUP OWNED CLASS *
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William E. Bradford 13,030(1)(2)
Luke R. Corbett 578,270(2)
Sylvia A. Earle 5,619(2)
David C. Genever-Watling 12,324(1)(2)
Martin C. Jischke 6,195(1)(2)
William C. Morris 42,266(2)
John J. Murphy 3,003(1)(2)
Leroy C. Richie 4,149(1)(2)
Matthew R. Simmons 13,120(1)(2)
Nicholas J. Sutton 160,102
Farah M. Walters 7,527(1)(2)
Ian L. White-Thomson 8,666(1)(2)
Kenneth W. Crouch 96,684(2)
Gregory F. Pilcher 48,639(2)
Robert M. Wohleber 51,401(2)
William P. Woodward 87,607(2)
All directors and executive
officers as a group, including
those named above 1,172,964(1)(2) 1.17%
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* The percentage of shares beneficially owned by any single director, nominee
or executive officer does not exceed 1%.
(1) Includes shares in the Stock Deferred Compensation Plan for Non-Employee
Directors.
(2) Includes shares issuable upon the exercise of outstanding stock options
that are exercisable within 60 days of December 31, 2001: 5,648 shares
for Mr. Genever-Watling; 2,327 shares each for Mr. Bradford, Dr. Earle
and Mr. White-Thomson; and 666 shares each for Dr. Jischke, Mr. Morris,
Mr. Murphy, Mr. Richie, Mr. Simmons and Ms. Walters; 460,900 shares for
Mr. Corbett; 70,333 shares for Mr. Crouch; 30,599 shares for
Mr. Pilcher; 38,332 shares for Mr. Wohleber; 63,900 shares for
Mr. Woodward; and 825,254 shares for all directors and executive officers
as a group.
8
INFORMATION ABOUT THE
BOARD OF DIRECTORS
OPERATIONS AND MEETINGS
During 2001 the Board held six meetings, with each director attending 75%
or more of the aggregate number of meetings of the Board and of the committees
of the Board on which each such director served.
Directors discharge their responsibilities not only by attending Board and
committee meetings but also through communication with the Chairman and other
members of management about matters of interest and concern to the Company.
COMPENSATION
Directors who are not employees of the Company are paid an annual retainer
fee of $30,000 and a fee of $1,000 for each Board meeting and committee meeting
attended. Committee Chairs are paid an annual fee of $3,000. Under the 2000
Kerr-McGee Corporation Long Term Incentive Plan approved by the Stockholders at
the 2000 Annual Meeting, non-employee Directors also receive an annual grant of
400 shares of restricted Common Stock and options to purchase 2,000 shares of
Common Stock at the market price prevailing on the date of the grant. Directors
are reimbursed for travel expenses and lodging.
Pursuant to the Deferred Compensation Plan for Non-Employee Directors, any
director who is not an employee of the Company may elect to defer any cash
compensation until such person ceases to be a director, after which the deferred
compensation, together with interest, will be paid in cash either in a single
lump sum payment or in ten equal annual installments as determined by the
Director at the time of enrollment in the Deferred Compensation Plan.
Under the Stock Deferred Compensation Plan for Non-Employee Directors, any
director who is not an employee of the Company may elect to defer compensation
through the purchase of Common Stock on a year-by-year basis by notifying the
Company on or before December 31 of the preceding year. Stock acquired pursuant
to this nonqualified plan may not be distributed until 185 days after a
participant ceases being a director.
COMMITTEES
The Board has established and currently maintains an Audit Committee, an
Executive Compensation Committee, a Finance Committee, a Nominating Committee
and a Public Responsibility Committee, as standing committees.
The Board established the Audit Committee in November 1973 to oversee the
Company's financial reporting process. All members of the Committee are
independent as defined under the Listing Standards of the New York Stock
Exchange. The Committee is currently comprised of the following directors, none
of whom are employees of the Company or its affiliates: Leroy C. Richie (Chair),
John J. Murphy, Matthew R. Simmons, Farah M. Walters and Ian L. White-Thomson.
The Audit Committee had two formal meetings in 2001. In addition, the
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Chair of the Audit Committee held conference calls each quarter with the
Company's independent public accountants and with the Company's Chief Accounting
Officer in conjunction with the release of quarterly earnings. The Report of the
Audit Committee begins on Page 28. The Audit Committee's Charter has been
adopted by the Board of Directors and was attached to the 2001 Proxy Statement.
The Executive Compensation Committee reviews the salaries determined by
the Chief Executive Officer for all officers of the Company and recommends to
the full Board such changes as it may deem appropriate. In addition, the
Executive Compensation Committee or a subcommittee thereof determines the
incentive compensation awards for all officers, and recommends to the Board of
Directors the salary of the Chief Executive Officer. The Executive Compensation
Committee or a subcommittee thereof also administers the Annual Incentive
Compensation Plan, the Long Term Incentive Plan, the Executive Deferred
Compensation Plan and the Supplemental Executive Retirement Plan. The Executive
Compensation Committee is currently comprised of the following directors, none
of whom are employees of the Company or its affiliates: Matthew R. Simmons
(Chair), William E. Bradford, Sylvia A. Earle, David C. Genever-Watling, Martin
C. Jischke, William C. Morris, John J. Murphy, Leroy C. Richie, Nicholas J.
Sutton, Farah M. Walters and Ian L. White-Thomson. The Committee met three times
in 2001. The report of the Executive Compensation Committee begins on Page 30.
The Finance Committee reviews the annual budget and makes recommendations
to the full Board regarding budget and financial matters. The Finance Committee
currently consists of the following directors: William E. Bradford (Chair),
William C. Morris, John J. Murphy, Leroy C. Richie and Matthew R. Simmons. Luke
R. Corbett, Chairman of the Board and Chief Executive Officer, is an ex officio
member. The Committee met twice in 2001.
The Nominating Committee recommends nominees for election to the Board of
Directors. The Nominating Committee will consider recommendations for the
position of director submitted by Stockholders in writing in accordance with the
Company's ByLaws to the Corporate Secretary, Kerr-McGee Corporation, P.O. Box
25861, Oklahoma City, Oklahoma 73125. To make a nomination, Stockholders should
contact the Corporate Secretary to obtain a copy of the ByLaws. The Nominating
Committee currently consists of the following directors, none of whom are
employees of the Company or its affiliates: Sylvia A. Earle (Chair), William E.
Bradford, Martin C. Jischke, Leroy C. Richie and Matthew R. Simmons. The
Committee met one time in 2001.
10
The Public Responsibility Committee meets when necessary to review and
make recommendations to the Board of Directors regarding corporate governance
and related matters as and when such matters arise. The Public Responsibility
Committee consists of the following directors: Ian L. White-Thomson (Chair),
Sylvia A. Earle, David C. Genever-Watling, William C. Morris, Nicholas J. Sutton
and Farah M. Walters. Luke R. Corbett, Chairman of the Board and Chief Executive
Officer, is an ex officio member. The Committee did not meet in 2001.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year 2001, Carbo Ceramics, Inc., provided goods and services to
the Company in the ordinary course of business totaling $412,248. William C.
Morris is Chairman of the Board and controlling stockholder of Carbo
Ceramics, Inc.
Nicholas J. Sutton performed consulting services for the Company during
2001 and received $375,000 as compensation for such services. Mr. Sutton ceased
his consulting services at the end of 2001, prior to becoming a director of the
Company.
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ITEM NO. 2
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Ernst & Young LLP as the Company's
independent public accountants for 2002 in accordance with the recommendation of
the Audit Committee. Arthur Andersen LLP served as the Company's independent
public accountants for the year ended December 31, 2001.
The audit reports of Arthur Andersen LLP on the Company's consolidated
financial statements for the fiscal years ended December 31, 2001 and 2000 did
not contain an adverse opinion or disclaimer of opinion, nor were they qualified
or modified as to uncertainty, audit scope or accounting principles. During the
Company's two fiscal years ended December 31, 2001 and 2000 and the subsequent
interim period preceding the decision to change independent public accountants,
there were no disagreements with Arthur Andersen LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which if not resolved to the satisfaction of Arthur Andersen LLP
would have caused them to make reference to the subject matter of the
disagreement in connection with the audit reports on the Company's consolidated
financial statements for such years, and there were no reportable events as
defined in Item 304(a)(1)(v) of Regulation S-K.
Representatives of Arthur Andersen LLP and Ernst & Young LLP will be
present at the Annual Meeting to make a statement if they desire to do so and
will be available to respond to appropriate questions from Stockholders.
At the Annual Meeting, the Stockholders will vote on the ratification of
the appointment of Ernst & Young LLP as independent public accountants for 2002.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS.
If the appointment of Ernst & Young LLP is not ratified by the
Stockholders, if Ernst & Young LLP ceases to act as the Company's independent
public accountants, or if the Board of Directors removes Ernst & Young LLP as
the Company's independent public accountants, the Board will appoint another
independent public accounting firm. The engagement of a new independent public
accounting firm for 2003 will be subject to ratification by the Stockholders at
the 2003 Annual Meeting.
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ITEM NO. 3
APPROVAL OF THE 2002 ANNUAL INCENTIVE COMPENSATION PLAN
The Board of Directors has approved and recommends that the Stockholders
vote for the approval of the Kerr-McGee Corporation 2002 Annual Incentive
Compensation Plan (the "2002 AICP"). The Board of Directors believes "at risk"
compensation is a significant factor in stimulating executive performance to
increase stockholder value. The 2002 AICP is designed to link pay and
performance by providing the Company's officers with the opportunity to receive
an annual cash award based on the achievement of pre-established performance
goals.
The 2002 AICP is structured to ensure that any amounts in excess of
$1 million paid under the 2002 AICP to the Chief Executive Officer or any of the
four other highest paid officers of the Company qualify as performance-based
compensation deductible for federal income tax purposes under Section 162(m) of
the Internal Revenue Code of 1986, as amended ("IRS Code"), and the applicable
regulations. Stockholder approval is required to satisfy the requirements of IRS
Code Section 162(m).
The 2002 AICP will afford greater flexibility in the form and payment of
awards to meet changing business needs. The Board's approval and recommendation
of the 2002 AICP follows a review and evaluation of the Company's existing
compensation plans and a comparison with incentive compensation plans offered by
other comparable companies to their key employees. A summary of the 2002 AICP
follows and is qualified by reference to the full text of the 2002 AICP, which
is included in this Proxy Statement as Exhibit A.
At the Annual Meeting the Stockholders will vote on the approval of the
2002 AICP. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
APPROVAL OF THE KERR-MCGEE CORPORATION 2002 ANNUAL INCENTIVE COMPENSATION PLAN.
13
SUMMARY OF THE 2002 ANNUAL INCENTIVE COMPENSATION PLAN
TERM
If approved by the Stockholders, the 2002 AICP will be effective as of
May 14, 2002, and will continue until terminated by the Board. The 2002 AICP
will replace the existing AICP that was approved by the Stockholders in 1998,
except that the 1998 AICP will continue to govern any payments that may be made
for the 2001 plan year.
PURPOSE
The 2002 AICP links pay and performance by providing the Company's
officers with an opportunity to receive an annual cash award based upon the
achievement of pre-established performance goals. The performance goals are
determined by a committee of the Board of Directors and are intended to align
the interests of plan participants with those of the Company and its
shareholders.
ADMINISTRATION
The 2002 AICP will be administered by a committee of the Board of
Directors comprised solely of two or more members who qualify as "outside
directors" under IRS Code Section 162(m) (the "Committee"). Currently, that
Committee will be a subcommittee of the Board's Executive Compensation
Committee. Subject to the terms of the 2002 AICP, the Committee will have the
authority to determine the size, terms and conditions of awards under the 2002
AICP, to construe and interpret the 2002 AICP, to amend the terms and conditions
of any outstanding award to the extent such terms and conditions are within the
sole discretion of the Committee as provided in the 2002 AICP, and to make all
other determinations which may be necessary or advisable for administration of
the 2002 AICP.
ELIGIBILITY
All elected officers of the Company as of the last day of a Plan Year, at
or above the level of corporate Vice President, are eligible to participate in
the 2002 AICP for that Plan Year.
AWARDS UNDER THE 2002 AICP
Not later than 90 days after the beginning of each fiscal year, the
Committee will select one or more performance measures, establish written
performance goals with respect to each selected performance measure and
determine the award opportunities for that fiscal year.
The performance measures may be based on any combination of corporate,
division and/or individual goals. For each performance measure, the Committee
will establish performance goals which will be used to determine award
opportunities. For example, the Committee may establish various levels of
Company pretax income as performance goals and link each such performance goal
to an award opportunity. The performance measures, performance goals and award
opportunities may vary among officers and from year to year. The Committee may
establish minimum levels of performance goal achievement below which awards will
not be paid.
14
As soon as practicable after the end of the fiscal year, the Committee
will assess performance to determine AICP awards for each of the Company's
officers.
The 2002 AICP provides that the maximum award payable to any officer in
connection with any one fiscal year shall not exceed $3,000,000. Additionally,
the total of awards payable for one Plan Year to proxy-named officers shall not
exceed 1.5% of the Company's cash flow as calculated by the Committee for the
immediately preceding fiscal year and the award payable to any one proxy-named
officer under the 2002 AICP for a Plan Year shall not exceed 0.5% of the
Company's cash flow as calculated by the Committee for the immediately preceding
fiscal year.
The 2002 AICP provides that the performance measures that may serve as
determinants of an officer's award opportunities may consist of financial and
operating measures of the Company or its divisions such as pretax income, net
income, earnings per share, revenues, expenses, return on assets, return on
equity, return on investment, net profit margin, operating profit margin,
operating cash flow, total stockholder return, capitalization, liquidity,
reserve adds or replacement, finding and development costs, results of customer
satisfaction surveys and other measures of quality, safety, productivity or
process improvement, or other measures as determined by the Committee.
Performance goals may be determined solely by reference to the performance of
the Company, its subsidiaries or limited liability companies, or any division or
unit of the Company, or they may be based upon comparisons of any of the
performance measures relative to other companies. In assessing a performance
goal with respect to any of these performance measures, the Committee may
exclude the impact of any event or occurrence which the Committee determines
should appropriately be excluded, such as a restructuring or other nonrecurring
charge, an event either not directly related to the operations of the Company or
not within the reasonable control of the Company's management, or a change in
accounting standards required by U.S. generally accepted accounting principles.
As provided in the 2002 AICP, the Committee has negative discretion to
reduce or eliminate any or all final awards that would otherwise be paid.
However, the Committee may not exercise discretion to increase the award
otherwise payable to an officer.
An officer's award opportunities will be established as a function of the
officer's base salary. For this purpose, an officer's base salary is not reduced
by any voluntary salary reductions or any salary reduction contributions made to
any salary reduction plan, defined contribution plan or other deferred
compensation plans of the Company. Base salary does not include any payments
under the 2002 AICP or any other Company bonus plan, and does not include
compensation in the form of stock options, incentive pay or special awards.
15
In the event that changes are made to IRS Code Section 162(m) or the
regulations thereunder to permit greater flexibility with respect to any award
opportunities under the 2002 AICP, the Committee may exercise such greater
flexibility consistent with the terms of the 2002 AICP without regard to the
restrictive provisions of the 2002 AICP.
PAYMENT OF AWARDS
Awards under the 2002 AICP are payable within 75 days after the award is
approved by the Committee. Subject to the terms of the Company's Executive
Deferred Compensation Plan (the "EDCP"), an officer eligible to participate in
the EDCP may defer the receipt of some or all of the officer's award. If all or
a portion of an officer's award is not deductible by the Company under
Section 162(m), the Committee may, in its discretion, require that payment of
the nondeductible portion of such award be deferred under a Company sponsored
deferred compensation plan.
If before an award is actually paid to an officer with respect to a
performance period the officer ceases to be a regular, full time employee of the
Company for a reason other than death, total disability or retirement, the
officer's eligibility under the 2002 AICP shall terminate and no award will be
paid. In the event a participating officer (who was an officer as of the first
day of a Plan Year) terminates employment due to death, total disability or
retirement, such officer shall be entitled to a pro rata portion of the award
calculated based on the actual base salary earned by such officer. An officer
who becomes eligible for the 2002 AICP during the Plan Year will be eligible for
a pro-rata award based upon his or her compensation while an eligible officer.
AMENDMENTS
The Board of Directors may modify, amend, suspend or terminate the 2002
AICP at any time.
CHANGE IN CONTROL
Except as otherwise provided in an officer's continuity agreement, in the
event of a change in control of the Company, each officer will, in the sole
discretion of the Committee, receive a payment of the officer's incentive award
for the fiscal year during which the change in control occurs. In these
circumstances, the Committee will determine the award based on performance
during the fiscal year until the date of the change in control. This award will
be paid to the officer within 75 days after the effective date of the change in
control.
16
A change in control occurs (a) upon a change in any two year period in a
majority of the members of the Board of Directors of the Company, as defined in
the 2002 AICP, (b) if any person becomes the beneficial owner, directly or
indirectly, of 25% or more of the Company's outstanding Common Stock, (c) upon
the consummation of a merger or consolidation of the Company with any other
corporation, a sale of 50% or more of the Company's assets, the liquidation or
dissolution of the Company or a combination of the foregoing transactions
("Transactions") other than a Transaction immediately following which the
stockholders of the Company and any trustee or fiduciary of any Company employee
benefit plan immediately prior to the Transaction own at least 60% of the voting
power of the surviving corporation(s), or (d) if a majority of the members of
the Board of Directors in office immediately prior to a proposed transaction
determine by written resolution that such proposed transaction, if taken, will
be deemed a change in control and such proposed transaction is effected.
OTHER MATTERS
As discussed above, awards that may be paid under the 2002 AICP for fiscal
2002 and future years are dependent on the attainment of performance goals
established annually by the Committee, as well as the Committee's authority,
subject to the terms of the 2002 AICP, to reduce or eliminate such awards.
Accordingly, the amounts, if any, that may be paid under the 2002 AICP in the
future cannot presently be determined. If the Stockholders do not approve the
2002 AICP, no payments will be made under the 2002 AICP, and the 1998 AICP will
continue in effect. The Executive Compensation Committee will review the
Company's executive compensation program in light of such vote and the
principles described in its Report on Executive Compensation.
17
ITEM NO. 4
APPROVAL OF THE 2002 LONG TERM INCENTIVE PLAN
The Board of Directors has approved and recommends that the Stockholders
vote for the approval of the Kerr-McGee Corporation 2002 Long Term Incentive
Plan (the "2002 Plan") to replace the 2000 Long Term Incentive Plan (the "2000
Plan"). The Board believes the 2002 Plan will enhance the Company's ability to
attract and retain outstanding employees and non-employee directors. The 2002
Plan is designed to ensure that amounts paid and stock issued upon exercise of
stock options under the 2002 Plan qualify as performance-based compensation that
is deductible under IRS Code Section 162(m).
The Board's approval and recommendation of the 2002 Plan follows a review
and evaluation of the Company's existing compensation plans and a comparison of
those plans with the programs offered by comparable companies. While the 2002
Plan represents, in part, a continuation of the Company's stock option program,
which has been in effect since 1950, it also provides flexibility in the form
and payment of awards to meet changing business needs.
The 2002 Plan includes provisions which provide for the grant or award of
(a) stock options, (b) stock appreciation rights (SARs), (c) restricted stock
and (d) performance awards. The 2002 Plan would permit total equity awards over
the life of the 2002 Plan of up to 7,000,000 shares, subject to the following
limits:
(a) Aggregate limits on 1,750,000
shares designated for
restricted stock and
performance awards to
employees
(b) Aggregate limits on 300,000
shares designated for
stock options and
restricted stock to
non-employee
directors, of which no
more than 100,000
shares may be
restricted stock
If the 2002 Plan is approved, the current 2000 Plan will be terminated,
except as to outstanding options and restricted stock, which will remain subject
to the terms of the 2000 Plan. A summary of the 2002 Plan follows and is
qualified by reference to the full text of the 2002 Plan, which is included in
this Proxy Statement as Exhibit B.
At the Annual Meeting the Stockholders will vote on the approval of the
2002 Plan. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
APPROVAL OF THE KERR-MCGEE CORPORATION 2002 LONG TERM INCENTIVE PLAN.
18
SUMMARY OF THE 2002 LONG TERM INCENTIVE PLAN
TERM
If approved by the Stockholders, the 2002 Plan will be effective as of
May 14, 2002. The 2002 Plan will terminate on May 13, 2012, unless terminated
earlier by the Board of Directors. Termination of the 2002 Plan will not affect
grants made prior to termination, but grants may not be made after termination.
PURPOSE
The purpose of the 2002 Plan is to align the personal financial interests
of key employees and non-employee directors with the Company's stockholders. The
2002 Plan includes provisions for stock options, restricted stock, stock
appreciation rights ("SARs") and performance awards.
ADMINISTRATION
The 2002 Plan will be administered by a committee of the Board of
Directors comprised solely of two or more members who qualify as "outside
directors" under IRS Code Section 162(m) (the "Committee"). Currently, that
Committee will be a subcommittee of the Board's Executive Compensation
Committee. Subject to the terms of the 2002 Plan, the Committee will have
authority (i) to determine the employees eligible to participate in the 2002
Plan, (ii) to determine the form and terms of, and the conditions and
restrictions applicable to, grants and awards under the 2002 Plan, (iii) to
adopt rules and regulations with respect to the administration of the 2002 Plan,
(iv) to amend or rescind such rules and regulations and make such other
determinations as the Committee deems necessary or appropriate, (v) to amend the
terms and conditions of any outstanding grant or award to the extent such terms
and conditions are within the sole discretion of the Committee as provided in
the 2002 Plan, subject to limitations otherwise applicable under the 2002 Plan,
including those contained in Article XIII, which among other limitations
prohibit the repricing of options without further Stockholder approval, and
(vi) to take any action that the Committee deems necessary to comply with any
government laws or regulatory requirements.
ELIGIBILITY
Eligibility under the 2002 Plan is limited to employees of the Company and
its affiliates and the Company's non-employee directors. The Committee, in its
sole discretion, shall determine which employees are eligible to participate in
the 2002 Plan, and only those employees identified by the Committee as able to
affect the equity value of the Company through significant contributions to
Company profitability and growth will be selected for participation. The Company
currently estimates that approximately 650 employees will participate in the
2002 Plan.
SECURITIES SUBJECT TO THE 2002 PLAN
The maximum number of shares of Common Stock that may be issued under the
2002 Plan in satisfaction of exercised options or SARs issued as restricted
stock or issued under the Performance Plan may not exceed, in the aggregate,
7,000,000. No more than 1,750,000 of the 7,000,000
19
shares available under the 2002 Plan may be used for grants of restricted stock
and performance awards to eligible employees. In addition, no more than a total
of 300,000 of the 7,000,000 shares under the 2002 Plan may be used for grants of
restricted stock and stock options to non-employee directors, and no more than
100,000 of the 300,000 shares available to non-employee directors may be granted
in the form of restricted stock. If any stock option granted pursuant to the
2002 Plan terminates, expires or lapses, or any restricted shares of Common
Stock granted pursuant to the 2002 Plan are forfeited, any shares of Common
Stock subject to such option or restricted stock will again be available for
grant unless, in the case of stock options granted under the 2002 Plan, related
SARs have been exercised. Because the grant of awards under the 2002 Plan is at
the discretion of the Committee, it is not possible to indicate what awards will
be made to persons eligible for participation in the 2002 Plan.
In the event of a stock split, merger, reorganization, recapitalization,
stock dividend or other event described under the terms of the 2002 Plan, the
Committee will make appropriate adjustments to the number of shares subject to
grants or awards previously made to participants, in the exercise price per
share of stock options previously granted to participants and in the number and
kinds of shares which may be distributed under the 2002 Plan. Appropriate
adjustments will also be made by the Committee in the terms of SARs to reflect
any change with respect to the number of issued and outstanding shares of Common
Stock.
STOCK OPTIONS
The 2002 Plan authorizes grants of stock options to non-employee directors
and eligible employees from time to time as determined by the Committee. Subject
to the limits of the 2002 Plan, the Committee may grant options under the 2002
Plan for such number of shares and having such terms as the Committee
designates; however, the maximum number of options that may be granted to any
one employee may not exceed 1,750,000 over the life of the 2002 Plan.
Under the terms of the 2002 Plan, the Committee shall specify whether or
not any option is intended to be an incentive stock option ("Incentive Stock
Option") as described in Section 422 of the IRS Code or a nonstatutory or
nonqualified stock option ("Nonqualified Stock Option"). The aggregate value of
Common Stock with respect to which Incentive Stock Options are exercisable for
the first time by an individual during any calendar year under all Company plans
may not exceed $100,000. Incentive Stock Options may not be exercised more than
ten years from the date of grant, and Nonqualified Stock Options may not be
exercised more than ten years and one day from the date of grant. The Committee
may provide for options to be exercisable in installments during the term of the
option and the Committee may also accelerate the time at which an installment
portion of an outstanding option may be exercisable.
Each stock option shall have an exercise price that is not less than the
fair market value of the Common Stock on the date the option is granted.
20
Payment for shares received upon exercise of a stock option may be made by
an optionee in cash, shares of Common Stock, shares of Common Stock subject to
restrictions, a combination of the foregoing, through a cashless exercise with a
broker, or, in the discretion of the Committee, by the Company withholding
shares of Common Stock equal in value to the exercise price of the stock option.
A stock option will terminate and may no longer be exercised three months
after an optionee ceases to be an employee or non-employee director for any
reason other than total disability, death or retirement (as defined under the
2002 Plan).
In the event an employee ceases employment due to total disability, death
(including death within three months after termination of employment) or
retirement, all outstanding options at the time of such employee's termination
of employment will vest and will be exercisable during the remaining term of the
option, not to exceed four years, as set forth in the option agreement.
If a non-employee director's service is terminated by reason of total
disability, death or retirement, outstanding options will vest and remain
exercisable for the remaining term of the option.
In the event of an employee or non-employee director's death while in
service of the Company, all outstanding options at the time of the optionee's
death (including as to employees, death within three months after termination of
employment) will be exercisable within the remainder of the applicable term of
the option thereafter by the executor or administrator of the deceased
optionee's estate or the person or persons to whom the optionee's rights under
the option shall pass by will or by the applicable laws of descent and
distribution.
Under no circumstances will any option be exercisable after it has
terminated or expired.
STOCK APPRECIATION RIGHTS
The 2002 Plan also authorizes the Committee to affix SARs to stock options
either at the time the option is granted or at any date prior to the option's
expiration. SARs provide an optionee the right to surrender all or a portion of
an option and receive from the Company a payment, in shares of Common Stock,
cash, or a combination thereof, equal to the excess of the fair market value of
the shares of Common Stock for which the SAR is exercised over the aggregate
option exercise price of such shares under the related option at the time of
surrender. In addition, each outstanding SAR will be automatically exercised on
the day prior to the expiration of the related option if the fair market value
of the Common Stock on such date exceeds the relevant option exercise price.
SARs are exercisable only to the extent that the related options are
exercisable. The exercise of any option will result in an immediate forfeiture
of its related SAR, and the exercise of a SAR will cause an immediate forfeiture
of its related option.
21
RESTRICTED STOCK
The Committee will determine the nature and extent of the restrictions on
grants of restricted stock, the duration of such restrictions, and any
circumstances under which restricted shares will be forfeited; however, the
maximum number of shares of restricted stock that may be awarded to any one
individual is 400,000 over the life of the 2002 Plan. Restricted shares will be
deposited with the Company during the period of any restriction thereon and,
except as otherwise provided by the Committee during any such period of
restriction, recipients shall have all of the rights of a holder of Common
Stock, including but not limited to voting rights and the right to receive
dividends. The Committee may establish rules concerning the impact of the
termination of employment (by reason of retirement, total disability, death or
otherwise) on the applicability of any outstanding restrictions.
PERFORMANCE AWARDS
The 2002 Plan permits the Committee to grant performance awards to
eligible employees under the 2002 Plan from time to time. Performance awards may
include performance units valued by reference to financial measures or property
other than Common Stock and performance shares valued by reference to shares of
Common Stock.
Under the terms of the 2002 Plan, the Committee will establish the time
period of not less than one year over which performance will be measured (the
"Performance Period") and the criteria to be used by the Committee to evaluate
the Company's performance with respect to each Performance Period. Such criteria
may include financial or operating measures of the Company or its divisions,
such as pretax income, net income, earnings per share, revenue, expenses, return
on assets, return on equity, return on investment, net profit margin, operating
profit margin, operating cash flow, total stockholder return, capitalization,
liquidity, reserve adds or replacement, finding and development costs, results
of customer satisfaction surveys and other measures of quality, safety,
productivity, cost management or process improvement or other criteria
established by the Committee, or they may be based on the Company's performance
compared with one or more selected companies. Payment of earned performance
awards may be made to participants in cash, Common Stock, restricted Common
Stock, other property or a combination of the foregoing as determined by the
Committee.
In the event a performance plan participant is involuntarily terminated
without cause or terminates employment due to death, total disability or
retirement after completing at least 50% of the Performance Period for an award,
the participant will be entitled to a pro rata portion of the award if the
Committee determines the indicators of performance are met.
The cash or fair market value of Common Stock covered by all performance
awards granted under the 2002 Plan during a calendar year will not exceed 1.5%
of the average cash flow for the Company for the three fiscal years immediately
preceding the grant, as calculated by the Committee, and the cash or fair market
value of Common Stock covered by all
22
performance awards granted to an individual under the 2002 Plan during a
calendar year will not exceed 0.5% of the average cash flow for the Company for
the three fiscal years immediately preceding the grant, as calculated by the
Committee.
DEFERRAL OF PAYMENT
Subject to the terms of the Company's Executive Deferred Compensation Plan
(the "EDCP"), an officer or other key employee eligible to participate in the
EDCP may defer the receipt of some or all of the cash or Common Stock receivable
pursuant to a stock option, SAR or restricted stock.
AMENDMENT
The Board may at any time terminate or amend the 2002 Plan in any respect,
except that the Board may not, without further approval of the Stockholders,
amend the 2002 Plan so as to (i) increase the number of shares of Common Stock
which may be issued under the 2002 Plan (except for adjustments in the number of
shares permitted with respect to certain mergers, consolidations or
recapitalizations as described under "Securities Subject to the 2002 Plan"
above); (ii) change terms of the 2002 Plan relating to the establishment of the
exercise prices under options granted; (iii) extend the duration of the 2002
Plan beyond May 13, 2012; or (iv) increase the maximum dollar amount of
Incentive Stock Options which an individual Optionee may exercise during any
calendar year beyond that permitted in the IRS Code and applicable rules and
regulations of the U.S. Treasury Department. No amendment or termination of the
2002 Plan may, without the consent of an affected participant, alter or impair
any of the rights or obligations under any options or other rights theretofore
granted such participant under the 2002 Plan.
CHANGE IN CONTROL
In the event of a change in control, any outstanding options or SARs that
have not yet vested shall vest effective as of such date, restrictions on
restricted stock shall lapse, and participants who have previously been awarded
performance awards shall earn no less than the participant would have earned if
the Performance Period terminated as of such date.
A change in control occurs (a) upon a change in any two year period in a
majority of the members of the Board of Directors of the Company, as defined in
the 2002 Plan, (b) if any person becoming the beneficial owner, directly or
indirectly, of 25% or more of the Company's outstanding Common Stock, (c) upon
the consummation of a merger or consolidation of the Company with any other
corporation, a sale of 50% or more of the Company's assets, liquidation or
dissolution of the Company or combination of the foregoing transactions
("Transactions") other than a Transaction immediately following which the
stockholders of the Company and any trustee or fiduciary of any Company employee
benefit plan immediately prior to the Transaction own at least 60% of the voting
power of the surviving corporation(s), or (d) if a majority of the members of
the Board of Directors in office immediately prior to a proposed transaction
determine by written resolution
23
that such proposed transaction, if taken, will be deemed a change in control and
such proposed transaction is effected.
FEDERAL INCOME TAX EFFECTS
The federal income tax consequences applicable to the Company in
connection with an Incentive Stock Option, Nonqualified Stock Option, SAR,
restricted stock or performance award are complex and depend, in large part, on
the surrounding facts and circumstances. Under current federal income tax laws,
a participant will generally recognize income with respect to grants of
restricted stock, stock options, SARs or performance awards, as follows:
(A) PAYMENTS IN RESPECT OF PERFORMANCE AWARDS. Any cash and/or the
fair market value of any Common Stock received as payments in respect of
performance awards under the 2002 Plan will constitute ordinary income to
the employee in the year in which paid, and the Company will be entitled
to a deduction in the same amount.
(B) INCENTIVE STOCK OPTIONS. The grant of an Incentive Stock Option
will not result in any immediate tax consequences to the Company or the
optionee. An optionee will not realize taxable income, and the Company
will not be entitled to any deduction, upon the timely exercise of an
Incentive Stock Option, but the excess of the fair market value of the
Common Stock acquired over the option price will be an item of tax
preference for purposes of the alternative minimum tax. If the optionee
does not dispose of the Common Stock acquired within one year after its
receipt (or within two years after the date the option was granted), the
gain or loss realized on the subsequent disposition of the Common Stock
will be treated as long-term capital gain or loss and the Company will not
be entitled to any deduction. If the optionee disposes of the Common Stock
acquired less than one year after its receipt (or within two years after
the option was granted), the optionee will realize ordinary income in an
amount equal to the lesser of (i) the excess of the fair market value of
the Common Stock acquired on the date of exercise over the exercise price,
or (ii) if the disposition is a taxable sale or exchange, the amount of
any gain realized. Upon such a disqualifying disposition, the Company will
be entitled to a deduction in the same amount and at the same time as the
optionee realizes such ordinary income. Any amount realized by the
optionee in excess of the fair market value of the Common Stock on the
date of exercise will be taxed to the optionee as capital gain.
24
(C) NONQUALIFIED STOCK OPTIONS. The grant of a Nonqualified Stock
Option will not result in any immediate tax consequences to the Company or
the optionee. Upon the exercise of a Nonqualified Stock Option, the
optionee will generally realize ordinary income. However, an employee who
is subject to the restrictions of Section 16(b) of the Securities Exchange
Act of 1934 with respect to the stock acquired will realize as ordinary
income at the time of the lapse of the restrictions an amount equal to the
excess of the fair market value of the Common Stock at the time of such
lapse over the option price, unless the employee elects to be taxed on the
date of exercise. The Company will be entitled to a deduction at the same
time as, and in an amount equal to, the income realized by the optionee.
(D) STOCK APPRECIATION RIGHTS. Upon the exercise of any SAR, any
cash received and the fair market value on the exercise date of any Common
Stock received will constitute ordinary income to the grantee. The Company
will be entitled to a deduction in the same amount and at the same time.
(E) RESTRICTED STOCK. An employee generally will not realize taxable
income upon an award of restricted stock. However, an employee who
receives restricted stock, either as a grant or in payment of a
performance award, will realize as ordinary income at the time of the
lapse of the restrictions an amount equal to the fair market value of the
Common Stock at the time of such lapse unless the employee elects to
realize ordinary income on the date of receipt of the restricted Common
Stock. At the time the employee realizes ordinary income, the Company will
be entitled to deduct the same amount as the ordinary income realized by
the employee.
(F) IRS CODE SECTION 162(M). Payments or grants (excluding
restricted stock) under the 2002 Plan are intended to qualify as
"qualified performance-based compensation" under the IRS Code and the
applicable regulations.
ACCOUNTING
During the period that SARs are outstanding, the Company will accrue as an
expense the amount, if any, by which the fair market value of the Common Stock
exceeds the exercise price of any related option.
25
ITEM NO. 5
APPROVAL OF AMENDMENT OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF KERR-MCGEE OPERATING CORPORATION - THE AMENDMENT WOULD CHANGE THE VOTING
RIGHTS OF STOCKHOLDERS
On August 1, 2001, in connection with its acquisition of HS
Resources, Inc., the Company completed a holding company reorganization in which
Kerr-McGee Operating Corporation ("Sub"), which was formerly known as Kerr-McGee
Corporation, changed its name and became a wholly owned subsidiary of the
Company. This reorganization was conducted in accordance with Section 251(g) of
the Delaware General Corporation Law and did not require the approval of Sub's
stockholders. In connection with the reorganization and pursuant to the
requirements of Section 251(g), Sub's Certificate of Incorporation was amended
to add the following Article:
"SIXTEENTH: Other than the election or removal of directors of the
Corporation, any act or transaction by or involving the Corporation that
requires under the General Corporation Law of the State of Delaware or
this Amended and Restated Certificate of Incorporation the approval of the
stockholders of the Corporation shall, pursuant to
Section 251(g)(7)(i) of the General Corporation Law of the State of
Delaware, require, in addition, the approval of the stockholders of
Kerr-McGee Corporation by the same vote that is required by the General
Corporation Law of the State of Delaware and/or this Amended and Restated
Certificate of Incorporation."
This provision requires Sub, in addition to obtaining the vote of its sole
stockholder, the Company, to also obtain the vote of the Company's stockholders
before Sub takes certain actions requiring stockholder approval, such as a
merger, a sale of all or substantially all of its assets, an amendment to its
certificate of incorporation or its corporate dissolution. Absent a provision
like Article Sixteenth, there is no general requirement under Delaware law that
stockholders of a parent entity vote on transactions involving the parent
entity's wholly owned subsidiaries. There is no such provision in the
certificates of incorporation of any of the Company's other subsidiaries and, as
discussed above, no such provision was included in the Certificate of
Incorporation of Sub prior to its reorganization.
The Company may, from time to time, find it desirable to merge Sub with
another of Company's subsidiaries, sell all or substantially all of Sub's assets
to another of Company's subsidiaries, or take other actions involving Sub of the
types described in the preceding paragraph. Unless Article Sixteenth is deleted,
such actions would require a vote of the Company's stockholders before such
actions could be undertaken.
26
Scheduling such a vote, whether at a regular annual stockholders meeting
or at a special meeting, would delay the completion of the desirable actions and
add to their cost. In order to avoid such delay and cost, and to provide maximum
flexibility and efficiency under the existing holding company structure, the
Company proposes to eliminate Article Sixteenth from Sub's Amended and Restated
Certificate of Incorporation. The Company has no present intention to engage in
any transaction with a third party that would require a stockholder vote of the
type contemplated by Article Sixteenth. Following the removal of this provision
from Sub's Amended and Restated Certificate of Incorporation, stockholders of
the Company will continue to have the voting rights typically provided to
stockholders of a holding company by Delaware law.
If the proposed Amendment is approved by the Company's stockholders, only
a vote of Sub's sole stockholder, the Company, would be required in connection
with any matter that requires stockholder approval under Sub's Certificate of
Incorporation or Delaware law.
The Board of Directors believes that the deletion of Article Sixteenth of
Sub's Amended and Restated Certificate of Incorporation will allow the Company
to manage its entire organization more efficiently and effectively. The
affirmative votes of a majority of the shares of the Common Stock of the Company
are required for approval of this amendment to Sub's Amended and Restated
Certificate of Incorporation. If the Stockholders approve this proposed
amendment, the Company intends to promptly effect the change by filing or
causing to be filed an appropriate amendment to Sub's Amended and Restated
Certificate of Incorporation with the State of Delaware.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
APPROVAL OF THE AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION OF KERR-MCGEE OPERATING CORPORATION.
27
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process including the systems of
internal controls.
In fulfilling its oversight responsibilities, the Committee reviewed with
management the audited financial statements contained in the Annual Report. The
review included a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.
The Company's independent public accountants are responsible for
expressing an opinion on the conformity of the audited financial statements with
generally accepted accounting principles. The Committee reviewed with Arthur
Andersen LLP, the Company's then independent public accountants, Arthur Andersen
LLP's judgment as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be discussed
with the Committee under generally accepted auditing standards. The Committee
also discussed with Arthur Andersen LLP, the independent public accountants'
independence from management and the Company, including the matters contained in
the written disclosures required by the Independence Standards Board. The
Committee considered whether the provision of non-audit services by the
Company's independent public accountants is compatible with maintaining the
accountants' independence.
The Committee discussed with both the Company's internal auditors and the
independent public accountants the overall scope and plans for their respective
audits. The Committee met with both the internal auditors and the independent
public accountants, with and without management present, to discuss the results
of their examinations, their evaluations of the Company's internal controls, and
the overall quality of the Company's financial reporting.
Based on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Annual Report on Form 10-K for the year ended 2001
for filing with the Securities and Exchange Commission. The Committee also
recommended to the Board the appointment of Ernst & Young LLP as the Company's
independent public accountants for 2002.
SUBMITTED BY:
AUDIT COMMITTEE
Leroy C. Richie, Chair
John J. Murphy
Matthew R. Simmons
Farah M. Walters
Ian L. White-Thomson
28
FEES PAID TO THE INDEPENDENT PUBLIC ACCOUNTANTS
During calendar year 2001, the Company retained Arthur Andersen LLP, the
Company's then independent public accountants, to provide services in the
following categories and amounts:
Audit Fees..................... $2,242,000
Information Technology
Consulting Fees.............. $ --
----------
All Other Fees
Audit and Accounting (1)..... $ 294,000
Tax.......................... 3,360,000
Other........................ 665,000
----------
Total Other Fees........... $4,319,000
----------
Total Fees................. $6,561,000
==========
---------------------
(1) These amounts represent fees for audits of benefit plans, acquisition
assistance and work performed in connection with registration statements.
29
EXECUTIVE COMPENSATION
AND OTHER INFORMATION
The report of the Executive Compensation Committee of the Board is set out
below, together with other information regarding the compensation of certain
executive officers of the Company.
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
The Executive Compensation Committee (the "Committee") is comprised of all
directors who are not employees of the Company or its affiliates. The Committee
or a subcommittee thereof is responsible for administering compensation programs
that make it possible for the Company to attract and retain employees with the
skills and attitudes necessary to provide the Company with a fully competitive
and capable management.
The Executive Compensation Committee seeks to provide competitive levels
of total compensation for the Company's key executives through a mix of base
salaries, annual incentive pay, long term incentives and other benefits. The
Committee believes that incentive or "at risk" compensation is a key ingredient
in motivating executive performance to maximize stockholder value and align
executive performance with Company objectives and stockholder interests. The
Committee targets total compensation to be competitive at the third quartile
level of a peer group of comparable energy and chemical companies, which
includes companies constituting the Standard & Poor's Domestic Integrated Oil
Index and the Standard & Poor's Oil Producers Index referred to in the
Performance Graph on Page 42, as well as other comparable energy and chemical
companies selected with the assistance of an independent consulting firm to be
representative of the Company's size and business activities (the "Comparison
Group"). Since the Company has a substantial amount of its business outside the
United States, its compensation policies must also be internationally
competitive and flexible. This enables the Company to attract and retain
high-quality management and to compete globally.
BASE SALARIES
In reviewing and determining base salaries for executive officers, the
Committee annually reviews current competitive market compensation data of the
Comparison Group prepared by an independent consulting firm. The Committee's
policy is to set executive officers' base salaries at or near the third quartile
of base salaries of the Comparison Group to enable the Company to attract and
retain key executives. The Committee takes into consideration individual
performance, based on the Committee's evaluation of the performance of the Chief
Executive Officer, and the Chief Executive Officer's evaluation of the
performance of other executive officers, as well as job related experience and
tenure. No specific weight is assigned to any individual factor in determining
salaries.
ANNUAL INCENTIVE COMPENSATION
The Company's Annual Incentive Compensation Plan (the "AICP") is an
30
incentive compensation plan for Company officers that provides incentive
compensation based on the performance of the Company's operating divisions
relative to the performance of peer comparison groups. Performance thresholds
established annually by the Committee or a subcommittee thereof must be achieved
before officers qualify for AICP awards.
Each year, an award target is established for each executive officer.
Award targets are based on each officer's level of responsibility and targets
the third quartile of the Comparison Group competitive data. In 2001, award
targets ranged from 45% to 100% of base salary. An executive officer may receive
up to 200% of the officer's award target if performance objectives are exceeded
and the officer's performance excels. The amount of an officer's award may be
reduced or eliminated based on the officer's individual performance. The
Committee or a subcommittee thereof will determine AICP awards for 2001 in
May 2002, based on five measurement criteria.
During 2001, the Company continued to profitably grow its core businesses,
while returning solid earnings to the bottom line. At year-end 2001, the Company
had increased its total assets to $11 billion or $109 per common share,
reflecting an increase of 35% in the per share value from year-end 2000.
Similarly, the Company increased total assets net of total debt to $6.4 billion
or $64 per common share, an increase of 15% in the per share value over the year
ago period.
Earnings before special items and changes in accounting principles for the
year ended December 31, 2001, reached $542 million or $5.26 per share. Average
daily production volumes of oil and natural gas increased during the year to
297,000 barrels of equivalent and unit production costs decreased to $4.45/BOE,
helping to partially offset the impact of lower commodity prices and the
depressed economy's impact on operating profit from the chemical unit.
Kerr-McGee's oil and gas exploration and production activities generated
operating profits that were the second highest in the Company's history.
Continued success from the oil and gas unit's exploration program coupled with
strategic acquisitions enabled the Company to replace more than 490% of its
production during the year, with more than 290% coming from the drill bit.
During the year, the oil and gas unit drilled a record 79 exploratory and
appraisal wells with a 63% success rate. Newly discovered fields are located
primarily in the Company's existing core areas in the North Sea and the
deepwater of the Gulf of Mexico.
During the year, the Company approved development plans for the deepwater
Gunnison discovery in the Gulf of Mexico and the Maclure field in the North Sea.
Development of the Tullich area in the North Sea is already underway and
development options are being evaluated for the Red Hawk discovery in the Gulf
of Mexico.
31
The oil and gas unit also achieved significant milestones on several
project developments during the year. At its 100%-owned Leadon field in the U.K.
Sector of the North Sea, first oil was achieved in November 2001, just
15 months after Board approval of the project. In the deepwater Gulf of Mexico,
Kerr-McGee installed the world's first truss spar at its 50%-owned Nansen field
in 3,700 feet of water. Kerr-McGee also installed a twin truss spar at its 30%-
owned Boomvang field.
The Company supplemented the oil and gas unit's drilling success with the
$1.8 billion acquisition of HS Resources in August 2001. The acquisition
provides additional balance to the Company's oil and gas portfolio from a risk,
geographic and product standpoint. The transaction added 1.3 TCF of proved gas
equivalents and offers additional potential from more than 800 BCFe of probable
and possible reserves.
Kerr-McGee grew its gross acreage inventory during 2001 by approximately
50% to 81 million acres. Virtually all of the increase was associated with
high-potential deepwater plays. Kerr-McGee's worldwide deepwater acreage now
represents about 75% of the Company's total acreage inventory. Among independent
oil companies, Kerr-McGee remains the largest leaseholder overall in the Gulf of
Mexico, as well as in the Gulf's prolific deepwaters.
The Company achieved these milestones while continuing to operate safely
and in an environmentally friendly manner. Kerr-McGee was awarded one of the
nation's top safety and environmental awards - The National Safety Award for
Excellence (SAFE) - by the U. S. Department of the Interior's Mineral Management
Service. This is the Company's third SAFE award in five years. The Company also
received the Australian Petroleum Production and Exploration Association's
safety award for its drilling operations in Australia.
Kerr-McGee's chemical operations introduced CR-840, a market leading
titanium dioxide pigment grade for use in plastics. This product offers many
performing advantages over competing products and will be a key part of the
Company's strategy with respect to the global markets for plastics.
During 2001, the Company acquired the remaining 20% interest in two TiO(2)
production facilities in Europe from Bayer AG and completed the expansion of its
pigment plant in Australia. These activities increased the Company's net TiO(2)
production capacity by 2% to 547,500 tonnes annually and effectively positions
the Company to meet future increases in demand for product orders.
Also in 2001, the Chemical unit successfully field tested new technology,
which allows for expansion of raw pigment process production capacity with low
incremental capital cost.
The Company further expanded its chemical business in April 2001 when the
Company entered into a 50-50 joint venture with Hydro-Quebec to produce and sell
a new lithium metal-polymer battery.
32
The joint venture establishes a platform for the Company to compete in the
developing market for hybrid electric vehicles and in telecommunications and
utility peak shaving.
LONG TERM INCENTIVES
The Committee believes that ownership of Company stock by the Company's
executive officers promotes commitment to the long-term success of the Company.
Stock ownership guidelines expressed as a multiple of each officer's base salary
have been established for the Company's executive officers. The Committee or a
subcommittee thereof periodically reviews the guidelines and each officer's
stock ownership.
The Stockholders previously approved the use of Company stock in the form
of stock options and restricted stock awards to provide long-term incentive
compensation for the Company's key executives. The Committee believes that the
use of stock-based compensation to establish a direct relationship between the
compensation of executives and the value of the Company's stock helps ensure
continued alignment between the interests of the executive officers and the
interests of the Company and its stockholders. The Committee believes that
equity incentives are an important tool for attracting and retaining key
employees by rewarding long term management performance based on objectively
measured results.
The aggregate value of stock options and restricted stock granted to each
executive officer, including the Chief Executive Officer, is based on a
percentage of the individual officer's salary. The percentage is set annually by
the Committee or a subcommittee thereof after considering each officer's
performance, level of responsibility and prior awards. The Committee relies on
surveys and reports by an independent consulting firm as to competitive awards
made within the Comparison Group and targets the third quartile of the
Comparison Group. The number of stock options granted in 2001 to Mr. Corbett and
the next four highest paid executive officers is set forth in the Option Grants
Table on Page 37. The amount of restricted stock granted in 2001 to Mr. Corbett
and the next four highest paid executive officers is set forth in the Summary
Compensation Table on Page 35.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Chief Executive Officer's compensation is determined in accordance
with the policies described above. In recommending Mr. Corbett's base salary,
the Committee considers competitive salaries of Chief Executive Officers for
comparable energy and chemical companies within the Comparison Group as compiled
by an independent consulting firm. On the Committee's recommendation, the Board
increased Mr. Corbett's annual base salary to $1,025,000 on January 8, 2001.
However, base salary in excess of $1 million for 2001 was deferred into the
Company's Executive Deferred Compensation Plan.
Mr. Corbett's incentive compensation under the AICP for 2001 will be
determined in May 2002, based on five measurement criteria.
33
The Committee or a subcommittee thereof will consider the Company's substantial
accomplishments under Mr. Corbett's leadership in 2001, with no specific weight
assigned to any single accomplishment for his discretionary compensation.
Under Mr. Corbett's leadership, the Company continued to profitably grow
the Company's two core businesses in a difficult global economy. At the end of
2001, the total assets of the Company increased to $11 billion or $109 per
common share, reflecting an increase of 35% in the per share value from year-end
2000. Total assets net of total debt also increased to $6.4 billion or $64 per
common share, reflecting an increase of 15% in the per share value during the
year. Year end earnings before special items and changes reached $542 million or
$5.26 per share. Average daily oil and gas production increased to 297,000
barrels of equivalent and unit production costs decreased to $4.45/BOE.
Continued success from the Company's exploration and production program
along with strategic acquisitions resulted in total production replacement of
more than 490% with 290% coming from the drill bit. The Company acquired HS
Resources in August for $1.8 billion, providing the Company with additional
balance to its oil and gas portfolio from a risk, geographic and production
standpoint.
In addition, the Company acquired the remaining 20% interest in two TiO(2)
production facilities in Europe from Bayer AG and completed its expansion of the
pigment plant in Australia, increasing net TiO(2) production capacity by 2% to
547,500 tonnes annually.
The Committee believes that executive compensation arrangements for 2001
appropriately reflect its policy to set executive compensation so that the
interests of the Company's executive officers are aligned with the interests of
the Company's Stockholders.
FEDERAL INCOME TAX DEDUCTIBILITY
Section 162(m) of IRS Code generally limits the corporate deduction on
compensation paid to the Chief Executive Officer and to the next four highest
paid officers to $1 million each during any fiscal year unless such compensation
meets certain performance-based requirements. In May 1998, the Company's AICP
was approved by Stockholders. The Committee believes that incentive compensation
paid under the plan constitutes "performance based" compensation that is exempt
from the deduction limit.
The Company's Long Term Incentive Plan was approved by Stockholders on
May 9, 2000. The Committee expects that all income derived from stock options
granted in 2001 to executive officers will qualify as performance-based
compensation as defined under Section 162(m).
SUBMITTED BY:
EXECUTIVE COMPENSATION COMMITTEE
Matthew R. Simmons, Chairman
William E. Bradford
Sylvia A. Earle
David C. Genever-Watling
Martin C. Jischke
William C. Morris
John J. Murphy
Leroy C. Richie
Nicholas J. Sutton
Farah M. Walters
Ian L. White-Thomson
34
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table contains individual compensation information for the
Chief Executive Officer and for the next four highest paid executive officers
for services rendered in all capacities for the fiscal years ended December 31,
2001, 2000 and 1999.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------ ---------------------------
NO. OF
RESTRICTED SECURITIES
NAME AND OTHER ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARD(S)(2)(6) OPTIONS(3) COMPENSATION(4)
-------------------------- -------- ---------- ---------- ---------------- -------------- ---------- ----------------
Luke R. Corbett, 2001 $1,019,712 * $73,800 $2,277,188 150,000 $61,183
Chairman of the Board and 2000 892,596 $1,100,000 66,750 1,897,500 150,000 53,556
Chief Executive Officer 1999 717,500 730,000 -- 0 75,000 43,050
Kenneth W. Crouch, 2001 447,885 * -- 390,375 40,000 26,873
Senior Vice President, 2000 395,769 325,000 -- 316,250 35,000 23,746
Exploration & Production 1999 293,077 250,000 -- 0 17,500 15,877
William P. Woodward, 2001 427,038 * -- 357,844 40,000 25,622
Senior Vice President, 2000 357,461 295,000 -- 284,625 25,000 21,448
Chemical 1999 291,923 230,000 -- 0 17,500 17,515
Robert M. Wohleber,(5) 2001 418,096 * -- 357,844 35,000 25,086
Senior Vice President and 2000 375,000 305,000 -- 126,500 15,000 22,500
Chief Financial Officer 1999 25,962 20,000 -- 232,500 25,000 1,558
Gregory F. Pilcher, 2001 372,673 * -- 292,781 25,000 22,360
Senior Vice President, 2000 292,424 260,000 -- 253,000 25,000 17,545
General Counsel and 1999 195,968 110,000 -- 0 0 11,758
Secretary
* Bonus will be determined in May 2002.
See "Report of the Executive Compensation Committee beginning on Page 30.
(1) Perquisite or other personal benefits received from the Company that
exceed reporting thresholds established by Securities and Exchange
Commission regulations.
(2) Restricted stock grants are valued based on the closing price of the stock
on the New York Stock Exchange on the date of grant.
(3) The Company has never granted Stock Appreciation Rights ("SARs") not
attached to a stock option and has not granted SARs attached to stock
options since January 1991.
35
(4) Consists of 401(k) plan contributions by the Company pursuant to the
Employee Stock Ownership Plan and amounts contributed under the
nonqualified benefits restoration plan. Company contributions pursuant to
the Employee Stock Ownership Plan for 2001 were $10,200 each to
Messrs. Corbett, Crouch, Woodward, Wohleber and Pilcher. Amounts
contributed under the nonqualified benefits restoration plan for 2001 on
behalf of Messrs. Corbett, Crouch, Woodward, Wohleber and Pilcher were:
$50,983, $16,673, $15,422, $14,886 and $12,160, respectively. The amounts
contributed by the Company to the non-qualified benefits restoration plan
on behalf of such persons are identical to the amounts that would have
been contributed pursuant to the Employee Stock Ownership Plan except for
IRS Code limitations.
(5) Mr. Wohleber began employment with the Company on December 1, 1999, as
Chief Financial Officer.
(6) As of December 31, 2001, the aggregate number of shares of restricted
stock held by the named officers and the market value of that stock, based
on the closing price of the Company's Common Stock on the New York Stock
Exchange on December 31, 2001, were: Luke R. Corbett, 65,000 shares,
$3,562,000; Kenneth W. Crouch, 11,000 shares, $602,800; William P.
Woodward, 10,000 shares, $548,000; Robert M. Wohleber, 11,500 shares,
$630,200; and Gregory F. Pilcher, 8,500 shares, $465,800. Dividends are
paid to the holders of restricted stock.
36
STOCK OPTIONS
The following table contains information concerning stock options granted
during the fiscal year ended December 31, 2001, to the Chief Executive Officer
and the next four highest paid executive officers
OPTION GRANTS IN LAST FISCAL YEAR
PERCENT
NO. OF OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO PER SHARE
OPTIONS EMPLOYEES IN EXERCISE GRANT DATE
NAME GRANTED(1) FISCAL YEAR 2001 PRICE EXPIRATION DATE PRESENT VALUE(2)
-------------------------- ---------- ---------------- --------- --------------- ----------------
January 9,
Luke R. Corbett 150,000 14.64% $65.19 2011 $3,381,000
January 9,
Kenneth W. Crouch 40,000 3.90% 65.19 2011 901,600
January 9,
William P. Woodward 40,000 3.90% 65.19 2011 901,600
January 9,
Robert M. Wohleber 35,000 3.42% 65.19 2011 788,900
January 9,
Gregory F. Pilcher 25,000 2.44% 65.19 2011 563,500
(1) All stock options granted in 2001 were nonqualified stock options. The
exercise price per option is 100% of the fair market value of a share of Common
Stock on the date of grant. No option expires more than ten years and one day
from the date of grant. At or after the grant of an option, the Executive
Compensation Committee ("Committee") may, in its discretion, grant a participant
a SAR. A SAR is only exercisable during the term of the associated option. No
SARs were granted in 2001, nor have any been granted since 1991. Upon a change
in control, all options and any accompanying SARs held for more than six months
become immediately exercisable in full. For all options granted in 2001, a
change in control shall be deemed to have occurred upon (a) a change in any two
year period in a majority of the members of the Board of Directors of the
Company, as defined in the 2000 Plan, (b) any person becoming the beneficial
owner, directly or indirectly, of 25% or more of the Company's outstanding
Common Stock, (c) with certain exceptions, the consummation of a merger or
consolidation of the Company with any other corporation, a sale of 50% or more
of the Company's assets, liquidation or dissolution of the Company or
combination of the foregoing transactions ("Transactions") other than a
Transaction immediately following which the stockholders of the Company and any
trustee or fiduciary of any Company employee benefit plan immediately prior to
the Transaction own at least 60% of the voting power of the surviving
corporation(s), or (d) if a majority of the members of the Board of Directors in
37
office immediately prior to a proposed transaction determine by written
resolution that such proposed transaction, if taken, will be deemed a change in
control and such proposed transaction is effected.
(2) The present value of stock option grants was computed in accordance with
the Black-Scholes option pricing model, with assumptions consistent with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," as permitted by the rules of the Securities and Exchange
Commission. Key assumptions used under the Black-Scholes model include: (a) an
expected option term of 5.8 years, (b) interest rate of 4.99%, which represents
the U.S. Treasury Strip Rate at the date of grant with maturity corresponding to
the expected option term, (c) stock price volatility of 42.85% calculated using
monthly stock prices for the 36 months prior to the date of the grant, and
(d) dividends at an average annual dividend yield of 3.30%. Based on the
Black-Scholes model, the value on January 9, 2001, was $22.54 per option. The
Company believes, however, that it is not possible to accurately determine the
value of options at the time of grant using any option pricing model, including
Black-Scholes. Use of any option pricing model to value options requires
assumptions about future events that may prove to be inaccurate.
OPTION/SAR EXERCISES AND HOLDINGS
The following table contains information with respect to options/SARs
exercised during 2001 and the value of unexercised options/SARs held as of
December 31, 2001 for the Chief Executive Officer and the next four highest paid
executive officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
OPTIONS/SARS AT SARS
DECEMBER 31, 2001 AT DECEMBER 31, 2001(1)
SHARES ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
Luke R. Corbett 1,900 $44,116 338,300 275,000 $1,264,356 $364,530
Kenneth W. Crouch -- -- 39,499 69,168 85,052 85,067
William P. Woodward 6,500 206,115 36,400 62,501 82,286 85,067
Robert M. Wohleber -- -- 21,666 53,334 -- --
Gregory F. Pilcher -- -- 13,933 41,667 6,329 --
(1) Options/SARs are "in the money" if the fair market value of the Common
Stock exceeds the exercise price. At December 31, 2001, the closing price of the
Common Stock on the New York Stock Exchange was $54.80.
38
RETIREMENT PLANS
The Company maintains retirement plans for all employees, including
officers. The following table illustrates the pension benefits that may accrue
to executive officers under the Company's retirement plans assuming various
service periods. The table shows the estimated annual pension benefits payable
to a covered participant at normal retirement age. Pension benefits include
benefits payable under the Company's qualified defined benefit plan and the
Company's nonqualified benefits restoration plan (the "BRP"). The BRP provides
benefits that would be provided under the qualified defined benefit plan but for
certain IRS Code limitations on qualified plan benefits.
RETIREMENT PLAN TABLE
AVERAGE ANNUAL 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
COMPENSATION SERVICE SERVICE SERVICE SERVICE SERVICE
--------------------- -------- -------- -------- --------- ---------
$ 400,000 $97,235 $129,648 $162,059 $ 194,470 $ 209,470
600,000 147,235 196,314 245,393 294,471 316,971
800,000 197,235 262,981 328,726 394,471 424,471
1,000,000 247,236 329,648 412,060 494,471 531,971
1,200,000 297,236 396,315 495,393 594,471 639,471
1,400,000 347,236 462,982 578,727 694,471 746,971
1,600,000 397,236 529,648 662,060 794,472 854,472
1,800,000 447,236 596,315 745,394 894,472 961,972
2,000,000 497,236 662,982 828,727 994,472 1,069,472
2,200,000 547,236 729,649 912,061 1,094,472 1,176,972
2,400,000 597,236 796,316 995,394 1,194,472 1,284,472
Covered compensation under the retirement plans consists of salary, bonus
and pretax Section 125 and 401(k) benefit contributions, all based on the
highest 36 consecutive months out of the last 120 months prior to retirement.
Amounts shown are computed on a straight life annuity basis. As of December 31,
2001, Mr. Corbett had 16 years of credited service; Mr. Crouch, 27;
Mr. Woodward, 29; Mr. Wohleber, 2; and Mr. Pilcher, 9.
39
The Company's Supplemental Executive Retirement Plan (the "SERP"), adopted
effective January 1, 1991, is a defined benefit plan administered by the
Executive Compensation Committee. The SERP, as amended, provides supplemental
retirement benefits to certain key senior executives selected by the Executive
Compensation Committee. Full benefits are payable upon retirement on or after
age 60. Reduced benefits are payable upon retirement on or after age 52. SERP
benefits are paid in an actuarially determined lump sum calculated to
approximate a life annuity. The amount of the benefit is equal to a portion of
the participant's final average monthly compensation less the sum of (1) the
participant's monthly primary social security benefit and (2) the participant's
monthly benefits payable under the Company's other defined benefit plans. The
portion of a participant's final average monthly compensation used to determine
SERP benefits varies from 40% to 70% and depends on the participant's age at
retirement and other factors. As of December 31, 2001, the estimated lump sum
SERP benefit payable upon retirement to the executive officers named in the
Summary Compensation Table, assuming (i) retirement at age 60, and
(ii) salaries are maintained at their current level, is: Mr. Corbett,
$7,668,414; Mr. Crouch, $1,513,874; Mr. Woodward, $552,915; Mr. Wohleber,
$1,385,681; and Mr. Pilcher, $922,619.
CONTINUITY AGREEMENTS
Continuity Agreements between the Company and its executive officers and
certain key employees, including Messrs. Corbett, Crouch, Woodward, Wohleber and
Pilcher, provide certain benefits in the event of a qualifying termination that
occurs in connection with a "change in control" of the Company.
In the event of a qualifying termination of employment within two years
after a change in control, such executive will be entitled to receive:
- A lump sum cash payment equal to three times the executive's annual base
salary, bonuses and perquisites (with such perquisites calculated at 7% of
the executive's annual base salary);
- Any accrued but unpaid compensation (including the pro-rata amount of any
bonus); and
- An amount representing additional savings plan contributions for a
three-year period plus the present value of lost pension benefits under
the Company's qualified defined benefit pension plans after giving effect
to five years of credit for age and service in the benefit calculation.
If the payment made to the officer causes the officer to be subject to an
excise tax because the payment is a "parachute payment" (as defined in the IRS
Code), then the payment shall be grossed up to compensate the executive for the
excise tax. In addition, in the event of a qualifying termination, the officer
will be entitled to:
- A continuation of welfare benefits for up to three years;
- Outplacement services;
40
- Acceleration of vesting of all equity and equity-based awards; and
- Amounts that such officer would otherwise be entitled to receive under
Kerr-McGee's Supplemental Executive Retirement Plan (SERP) described more
fully in the "Retirement Plans".
A change in control means (a) a change in any two year period in a
majority of the members of the Board of Directors of the Company, as defined in
the Continuity Agreement, (b) any person becoming the beneficial owner, directly
or indirectly, of 25% or more of the Company's outstanding Common Stock,
(c) with certain exceptions, the consummation of a merger or consolidation of
the Company with any other corporation, a sale of 50% or more of the Company's
assets, liquidation or dissolution of the Company or combination of the
foregoing transactions ("Transactions") other than a Transaction immediately
following which the stockholders of the Company and any trustee or fiduciary of
any Company employee benefit plan immediately prior to the Transaction own at
least 60% of the voting power of the surviving corporation(s), or (d) if a
majority of the members of the Board of Directors in office immediately prior to
a proposed transaction determine by written resolution that such proposed
transaction, if taken, will be deemed a change in control and such proposed
transaction is effected.
The Company also has made provision under its Benefits Restoration Plan
and the SERP for the crediting of additional years of age and service to certain
executive officers, including those named in the Summary Compensation Table,
whose employment is terminated under the circumstances described above following
a change in control of the Company.
PERFORMANCE GRAPH
Set forth on page 42 is a line graph comparing the yearly percentage
change in the cumulative total return to Stockholders on the Company's Common
Stock against the cumulative total return of the Standard & Poor's 500 Index,
Standard & Poor's Oil Producers' Index and the Standard & Poor's Domestic
Integrated Oil Index for the five-year period 1997 through 2001. As a result of
the Company's divestiture of its marketing and oil refining business in 1995,
Standard & Poor's changed the Company's peer group designation in 2001 which
resulted in two peer group comparisons being reflected in this Proxy Statement.
Future Proxy Statements will reference only the Standard & Poor's Oil Producer's
Index as the peer group comparison.
41
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
KERR-MCGEE CORPORATION
S&P 500 INDEX, S&P DOMESTIC INTEGRATED OIL INDEX
AND S&P OIL PRODUCERS' INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CUMULATIVE TOTAL RETURN
Based on an initial investment of $100 on December 31, 1996
with dividends reinvested
KERR-MCGEE S&P OIL S&P DOMESTIC S&P 500
Dec-96 $100 $100 $100 $100
Dec-97 $90 $92 $119 $133
Dec-98 $57 $63 $97 $171
Dec-99 $95 $75 $120 $207
Dec-00 $106 $119 $140 $188
Dec-01 $89 $94 $147 $166
STOCKHOLDER PROPOSALS
- Stockholder proposals for the 2003 Annual Meeting must be received at the
principal executive offices of the Company no later than November 25,
2002, to be considered for inclusion in the Proxy Statement and form of
proxy relating to the Annual Meeting in 2003.
- For any other proposal that a Stockholder wishes to have considered at the
2003 Annual Meeting, the Company must have received written notice of such
proposal during the period beginning February 13, 2003, and ending
March 5, 2003.
- Proposals which are not received by the dates specified will be considered
untimely. In addition, proposals must comply with Delaware law, the ByLaws
of the Company and the rules and regulations of the Securities and
Exchange Commission.
42
EXPENSE OF SOLICITATION
The cost of this proxy solicitation is being borne by the Company. To
assist in the proxy solicitation, the Company has engaged Georgeson & Co. for a
fee of $13,500 plus out-of-pocket expenses. The Company will reimburse brokers,
banks or other persons for reasonable expenses in sending proxy material to
beneficial owners. Proxies may be solicited through the mail, Internet,
telephonic or facsimile communications or meetings with Stockholders or their
representatives by directors, officers and other employees of the Company who
will receive no additional compensation for doing so.
OWNERSHIP OF STOCK OF
THE COMPANY
To the best of the Company's knowledge, no person beneficially owned more
than 5% of any class of the Company's outstanding voting securities at the close
of business on March 1, 2002, except as set forth below:
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS*
-------------- ---------------------------------------- -------------------- ---------
Common Stock AXA Group Entities(1) 5,549,524 5.5%
Common Stock Capital Research and Management 6,347,800 6.3%
Company(2)
333 South Hope Street
Los Angeles, California 90071
Common Stock Barclays Entities(3) 6,094,737 6.1%
* Based on outstanding shares as of December 31, 2001 totaling 100,185,330
(1) Refers to the following wholly or majority-owned subsidiaries of AXA:
Alliance Capital Management L.P., 1345 Avenue of the Americas, New York,
New York 10105; The Equitable Life Assurance Society of the United States,
1290 Avenue of the Americas, New York, New York 10104; AXA Investment
Managers Paris, 46 Avenue de le grande armee, 75017 Paris, France; and AXA
Investment Managers UK Ltd, 7 Newgate Street, London EC1A 7NX England.
Based on Amendment No. 2 to Schedule 13G as of December 31, 2001:
(a) AXA Investment Managers Paris has sole power to vote and sole power
to dispose of 7,153 shares, and holds no shares over which it has
shared voting or shared disposition power.
43
(b) AXA Investment Managers UK Ltd. has sole power to vote and dispose
of 371,450 shares, and does not hold any shares over which it has
shared voting or shared disposition power.
(c) Alliance Capital Management L.P. has sole power to vote 2,212,258
shares, sole power to dispose of 5,139,676 shares, and shared power
to vote 2,007,900 shares, and holds no shares over which it has
shared disposition power.
(d) The Equitable Life Assurance Society of the United States has power
to dispose of 31,245 shares, and holds no shares over which it has
sole voting power or shared voting or shared disposition power.
(2) Based on Amendment No. 4 to Scheduled 13G as of December 31, 2001, the
Capital Research and Management Company has sole power to dispose of
6,347,800 shares. Capital Research and Management Company reports that it
holds no shares over which it has sole voting power or shared voting or
shared disposition power.
(3) Refers to the following Barclays Entities: Barclays Global Investors,
N.A., 45 Fremont Street, San Francisco, California 94105; Barclays Global
Fund Advisers, 45 Fremont Street, San Francisco, California 94105;
Barclays Global Investors, Ltd., Murray House, 1 Royal Mint Court, London,
England EC3 NHH; Barclays Funds Ltd., Gredley House, 11 The Broadway,
Stratford, England E15 4BJ; Barclays Trust and Banking Company
(Japan) Ltd. Ebisu Prime Square Tower, 8th Floor, 1-1-39 Hiroo,
Shibuya-Ku, Tokyo, Japan 150-8402; Barclays Life Assurance Company, Ltd.,
Unicorn House, 5th Floor, 252 Romford Road, Forest Gate, London, England
E7 9JB; and Barclays Capital Securities, Ltd., 5 The North Colonnade,
Cannery Wharf, London, England E14 4BB. Based on Schedule 13G as of
December 31, 2001:
(a) Barclays Global Investors, N.A. has sole power to vote 5,027,259
shares and sole power to dispose of 5,171,762 shares, and holds no
shares over which it has shared voting or shared disposition power.
(b) Barclays Global Fund Advisers has sole power to vote 516,621 shares
and sole power to dispose of 527,108 shares, and holds no shares
over which it has shared voting or shared disposition power.
44
(c) Barclays Global Investors, Ltd. has sole power to vote 341,957
shares and sole power to dispose of 346,357 shares, and holds no
shares over which it has shared voting or shared disposition power.
(d) Barclays Funds Ltd. has sole power to vote and sole power to dispose
of 11,401 shares, and holds no shares over which it has shared
voting or shared disposition power.
(e) Barclays Trust and Bank Company (Japan), Ltd. has sole power to vote
and sole power to dispose of 30,751 shares and holds no shares over
which it has shared voting or shared disposition power.
(f) Barclays Life Assurance Company, Ltd. has sole power to vote and
sole power to dispose of 3,104 shares, and holds no shares over
which it has shared voting or shared disposition power.
(g) Barclays Capital Securities, Ltd. has sole power to vote and sole
power to dispose of 4,254 shares, and holds no shares over which it
has shared voting or shared disposition power.
45
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more than 10% of
a registered class of the Company's equity securities to file with the
Securities and Exchange Commission (the "SEC") and the New York Stock Exchange
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, Directors and Stockholders
owning more than 10% are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on the information furnished to the Company and written
representations that no other reports were required during the fiscal year ended
December 31, 2001, the Company is not aware of any failure to comply with
applicable Section 16(a) filing requirements.
OTHER MATTERS
The Company does not know of any matters to be presented at the meeting
other than those set out in the notice preceding this Proxy Statement. If any
other matters should properly come before the meeting, it is intended that the
persons named on the enclosed proxy will vote said proxy on such other matters
at their discretion.
HOUSEHOLDING STATEMENT
Only one Proxy Statement and Annual Report may be delivered to multiple
Stockholders sharing an address unless the Company receives contrary
instructions from one or more of the Stockholders. Any Stockholder at a shared
address to which a single copy of the Proxy Statement and Annual Report have
been sent who would like an additional copy of this Proxy Statement and Annual
Report or future copies of Proxy Statements and Annual Reports may make a
written or oral request to: UMB Bank, N.A., Securities Transfer Division, P. O.
Box 410064, Kansas City, Missouri 64141-0064 or call 800-884-4225. Similarly,
any Stockholders sharing an address and currently receiving multiple copies of
Proxy Statements and Annual Reports, may request that only a single copy of a
Proxy Statement and Annual Report is delivered to them in the future.
Gregory F. Pilcher
SECRETARY
46
EXHIBIT A
KERR-MCGEE CORPORATION 2002 ANNUAL INCENTIVE COMPENSATION PLAN
ARTICLE I
ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT OF THE PLAN. Kerr-McGee Corporation, a Delaware
corporation (the "Company"), hereby establishes an annual incentive compensation
plan to be known as "The Kerr-McGee Corporation 2002 Annual Incentive
Compensation Plan (the "Plan"), as set forth in this document. The Plan permits
annual cash awards to Officers of the Company, based on the achievement of
pre-established performance goals.
The Plan is effective May 14, 2002 (the "Effective Date"). The Plan shall
first apply to Awards for the 2002 Plan Year performance. The Plan shall remain
in effect until terminated as provided in Article V, Section 5.8 herein.
1.2 PURPOSE. The purposes of the Plan are to:
(a) Provide incentives to achieve annual goals that are within group
and/or individual control and are considered key to the Company's success;
(b) Encourage teamwork in various segments of the Company;
(c) Reward performance with pay that varies in relation to the extent
to which the pre-established goals are achieved; and
(d) Ensure all amounts paid under the Plan be "qualified performance
based compensation" within the meaning of Section 162(m) of the Code and
its accompanying regulations.
ARTICLE II
DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below and, when the defined meaning is intended, the term is capitalized:
(a) "AWARD OPPORTUNITY" means the various levels of incentive award
payouts which an Officer may earn under the Plan, including Target
Incentive Awards, as established by the Committee pursuant to Article V,
Sections 5.1 and 5.2 herein.
1
(b) "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of
the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of two (2) or more members of the
Board of Directors, all of whom shall be "outside directors" within the
meaning of the Regulations under Code Section 162(m), appointed by the
Board to administer the Plan, pursuant to Article III herein.
(e) "COMPANY" means Kerr-McGee Corporation, a Delaware corporation
(including any and all Subsidiaries and Limited Liability Companies) and
any successor thereto.
(f) "EFFECTIVE DATE" means the date the Plan becomes effective, as
set forth in Article I, Section 1.1 herein.
(g) "EMPLOYEE" means a full time, salaried employee of the Company.
The term "Employee" shall not include a person hired as an independent
contractor, leased employee, consultant or a person otherwise designated by
the Company at the time of hire as not eligible to participate in the Plan,
even if such person is determined to be an "employee" by any governmental
or judicial authority.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
(i) "FINAL AWARD" means the actual award earned during a Plan Year
by an Officer, as determined by the Committee.
(j) "LIMITED LIABILITY COMPANY" means any Limited Liability Company
in which the Company or a Subsidiary owns fifty percent (50%) or more of
the Limited Liability Company.
(k) "OFFICER" means an Employee who, as of the last day of the
applicable Plan Year, is an elected officer of the Company at or above the
level of Corporate Vice President, which may also be referenced in the Plan
as a Participant.
(l) "PLAN YEAR" means the Company's fiscal year.
(m) "RETIREMENT" means retirement of an Officer after attaining age
and service requirements of the Company's pension plan in which the Officer
participates. For this purpose, "service" shall be measured under the rules
for determining vesting
2
service under the Kerr-McGee Corporation Retirement Plan for U.S.
Employees, determined as if the individual were a participant in such plan.
(n) "SUBSIDIARY" means any corporation (other than the Company) in
which the Company, a Subsidiary or a Limited Liability Company of the
Company owns fifty percent (50%) or more of the total combined voting power
of all classes of stock.
(o) "TARGET INCENTIVE AWARD" means the award, as established by the
Committee at a competitive level, which may be paid to an Officer when
"targeted" performance results are attained.
(p) "MAXIMUM INCENTIVE AWARD" means the award, as established by the
Committee which is intended to reward outstanding performance, and which
may be paid to an Officer when outstanding performance results are
attained; however, in no case can the Maximum Incentive Award for an
individual Officer exceed $3,000,000.
(q) "TOTAL DISABILITY" shall normally have such meaning as that
defined under the Company's group insurance plan covering total disability
and determinations of Total Disability normally shall be made by the
insurance company providing such coverage on the date on which the
employee, whether or not eligible for benefits under such insurance plan,
becomes Totally Disabled. In the absence of such insurance plan, the
Committee shall make such determination.
ARTICLE III
ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by a Committee which
initially shall be a subcommittee of the Executive Compensation Committee of the
Board. Subject to the terms of this Plan, the Board may appoint a successor
Committee to administer the Plan. The members of the Committee shall be
appointed by, must be members of, and shall serve at the discretion of the
Board.
3.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions herein, the
Committee shall have the full power to determine the size and types of Award
Opportunities and Final Awards, to determine the terms and conditions of Award
Opportunities in a manner consistent with the Plan, to construe and interpret
the Plan and any agreement or instrument entered into under the Plan, to
establish, amend or waive rules and regulations for the Plan's administration,
and (subject to the provisions of Article IV herein) to amend the terms and
conditions of any outstanding Award Opportunity to the extent such terms and
conditions are within the sole discretion of the Committee as provided in the
Plan. Further, the Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan. As permitted by law,
the Committee may delegate its authority hereunder.
3
3.3 DECISIONS BINDING. All determinations and decisions of the Committee
as to any disputed question arising under the Plan, including questions of
construction and interpretation, shall be final, binding and conclusive upon all
parties.
ARTICLE IV
ELIGIBILITY AND PARTICIPATION
4.1 ELIGIBILITY. Each Officer who is an Officer as of the last day of a
Plan Year shall be eligible to participate in the Plan for that Plan Year.
4.2 NO RIGHT TO PARTICIPATE. No Employee shall at any time have a right
to be selected for participation in the Plan despite having previously
participated in the Plan.
ARTICLE V
AWARD DETERMINATION
5.1 PERFORMANCE MEASURES AND PERFORMANCE GOALS. For each Plan Year, the
Committee shall establish ranges of attainment of the performance goals which
will correspond to various levels of Award Opportunities. Each performance goal
range shall include a level of performance at which one hundred percent (100%)
of the Target Incentive Award may be earned. In addition, each range shall
include levels of performance above and below the one hundred percent (100%)
performance level at which a greater or lesser percent of the Target Incentive
Award may be earned.
After the performance goals are established, the committee will align the
achievement of the performance goals with the Award Opportunities (as described
in Article V, Section 5.2 herein), such that the level of achievement of the
pre-established performance goals at the end of the Plan Year will determine the
Final Awards.
The Committee may establish one or more Company-wide performance measures
which must be achieved for any Officer to receive a Final Award payment for that
Plan Year.
Following the completion of each Plan Year, if the performance goals were
met, the Committee shall certify in writing prior to payment of Final Awards
that the performance goals for such Plan Year were satisfied.
5.2 AWARD OPPORTUNITIES. No later than ninety (90) days after the
beginning of each Plan Year, the Committee shall establish, in writing, Award
Opportunities which correspond to various levels of achievement of the
pre-established performance goals. The established Award Opportunities may vary
in relation to the job classification of each Officer or among Officers in the
same job classification. Except as provided in Article V, Section 5.7 herein,
Award Opportunities for Officers shall be established as a function of each
Officer's
4
Base Salary (as defined below). No later than ninety (90) days after the
beginning of each Plan Year, the Committee shall establish, in writing, various
levels of Final Awards which may be paid with respect to specified levels of
attainment of the pre-established performance goals.
For purposes of this Article V, "Base Salary" shall mean, as to any
specific Plan Year, an Officer's actual base salary paid while an Officer. Base
salary shall not be reduced by any voluntary salary reductions or any salary
reduction contributions made to any salary reduction plan, defined contribution
plan or other deferred compensation plans of the Company, but shall not include
any payments under this Plan, the 1998, 2000 and 2002 Long Term Incentive Plans,
or any other bonuses, incentive pay or special awards. In the event an Employee
becomes an Officer during the Plan Year, then only the salary earned while an
Officer will be taken into account for awards under this Plan. The Officer shall
be eligible to receive any other applicable cash-based compensation from other
Company bonus plans for that part of the year in which he was not an Officer.
5.3 COMPUTATION OF FINAL AWARDS. Awards will be computed and paid based
on the attainment of the pre-established performance goals. Awards for
proxy-named Officers will be funded with up to 1.5% of cash flow in aggregate
with no more than 0.5% of cash flow being allocated to any individual as
calculated by the Committee. Subject to Section 5.7 herein, the Committee may
establish performance goals based on the Company's Pretax Income, Net Income,
Earnings Per Share, Revenue, Expenses, Return on Assets, Return on Equity,
Return on Investment, Net Profit Margin, Operating Profit Margin, Operating Cash
Flow, Total Stockholder Return, Capitalization, Liquidity, Reserve Adds or
Replacement, Finding and Development Costs, Results of Customer Satisfaction
Surveys and other measures of Quality, Safety, Productivity, Cost Management or
Process Improvement or other measures the Committee approves. Such performance
goals may be determined solely by reference to the performance of the Company, a
Subsidiary, a Limited Liability Company or a division or unit of any of the
foregoing, or based upon comparisons of any of the performance measures relative
to other companies. The Committee may also exclude the impact of any event or
occurrence which the Committee determines should appropriately be excluded such
as, for example, a restructuring or other nonrecurring charge, an event either
not directly related to the operations of the Company or not within the
reasonable control of the Company's management, or a change in accounting
standards required by U. S. generally accepted accounting principles.
5.4 THRESHOLD LEVELS OF PERFORMANCE. The Committee may establish minimum
levels of performance goal achievement, below which no payouts of Final Awards
shall be made to any Officer.
5.5 NO MID-YEAR CHANGE IN AWARD OPPORTUNITIES. Except as provided in
Article V, Section 5.7 herein, each Officer's Final Award shall be based
exclusively on the Award Opportunity levels established by the Committee
pursuant to Article V, Section 5.2 above.
5
5.6 AWARD ADJUSTMENTS. The Committee shall have the discretion to reduce
or eliminate the amount of the Final Award otherwise payable to an Officer.
5.7 POSSIBLE MODIFICATIONS. In the event that changes are made to Code
Section 162(m) or the Regulations thereunder (or their interpretation) to permit
greater flexibility with respect to any Award Opportunities under the Plan, the
Committee may exercise such greater flexibility consistent with the terms of the
AICP and, to the extent of such changes, without regard to otherwise applicable
restrictive provisions of the AICP.
5.8 AMEND AND TERMINATE. The Board, without notice, at any time, may
modify or amend, in whole or in part, any or all of the provisions of the Plan,
or suspend or terminate it entirely.
ARTICLE VI
PAYMENT OF FINAL AWARDS
6.1 FORM AND TIMING OF PAYMENT. Unless a deferral election is made by an
Officer pursuant to Article VI, Section 6.2 herein, or deferral of all or a
portion of an Officer's Final Award is required by Article VI, Section 6.3, each
Officer's Final Award shall be paid within seventy-five (75) days after the
Award is approved in writing by the Committee.
6.2 VOLUNTARY DEFERRAL OF FINAL AWARD PAYOUTS. An Officer may defer
receipt of some or all payments otherwise due under the Plan pursuant to the
terms of a deferred compensation plan sponsored by the Company under which such
deferral is permitted.
6.3 DEFERRAL OF FINAL AWARD PAYOUTS. In the event that all or a portion
of an Officer's Final Award is not deductible by the Company due to limits
contained in Code Section 162(m) or any successor Code Section, the Committee
may, in its discretion, require that payment of the nondeductible portion of
such Final Award be deferred under a deferred compensation plan sponsored by the
Company.
ARTICLE VII
TERMINATION OF EMPLOYMENT
If before an Award is actually paid to an Officer with respect to a
Performance Period the Officer ceases to be a regular, full time employee of the
Corporation, any of its Subsidiaries or any of its Limited Liability Companies
for a reason other than death, Total Disability or Retirement, the Officer's
eligibility under the Plan shall terminate and no Award will be paid. In the
event a participating Officer (who was an officer as of the first day of a Plan
Year) terminates employment due to death, Total Disability or Retirement, such
Officer shall be entitled to a pro rata portion of the Final Award calculated on
actual Base Salary earned by such Officer.
6
ARTICLE VIII
RIGHTS OF PARTICIPANTS
8.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Officer's employment at any time,
nor confer upon any Officer any right to continue in the employ of the Company.
8.2 NONTRANSFERABILITY. No right or interest of any Officer in the Plan
shall be assignable or transferable, or subject to any lien, directly, by
operation of law or otherwise, including, but not limited to, execution, levy,
garnishment, attachment, pledge and bankruptcy.
ARTICLE IX
CHANGE IN CONTROL
In the event of a Change in Control, each Participant shall, in the sole
discretion of the Committee (except as otherwise provided in a Participant's
continuity agreement with the Company), receive a full payment of the
Participant's Target Incentive Award for the Plan Year during which such Change
in Control occurs, as determined by the Committee. In such circumstances the
Committee shall determine the Final Award based upon such performance during the
Plan year until the date of the Change in Control. Such amounts shall be paid in
cash to each participant within seventy-five (75) days after the effective date
of the Change in Control.
For purposes of the Plan, a "Change in Control" shall be deemed to have occurred
if:
(a) Any person ("Person") as defined in Section 3(a)(9) of the Exchange
Act and as used in Section 13(d) and 14(d) thereof, including a "group" as
defined in Section 13(d) of the Exchange Act, but excluding the Company and any
subsidiary and any employee benefit plan sponsored or maintained by the Company
or any subsidiary (including any trustee of such plan acting as trustee),
directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), of securities of the Company representing
25% or more of the combined voting power of the Company's then outstanding
securities (other than indirectly as a result of the Company's redemption of its
securities); or
(b) The consummation of any merger or other business combination of the
Company, sale of 50% or more of the Company's assets, liquidation or dissolution
of the Company or combination of the foregoing transactions (the "Transactions")
other than a Transaction immediately following which the shareholder of the
Company and any trustee or fiduciary of any Company employee benefit plan
immediately prior to the Transaction own at least 60% of the voting power,
directly or indirectly, of (A) the surviving corporation in any such merger or
other business combination; (B) the purchaser or successor to the Company's
7
assets; (C) both the surviving corporation and the purchaser in the event of any
combination of Transactions; or (D) the parent company owning 100% of such
surviving corporation, purchaser or both the surviving corporation and the
purchaser, as the case may be; or
(c) Within any twenty-four month period, the persons who were directors
immediately before the beginning of such period (the "Incumbent Directors")
shall cease (for any reason other than death) to constitute at least a majority
of the Board or the board of directors of a successor to the Company. For this
purpose, any director who was not a director at the beginning of such period
shall be deemed to be an Incumbent Director if such director was elected to the
Board by, or on the recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as Incumbent Directors (so long
as such director was not nominated by a person who commenced or threatened to
commence an election contest or proxy solicitation by or on behalf of a Person
(other than the Board) or who has entered into an agreement to effect a Change
in Control or expressed an intention to cause such a Change in Control); or
(d) A majority of the members of the Board of Directors in office
immediately prior to a proposed transaction determine by a written resolution
that such proposed transaction, if taken, will be deemed a Change in Control and
such proposed transaction is consummated.
ARTICLE X
MISCELLANEOUS
10.1 GOVERNING LAW. The Plan, and all agreements hereunder, shall be
governed by and construed in accordance with the laws of the State of Oklahoma.
10.2 WITHHOLDING TAXES. The Company shall have the right to deduct from
all payments under the Plan any foreign, federal, state or local income or other
taxes required by law to be withheld with respect to such payments. Before
payment of any Final Award may be deferred under Article VI, the Company may
require that the Officer pay or agree to withholding for any foreign, federal,
state or local income or other taxes which may be imposed on any amount
deferred.
10.3 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular, and the singular shall include the plural.
10.4 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
8
10.5 COSTS OF THE PLAN. All costs of implementing and administering the
Plan shall be borne by the Company.
10.6 SUCCESSORS. All obligations of the Company under the Plan shall be
binding upon and inure to the benefit of any successor to the Company, whether
the existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
10.7 OTHER PLANS. Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
10.8 CONSTRUCTION. The Committee shall have such duties and powers as may
be necessary to discharge its responsibilities under this Plan, including, but
not limited to, the ability to construe and interpret the Plan and resolve any
ambiguities with respect to any of the terms and provisions hereof as written
and as applied to the operation of the Plan.
9
EXHIBIT B
KERR-MCGEE CORPORATION 2002 LONG TERM INCENTIVE PLAN
ARTICLE I
PURPOSE
The purpose of the Kerr-McGee Corporation 2002 Long Term Incentive Plan
(the "Plan") is to provide incentive opportunities for Non-Employee Directors
and key employees, and to align their personal financial interest with the
Company's stockholders. The Plan includes provisions for stock options, stock
and performance related awards.
ARTICLE II
DEFINITIONS
(a) "AWARD" shall mean the award which a Performance Plan Participant is
entitled to receive under the Performance Plan.
(b) "BOARD" OR "BOARD OF DIRECTORS" shall mean the Board of Directors of
the Company.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(d) "COMPANY" shall mean Kerr-McGee Corporation and any successor
corporation by merger or otherwise.
(e) "COMMITTEE" shall mean a committee of two (2) or more members of the
Board appointed by the Board of Directors to administer the Plan pursuant to
Article III herein. A person may serve on the Committee only if he or she is a
"Non-Employee Director" for purposes of Rule 16b-3 under the Securities Exchange
Act of 1934, as amended, and satisfies the requirements of an "outside director"
for purposes of Code section 162(m).
(f) "EMPLOYEE" shall mean any person employed by the Company, a
Subsidiary or Limited Liability Company on a full-time salaried basis, including
Officers and Non-Employee Directors thereof. The term "Employee" shall not
include a person hired as an independent contractor, leased employee, consultant
or a person otherwise designated by the Company at the time of hire as not
eligible to participate in the Plan, even if such person is determined to be an
"employee" by any governmental or judicial authority.
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(g) "FAIR MARKET VALUE" of Stock shall mean the average of the highest
price and the lowest price at which Stock shall have been sold on the applicable
date as reported in the Wall Street Journal as New York Stock Exchange Composite
Transactions for that date. In the event that the applicable date is a date on
which there were no such sales of Stock, the Fair Market Value of Stock on such
date shall be the mean of the highest price and the lowest price at which Stock
shall have been sold on the last trading day preceding such date.
(h) "INCENTIVE STOCK OPTION" or "ISO" shall mean an Option grant which
meets or complies with the terms and conditions set forth in Section 422 of the
Code and applicable regulations.
(i) "INDICATORS OF PERFORMANCE" shall mean the criteria used by the
Committee to evaluate the Company's performance with respect to Restricted Stock
granted as performance-based compensation under Article VIII, Section 8.1 and
each Performance Period for Awards as described in Article IX, Section 9.2,
including: the Company's Pretax Income, Net Income, Earnings Per Share, Revenue,
Expenses, Return on Assets, Return on Equity, Return on Investment, Net Profit
Margin, Operating Profit Margin, Cash Flow, Total Stockholder Return,
Capitalization, Liquidity, Reserve Adds or Replacement, Finding and Development
Costs, Production Volume, Results of Customer Satisfaction Surveys and other
measures of Quality, Safety, Productivity, Cost Management or Process
Improvement or other measures the Committee approves. Such performance goals may
be determined solely by reference to the performance of the Company, a
Subsidiary, a Limited Liability Company or a division or unit of any of the
foregoing, or based upon comparisons of any of the performance measures relative
to other companies. In establishing a performance goal, the Committee may
exclude the impact of any event or occurrence which the Committee determines
should appropriately be excluded such as, for example, a restructuring or other
nonrecurring charge, an event either not directly related to the operations of
the Company or not within the reasonable control of the Company's management, or
a change in accounting standards required by U.S. generally accepted accounting
principles.
(j) "LIMITED LIABILITY COMPANY" or "LLC" shall mean any Limited
Liability Company in which the Company or a Subsidiary owns fifty percent (50%)
or more of the Limited Liability Company.
(k) "NON-EMPLOYEE DIRECTOR" shall mean any person duly elected a
director of Kerr-McGee Corporation who is not an employee of the Company.
(l) "OPTION" or "STOCK OPTION" shall mean a right granted under the
Plan to an Optionee to purchase a stated number of shares of Stock at a stated
exercise price.
(m) "OPTIONEE" shall mean an Employee or Non-Employee Director who has
received a Stock Option granted under the Plan.
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(n) "PERFORMANCE PERIOD" shall mean a period established by the
Committee of not less than one year, at the conclusion of which
performance-based compensation will become vested and nonforfeitable or
settlement will be made with a Performance Plan Participant with respect to the
Award.
(o) "PERFORMANCE PLAN PARTICIPANT" shall mean any eligible Employee so
designated by the Committee.
(p) "RESTRICTED STOCK" shall mean Stock which is issued pursuant to
Article VIII of the Plan.
(q) "RESTRICTION PERIOD" shall mean that period of time as determined by
the Committee during which Restricted Stock is subject to such terms, conditions
and restrictions as shall be assigned by the Committee.
(r) "RETIREMENT" shall mean retirement of an Employee after attaining
age and service requirements of the Company pension plan in which the employee
participates. For this purpose, "service" for U.S. Employees shall be measured
under the rules for determining vesting service under the Kerr-McGee Corporation
Retirement Plan for U.S. Employees. "Retirement" for Non-Employee Directors
shall mean termination from service on the Board.
(s) "STOCK" shall mean the common stock of the Company.
(t) "STOCK APPRECIATION RIGHT" or "SAR" shall mean a right granted in
connection with an Option in accordance with Article VII of the Plan.
(u) "SUBSIDIARY" shall mean any corporation (other than the Company) in
which the Company, a Subsidiary or a Limited Liability Company of the Company
owns fifty percent (50%) or more of the total combined voting power of all
classes of stock, provided that, with regard to Incentive Stock Options,
"Subsidiary" shall have the meaning provided under section 424(f) of the Code.
(v) "TOTAL DISABILITY" and "TOTALLY DISABLED" shall normally have such
meaning as that defined under the Company's group insurance plan covering total
disability and determinations of Total Disability normally shall be made by the
insurance company providing such coverage on the date on which the employee,
whether or not eligible for benefits under such insurance plan, becomes Totally
Disabled. In the absence of such insurance plan or in the event the individual
is a Non-Employee Director, the Committee shall make such determination.
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ARTICLE III
ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by a Committee which
initially shall be a subcommittee of the Executive Compensation Committee of the
Board. Subject to such approvals and other authority as the Board may reserve to
itself from time to time, the Committee shall, consistent with the provisions of
the Plan, from time to time establish such rules and regulations and appoint
such agents as it deems appropriate for the proper administration of the Plan,
and make such determinations under, and such interpretations of, and take such
steps in connection with the Plan or the Options or SARs or the Restricted Stock
Plan or the Performance Plan as it deems necessary or advisable.
3.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions herein, the
Committee shall have the full power to determine the size and types of Option,
SAR and Restricted Stock grants and Awards, to determine the terms and
conditions of such grants and Awards in a manner consistent with the Plan, to
construe and interpret the Plan and any agreement or instrument entered into
under the Plan, to establish, amend or waive rules and regulations for the
Plan's administration, and to amend the terms and conditions of any outstanding
Option, SAR or Restricted Stock grant or Award to the extent such terms and
conditions are within the sole discretion of the Committee as provided in the
Plan and subject to the limitations and restrictions otherwise applicable under
the Plan including those contained in Article XIII which among other
restrictions prohibits the repricing of options without further shareholder
approval. Further, the Committee shall make all other determinations which may
be necessary or advisable for the administration of the Plan. As permitted by
law, the Committee may delegate its authority hereunder. The Committee may take
any action consistent with the terms of the Plan which the Committee deems
necessary to comply with any government laws or regulatory requirements of a
foreign country, including, but not limited to, modifying the terms and
conditions governing any Options, SARs, Restricted Stock or Awards, or
establishing any local country plans as sub-plans to this Plan, each of which
may be attached as an appendix hereto.
3.3 DECISIONS BINDING. All determinations and decisions of the Committee
as to any disputed question arising under the Plan, including questions of
construction and interpretation, shall be final, binding and conclusive upon all
parties.
ARTICLE IV
ELIGIBILITY
Those Employees who, in the judgment of the Committee, may contribute to
the profitability and growth of the Company, and all Non-Employee directors,
shall be eligible to receive Options, SARs, grants of Restricted Stock and
Awards under the Plan.
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ARTICLE V
MAXIMUM SHARES AVAILABLE
The Stock to be distributed under the Plan may be either authorized and
issued shares or unissued shares of the Company, including but not limited to
shares held as treasury shares. The maximum amount of Stock which may be issued
under the Plan in satisfaction of exercised Options or SARs, issued as
Restricted Stock or issued under the Performance Plan shall not exceed, in the
aggregate, seven million (7,000,000) shares of which no more may be granted, as
follows:
(a) Restricted Stock and Performance Awards to 1,750,000 shares
Employees
(b) Stock Options and Restricted Stock to 300,000 shares
Non-Employee Directors, but no more
than 100,000 shares to Restricted Stock
Under the Plan, no Employee shall be awarded, during the term of the Plan
Restricted Stock covering more than 400,000 shares of Stock. No more than
1,750,000 Options may be granted to a single employee during the term of this
Plan.
Stock subject to an Option which for any reason is cancelled or terminated
without having been exercised, or Stock awarded as Restricted Stock which is
forfeited, shall again be available for grants and Awards under the Plan. Stock
not issued because the holder of any Option exercises the accompanying SAR shall
not again be subject to award by the Committee.
ARTICLE VI
STOCK OPTIONS
6.1 GRANT OF OPTIONS.
(a) The Committee may, at any time and from time to time prior to
May 13, 2012, grant Options under the Plan to eligible Employees or
Non-Employee Directors, for such numbers of shares and having such terms as
the Committee shall designate, subject however, to the provisions of the
Plan. The Committee will also determine the type of Option granted (e.g.
ISO, nonstatutory, other statutory Options as from time to time may be
permitted by the Code) or a combination of various types of Options.
Options designated as ISOs shall comply with all the provisions of
Section 422 of the Code and applicable regulations. The aggregate Fair
Market Value (determined at the time the Option is granted) of Stock with
respect to which ISOs are exercisable for the first time by an individual
during a calendar year under all plans of the Company, any Subsidiary and
any LLC shall not exceed $100,000. The date on which an Option
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shall be granted shall be the date of the Committee's authorization of such
grant. Any individual at any one time and from time to time may hold more
than one Option granted under the Plan or under any other Stock plan of the
Company.
(b) Each Option shall be evidenced by a Stock Option Agreement in
such form and containing such provisions consistent with the provisions of
the Plan as the Committee from time to time shall approve.
6.2 EXERCISE PRICE. The price at which shares of Stock may be purchased
under an Option shall not be less than 100% of the Fair Market Value of the
Stock on the date the Option is granted.
6.3 OPTION PERIOD. The period during which an Option may be exercised
shall be determined by the Committee, provided that such period will not be
longer than ten years from the date on which the Option is granted in the case
of ISOs, and ten years and one day in the case of other Options. The date or
dates on which installment portion(s) of an Option may be exercised during the
term of an Option shall be determined by the Committee and may vary from Option
to Option. The Committee may also determine to accelerate the time at which
installment portion(s) of an outstanding Option may be exercised.
6.4 TERMINATION OF SERVICE. An Option shall terminate and may no longer
be exercised three months after the Optionee ceases to be an Employee or
Non-Employee Director for any reason other than Total Disability, death or
Retirement. If an Employee's employment is terminated by reason of Total
Disability or Retirement all Options will vest and may be exercised within the
period not to exceed the lesser of four years following such termination or the
remaining term of the Option award. If a Non-Employee Director's service is
terminated by reason of Total Disability or Retirement, all Options will vest
upon separation from service to the Company and may be exercised within the
remainder of the Option's term. If the Optionee is an Employee of the Company
and dies while in the employ of the Company, a Subsidiary or LLC, or within
three months after the termination of such employment, the vesting provisions
will lapse and such Option may, within the lesser of four years after the
Optionee's death or the remaining term of the Option award, be exercised by the
legal representative of the Optionee's estate, or if it has been distributed as
part of the estate, by the person or persons to whom the Optionee's rights under
the Option shall pass by will or by the applicable laws of descent and
distribution. If the Optionee is a Non-Employee Director who dies while in the
service of the Company, all Options will vest and such Options may be exercised
within the remainder of the term of the Option by the legal representative of
the Optionee's estate, or if it has been distributed as part of the estate, by
the person or persons to whom the Optionee's rights under the Option shall pass
by will or by the applicable laws of descent and distribution. In no event may
an Option be exercised to any extent by anyone after the expiration or
termination of the Option.
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6.5 PAYMENT FOR SHARES.
(a) The exercise price of an Option shall be paid to the Company in
full at the time of exercise at the election of the Optionee (1) in cash,
(2) in shares of Stock having a Fair Market Value equal to the aggregate
exercise price of the Option and satisfying such other requirements as may
be imposed by the Committee, (3) in shares of Restricted Stock (including
restricted stock granted under a similar plan of the Company) having a Fair
Market Value equal to the aggregate exercise price of the Option and
satisfying such other requirements as may be imposed by the Committee,
(4) partly in cash and partly in such shares of Stock or Restricted Stock
(including restricted stock granted under a similar plan of the Company),
(5) to the extent permitted by the Committee, through the withholding of
shares of Stock (which would otherwise be delivered to the Optionee) with
an aggregate Fair Market Value on the exercise date equal to the aggregate
exercise price of the Option or (6) through the delivery of irrevocable
instructions to a broker to deliver promptly to the Company an amount equal
to the aggregate exercise price of the Option. The Committee may limit the
extent to which shares of Stock or shares of Restricted Stock may be used
in exercising Options. No Optionee shall have any rights to dividends or
other rights of a stockholder with respect to shares of Stock subject to an
Option until the Optionee has given written notice of exercise of the
Option, paid in full for such shares of Stock and, if applicable, has
satisfied any other conditions imposed by the Committee pursuant to the
Plan.
(b) If shares of Restricted Stock are used to pay the exercise price
of an Option, an equal number of shares of Stock delivered to the Optionee
upon exercise of an Option, shall be subject to the same restrictions for
the remainder of the Restriction Period.
ARTICLE VII
STOCK APPRECIATION RIGHTS
7.1 GRANT. The Committee may affix SARs to an Option, either at the time
of its initial granting to the Optionee or at a later date. The addition of such
SARs must be accomplished prior to the completion of the period during which the
Option may be exercised and such exercise period may not be extended beyond that
which was initially established. The Committee may establish SAR terms and
conditions at the time such SAR is established.
7.2 EXERCISE.
(a) A SAR shall be exercisable at such time as may be determined by the
Committee and a SAR shall be exercisable only to the extent that the related
Option could be exercised. Upon the exercise of a SAR, that portion of the
Option underlying the SAR
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will be considered as having been surrendered. A SAR shall be automatically
exercised at the end of the last business day prior to the stated expiration
date of the unexercised portion of the related Option if on such date the Fair
Market Value of Stock exceeds the Option exercise price per share.
(b) The Committee may impose any other conditions upon the exercise of a
SAR, consistent with the Plan, which it deems appropriate. Such rules and
regulations may govern the right to exercise SARs granted prior to the adoption
or amendment of such rules and regulations as well as SARs granted thereafter.
(c) Upon the exercise of a SAR, the Company shall give to an Optionee an
amount (less any applicable withholding taxes) equivalent to the excess of the
Fair Market Value of the shares of Stock for which the right is exercised on the
date of such exercise over the exercise price of such shares under the related
Option. Such amount shall be paid to the Optionee either in cash or in shares of
Stock or both as the Committee shall determine. Such determination may be made
at the time of the granting of the SAR and may be changed at any time
thereafter. No fractional shares of Stock shall be issued and the Committee
shall determine whether cash shall be given in lieu of such fractional share or
whether such fractional share shall be eliminated.
7.3 EXPIRATION OR TERMINATION.
(a) Subject to Article VII, Section 7.3(b), each SAR and all rights and
obligations thereunder shall expire on a date to be determined by the Committee.
(b) A SAR shall terminate and may no longer be exercised upon the
exercise, termination, cancellation or expiration of the related Option.
ARTICLE VIII
RESTRICTED STOCK PLAN
8.1 TERMS OF GRANT. At the time of making a grant of Restricted Stock or
making payment of an Award in Restricted Stock to an Employee or Non-Employee
Director, the Committee shall establish a Restriction Period and assign such
terms, conditions and other restrictions to the Restricted Stock as it shall
determine applicable to the Restricted Stock to be issued in settlement of such
grant or Award. The Committee may designate whether Restricted Stock granted to
an employee is "performance-based compensation" as that term is used in
section 162(m) of the Code. The vesting of any such Restricted Stock may be
conditioned on the achievement of Indicators of Performance during a Performance
Period established by the Committee.
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8.2 RESTRICTED STOCK - RIGHTS. Restricted Stock will be represented by a
Stock certificate registered in the name of the Restricted Stock recipient. Such
certificate, accompanied by a separate duly endorsed stock power, shall be
deposited with the Company. The recipient shall be entitled to receive dividends
during the Restriction Period and shall have the right to vote such Restricted
Stock and all other stockholder's rights, with the exception that (i) the
recipient will not be entitled to delivery of the Stock certificate during the
Restriction Period, (ii) the Company will retain custody of the Restricted Stock
during the Restriction Period and (iii) a breach of the terms and conditions
established by the Committee pursuant to the Award will cause a forfeiture of
the Restricted Stock. Subject to Article VI, Section 6.5, Restricted Stock may
be used to exercise Options. The Committee may, in addition, prescribe
additional restrictions, terms and conditions upon or to the Restricted Stock.
8.3 TERMINATION OF SERVICE. The Committee may establish such rules
concerning the termination of service of a recipient of Restricted Stock prior
to the expiration of the applicable Restriction Period as it may deem
appropriate from time to time provided, if an Employee or Non-Employee Director
terminates service by reason of Total Disability, death or Retirement, the
Restriction Period will continue and applicable restrictions will lapse as if
such Employee or Non-Employee Director had continued in service of the Company.
In the event of termination a Non-Employee Director due to Total Disability,
death or Retirement, the Committee may choose to provide a different vesting
schedule for unvested Restricted Stock.
8.4 RESTRICTED STOCK AGREEMENT. Each grant of, or payment of an Award
in, Restricted Stock shall be evidenced by a Restricted Stock Agreement in such
form and containing such terms and conditions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve.
ARTICLE IX
PERFORMANCE PLAN
9.1 ADMINISTRATIVE PROCEDURE. The Committee shall designate Employees as
Performance Participants to become eligible to receive Awards under the Plan and
shall establish Performance Periods under the Performance Plan, provided that,
as calculated by the Committee, (1) the Fair Market Value of Stock or cash
covered by all Awards granted under the Plan during a calendar year shall not
exceed 1.5% of the average cash flow for the Company for the three fiscal years
immediately preceding the grant, and (2) the Fair Market Value of Stock or cash
covered by all awards granted to an individual under the Plan during a calendar
year shall not exceed .5% of the average cash flow for the Company for the three
fiscal years immediately preceding the grant.
9.2 INDICATORS OF PERFORMANCE. The Committee shall establish Indicators
of Performance applicable to the Performance Period. Indicators of Performance
are utilized to
9
determine amount and timing of Awards, and may vary between Performance Periods
and different Awards. The Indicators of Performance may include such measures as
the Company's Pretax Income, Net Income, Earnings Per Share, Revenue, Expenses,
Return on Assets, Return on Equity, Return on Investment, Net Profit Margin,
Operating Profit Margin, Operating Cash Flow, Total Stockholder Return,
Capitalization, Liquidity, Reserve Adds or Replacement, Finding and Development
Costs, Results of Customer Satisfaction Surveys and other measures of Quality,
Safety, Productivity, Cost Management or Process Improvement or other measures
the Committee approves. Such performance goals may be determined solely by
reference to the performance of the Company, a Subsidiary, a Limited Liability
Company or a division or unit of any of the foregoing, or based upon comparisons
of any of the performance measures relative to other companies. The Committee
may also exclude the impact of any event or occurrence which the Committee
determines should appropriately be excluded such as, for example, a
restructuring or other nonrecurring charge, an event either not directly related
to the operations of the Company or not within the reasonable control of the
Company's management, or a change in accounting standards required by U. S.
generally accepted accounting principles.
9.3 AWARD ADJUSTMENT. Subject to the terms of the Plan, the Committee
may make downward adjustments in Awards to Performance Plan Participants.
9.4 PERFORMANCE AWARDS. Awards may be in the form of performance shares,
which are units valued by reference to shares of stock or performance units,
which are units valued by reference to financial measures or property other than
stock and shall be subject to such terms and conditions and other restrictions
as the Committee shall assign. At the time of making grants of Awards, the
Committee shall establish such terms and conditions as it shall determine
applicable to such Awards. Awards may be paid out in cash, Stock, Restricted
Stock, other property or a combination thereof. Recipients of Awards are not
required to provide consideration other than the rendering of service.
9.5 PARTIAL PERFORMANCE PERIOD PARTICIPATION. Subject to applicable
restrictions under section 162(m) of the Code, the Committee shall determine the
extent to which an Employee shall participate in a partial Performance Period
because of becoming eligible to be a Performance Plan Participant after the
beginning of such Performance Period. In the event a Performance Plan
Participant is involuntarily terminated without cause or terminates employment
due to death, Total Disability or Retirement, after completing at least 50% of
the Performance Period for an Award, such Performance Plan Participant shall be
entitled to a pro rata portion of the Award if the Indicators of Performance are
met, payable in accordance with procedures established by the Committee.
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ARTICLE X
ADJUSTMENT UPON CHANGES IN STOCK
The number of shares of Stock which may be issued pursuant to this Plan,
the number of shares covered by each outstanding Option, the Option exercise
price per share, the number of shares granted as Restricted Stock, and the
number of shares representing a Performance Plan Participant's Award under the
Performance Plan, shall be adjusted proportionately, and any other appropriate
adjustments shall be made, for any increase or decrease in the total number of
issued and outstanding Stock (or change in kind) resulting from any change in
the Stock or Options through a merger, consolidation, reorganization,
recapitalization, subdivision or consolidation of shares or other capital
adjustment or the payment of a Stock Dividend or other increase or decrease (or
change in kind) in such shares. In the event of any such adjustment, fractional
shares shall be eliminated. Appropriate adjustment shall also be made by the
Committee in the terms of SARs to reflect the foregoing changes. Except as
otherwise determined by the Committee, no change shall be made to an Incentive
Stock Option under this Article X to the extent it would constitute a
"modification" under section 424(h)(3) of the Code.
ARTICLE XI
CHANGE IN CONTROL
Notwithstanding anything to the contrary in the Plan, in the event of a
Change in Control:
(i) If during a Restriction Period(s) applicable to Restricted Stock
issued under the Plan, all restrictions imposed hereunder on such Restricted
Stock shall lapse effective as of the date of the Change in Control;
(ii) If during a Performance Period(s) applicable to an Award granted
under the Plan, a Participant shall earn no less than the number of
performance shares or performance units which the participant would have
earned if the Performance Period(s) had terminated as of the date of the
Change in Control; or
(iii) Any outstanding Options or SAR that are not exercisable shall
become exercisable effective as of the date of a Change in Control. If an
Optionee's employment is terminated within 24 months of the effective date
of a Change in Control, to the extent that any Option was exercisable at the
time of the Optionee's termination of employment, such Option may be
exercised within four years following the date of termination of employment.
For purposes of the Plan, a "Change in Control" shall be deemed to have
occurred if:
(a) Any person ("Person") as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as used in
Section 13(d) and 14(d)
11
thereof, including a "group" as defined in Section 13(d) of the Exchange Act,
but excluding the Company and any subsidiary and any employee benefit plan
sponsored or maintained by the Company or any subsidiary (including any trustee
of such plan acting as trustee), directly or indirectly, becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), of securities of the
Company representing 25% or more of the combined voting power of the Company's
then outstanding securities (other than indirectly as a result of the Company's
redemption of its securities); or
(b) The consummation of any merger or other business combination of the
Company, sale of 50% or more of the Company's assets, liquidation or dissolution
of the Company or combination of the foregoing transactions (the "Transactions")
other than a Transaction immediately following which the shareholder of the
Company and any trustee or fiduciary of any Company employee benefit plan
immediately prior to the Transaction own at least 60% of the voting power,
directly or indirectly, of (A) the surviving corporation in any such merger or
other business combination; (B) the purchaser or successor to the Company's
assets; (C) both the surviving corporation and the purchaser in the event of any
combination of Transactions; or (D) the parent company owning 100% of such
surviving corporation, purchaser or both the surviving corporation and the
purchaser, as the case may be; or
(c) Within any twenty-four month period, the persons who were directors
immediately before the beginning of such period (the "Incumbent Directors")
shall cease (for any reason other than death) to constitute at least a majority
of the Board or the board of directors of a successor to the Company. For this
purpose, any director who was not a director at the beginning of such period
shall be deemed to be an Incumbent Director if such director was elected to the
Board by, or on the recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as Incumbent Directors (so long
as such director was not nominated by a person who commenced or threatened to
commence an election contest or proxy solicitation by or on behalf of a Person
(other than the Board) or who has entered into an agreement to effect a Change
in Control or expressed an intention to cause such a Change in Control); or
(d) A majority of the members of the Board of Directors in office
immediately prior to a proposed transaction determine by a written resolution
that such proposed transaction, if taken, will be deemed a Change in Control and
such proposed transaction is consummated.
ARTICLE XII
MISCELLANEOUS
12.1 EFFECT ON OTHER PLANS. Except as otherwise required by law, no
action taken under the Plan shall be taken into account in determining any
benefits under any pension, retirement, thrift, profit sharing, group insurance
or other benefit plan maintained by the Company or any Subsidiaries, unless such
other plan specifically provides for such inclusion.
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12.2 TRANSFER RESTRICTIONS. Except as provided in Article XII,
Section 12.3, no Option or SAR, grant of Restricted Stock or Award under this
Plan shall be transferable other than by will or the laws of descent and
distribution. Any Option or SAR shall be exercisable (i) during the lifetime of
an Optionee, only by the Optionee or, to the extent permitted by the Code, by an
appointed guardian or legal representative of the Optionee, and (ii) after death
of the Optionee, only by the Optionee's legal representative or by the person
who acquired the right to exercise such Option or SAR by bequest or inheritance
or by reason of the death of the Optionee.
12.3 TRANSFER OF OPTIONS. The Committee may, in its discretion, authorize
all or a portion of the Options to be granted to an Optionee to be on terms
which permit transfer by such Optionee to an immediate family member of the
Optionee who acquires the options from the Optionee through a gift or a domestic
relations order. For purposes of this Article XII, Section 12.3, "family member"
includes any child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law or sister-in-law, including adoptive relationships, trusts for
the exclusive benefit of these persons and any other entity owned solely by
these persons, provided that the Stock Option Agreement pursuant to which such
Options are granted must be approved by the Committee and must expressly provide
for transferability in a manner consistent with this Section and provided
further that subsequent transfers of transferred options shall be prohibited
except those in accordance with Article XII, Section 12.2. Following transfer,
any such options shall continue to be subject to the same terms and conditions
as were applicable immediately prior to transfer. The events of termination of
employment of Article VI, Section 6.4 hereof shall continue to be applied with
respect to the original Optionee, following which the options shall be
exercisable by the Transferee only to the extent and for the periods specified
in Article VI, Section 6.4.
12.4 WITHHOLDING TAXES. The Company shall have the right to withhold from
any settlement hereunder any federal, state, or local taxes required by law to
be withheld, or require payment in the amount of such withholding. If settlement
hereunder is in the form of Stock, such withholding may be satisfied by the
withholding of shares of Stock by the Company, unless the Optionee shall pay to
the Company an amount sufficient to cover the amount of taxes required to be
withheld, and such withholding of shares does not violate any applicable laws,
rules or regulations of federal, state or local authorities.
12.5 TRANSFER OF EMPLOYMENT. Transfer of employment between the Company,
a Subsidiary or Limited Liability Company, or between Limited Liability
Companies and Subsidiaries shall not constitute termination of employment for
the purpose of the Plan. Whether any leave of absence shall constitute
termination of employment for the purposes of the Plan shall be determined in
each case by the Committee.
12.6 ADMINISTRATIVE EXPENSES. All administrative expenses associated with
the administration of the Plan shall be borne by the Company.
13
12.7 TITLES AND HEADINGS. The titles and headings of the articles in this
Plan are for convenience of reference only and in the event of any conflict, the
text of the Plan, rather than such titles or headings, shall control.
12.8 NO GUARANTEE OF CONTINUED EMPLOYMENT. No grant or Award to an
Employee under the Plan or any provisions thereof shall constitute any agreement
for or guarantee of continued employment by the Company and no grant or Award to
a Non-Employee Director shall constitute any agreement for or guarantee of
continuing as a Non-Employee Director.
12.9 COMMITTEE DUTIES AND POWERS. The Committee shall have such duties
and powers as may be necessary to discharge its responsibilities under this
Plan, including, but not limited to, the ability to construe and interpret the
Plan and resolve any ambiguities with respect to any of the terms and provisions
hereof as written and as applied to the operation of the Plan.
12.10 PROCEEDS. The proceeds received by the Company from the sale of
Stock under the Plan shall be added to the general funds of the Company and
shall be used for corporate purposes as the Board shall direct.
12.11 GOVERNING LAW. The Plan shall be governed and construed in
accordance with the laws of Oklahoma, except to the extent that federal law
applies.
12.12 DEFERRAL OF GAIN. Employees who are eligible to participate in the
Kerr-McGee Corporation Executive Deferred Compensation Plan (the "EDCP") may
elect to defer the gain from the exercise of a Stock Option, Stock Appreciation
Rights or lapse of Restricted Stock to the EDCP.
ARTICLE XIII
AMENDMENT AND TERMINATION
The Board may at any time terminate or amend this Plan in such respect as
it shall deem advisable, provided, the Board may not, without further approval
of the stockholders of the Company, amend the Plan so as to (i) increase the
number of shares of Stock which may be issued under the Plan, except as provided
for in Article X; (ii) change Plan provisions relating to establishment of the
exercise prices under Options granted; (iii) extend the duration of the Plan
beyond the date approved by the stockholders; or (iv) increase the maximum
dollar amount of ISOs which an individual Optionee may exercise during any
calendar year beyond that permitted in the Code and applicable rules and
regulations of the Treasury Department. No amendment or termination of the Plan
shall, without the consent of the Optionee or Plan participant, alter or impair
any of the rights or obligations under any Options or other rights theretofore
granted such person under the Plan.
14
ARTICLE XIV
DURATION OF THE PLAN
The effective date of this Plan shall be May 14, 2002. If not sooner
terminated by the Board, this Plan shall terminate on May 13, 2012, but Options
and other rights theretofore granted and any Restriction Period may extend
beyond that date, and the terms of the Plan shall continue to apply.
15
[LOGO] KERR-MCGEE CORPORATION
P. O. Box 25861 - OKLAHOMA CITY, OKLAHOMA 73125
March 25, 2002
To: Participants In The Kerr-McGee Corporation
SAVINGS INVESTMENT PLAN and/or the
EMPLOYEE STOCK OWNERSHIP PLAN Dated September 12, 1989:
As a participant in the Kerr-McGee Corporation Savings Investment Plans
("SIP") and/or the Kerr-McGee Corporation Employee Stock Ownership Plan dated
September 12, 1989 ("ESOP"), you owned shares of Common Stock of the Company
on March 15, 2002, the record date for stockholders entitled to vote at the
annual stockholders' meeting to be held on May 14, 2002. This stock is held
in trust by Putnam Fiduciary Trust Company, as Trustee for the SIP and State
Street Bank and Trust Company, as Trustee for the ESOP.
Each plan provides that the shares of Common Stock of the Company which have
been allocated to your account will be voted by the Trustees in accordance
with your instructions. Both the SIP and ESOP provide that shares allocated
to participants for which no Voting Instructions are received shall be voted
by the Trustees in the same proportion as those allocated shares for which
instructions are received. The ESOP also provides that shares which have not
yet been allocated (approximately 941,600 shares) shall also be voted by the
Trustees in the same proportion as those allocated shares for which
instructions are received.
Your vote is important and you are urged to vote promptly! IF THE TRUSTEES DO
NOT RECEIVE VOTING INSTRUCTIONS FROM YOU, THE SHARES IN BOTH PLANS FOR WHICH
NO INSTRUCTIONS ARE RECEIVED AND THE UNALLOCATED SHARES IN THE ESOP WILL BE
VOTED IN THE SAME PROPORTION AS THE TOTAL SHARES FOR WHICH INSTRUCTIONS ARE
RECEIVED BY THE TRUSTEES.
Enclosed for your information and use are the following:
1. Notice of the Annual Meeting and Proxy Statement. (Since your shares will
be voted through the Trustees, the enclosed Voting Instructions replace
the Proxy referred to in the Proxy Statement.)
2. Voting Instructions to the Trustee for each plan for your use in
directing the Trustees to vote your shares.
3. A postage-paid, self-addressed envelope for your use in returning your
Voting Instructions to UMB BANK N.A. which will tabulate the Voting
Instructions for each Trustee.
Very truly yours,
KERR-MCGEE CORPORATION
BENEFITS COMMITTEE
By: /s/ John M. Rauh
------------------------------------
John M. Rauh, Chairman
[LOGO]
KERR-MCGEE CORPORATION
P. O. Box 25861 - OKLAHOMA CITY, OKLAHOMA 73125
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
March 25, 2002
To Our Stockholders:
Kerr-McGee Corporation's 2002 Annual Meeting of Stockholders will be held
at 9:00 a.m. on Tuesday, May 14, 2002, at the Robert S. Kerr Auditorium,
Kerr-McGee Center, 123 Robert S. Kerr Avenue, Oklahoma City, Oklahoma.
At the meeting, Stockholders will act on the following matters:
1. ELECTION OF THREE DIRECTORS;
2. RATIFICATION OF THE APPOINTMENT OF INDEPENDENT PUBLIC
ACCOUNTANTS;
3. APPROVAL OF THE 2002 ANNUAL INCENTIVE COMPENSATION PLAN;
4. APPROVAL OF THE 2002 LONG TERM INCENTIVE PLAN; AND
5. APPROVAL OF THE AMENDMENT OF THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF KERR-MCGEE OPERATING
CORPORATION.
These matters are described in detail in the Proxy Statement. Copies of
the 2002 Proxy Statement and 2001 Annual Report have been mailed separately to
your address. The Board of Directors recommends a vote FOR Items 1 through 5.
Stockholders of record of Kerr-McGee Corporation common stock at the close
of business on March 15, 2002, are entitled to receive notice of and to vote at
the meeting.
It is important that your shares be represented at the meeting. Regardless
of whether you plan to attend the meeting, please vote by telephone or Internet
or complete and return the proxy card in the enclosed envelope as soon as
possible.
Sincerely,
[GREGORY F. FISHER SIG]
Gregory F. Pilcher
Senior Vice President,
General Counsel and Secretary
VOTING INSTRUCTIONS TO THE TRUSTEES
-----------------------------------
FOR ANNUAL STOCKHOLDERS' MEETING OF
KERR-MCGEE CORPORATION
TO BE HELD ON MAY 14, 2002
Putnam Fiduciary Trust Company, Trustee State Street Bank and Trust Company, Trustee
Kerr-McGee Corporation Kerr-McGee Corporation
Savings Investment Plan Employee Stock Ownership Plan
Investors Way P.O. Box 1994
Norwood, Massachusetts 02062 Boston, Massachusetts 02101
I hereby direct that all my shares of Kerr-McGee Corporation Common Stock
("Common Stock"), the voting of which I am entitled to direct pursuant to the
Kerr-McGee Corporation Savings Investment Plan ("SIP") and the Kerr-McGee
Corporation Employee Stock Ownership Plan ("ESOP"), be voted by Putnam Fiduciary
Trust Company (as Trustee of the SIP) and State Street Bank and Trust Company
(as Trustee of the ESOP) at the Annual Meeting Of Stockholders on May 14, 2002.
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" ITEMS 1, 2, 3, 4 AND 5
--------------------------------------------------------------------------------
The Trustee will vote your shares as you direct. IF YOU SIGN, BUT DO NOT GIVE
ANY INSTRUCTIONS OR GIVE PARTIAL INSTRUCTIONS WITH RESPECT TO EITHER THE SIP
OR THE ESOP, THE TRUSTEE FOR THE PLAN WILL VOTE AS PARTIALLY INSTRUCTED AND
WILL VOTE FOR ANY OF THE ITEMS 1, 2, 3, 4 AND 5 FOR WHICH NO INSTRUCTIONS
WERE GIVEN. Please sign exactly as your name appears in the address.
If you do not return your voting instructions to the Trustees, the shares for
which no instructions are received will be voted in the same proportion by
each Trustee as the total shares for which instructions are received by such
Trustee.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
---------------------------------- ---------------------------------------
---------------------------------- ---------------------------------------
---------------------------------- ---------------------------------------
VOTING INSTRUCTIONS
Kerr-McGee offers three convenient ways to instruct the Trustee how to vote
your stock. You may instruct the Trustee 24 hours a day, 7 days a week,
either using a touch-tone telephone or through the Internet. You may also
instruct the Trustee by mail. Your telephone or Internet instruction
authorizes the Trustee to vote your stock in the same manner as if you
marked, signed and returned voting instructions.
TO VOTE BY PHONE: CALL TOLL-FREE ON A TOUCH-TONE TELEPHONE 1-800-758-6973
You will be asked to enter the Control Number located on the reverse
side of the proxy card above your name and address. Then simply follow
the instructions. PLEASE NOTE THAT ALL INSTRUCTIONS BY TELEPHONE MUST
BE RECEIVED BY 5 P.M. (CENTRAL TIME) ON MAY 13, 2002.
TO VOTE BY INTERNET: GO TO THE WEB SITE ADDRESS: http://www.eproxyvote.com/kmgep
and follow the instructions on the screen. You will be asked to enter
the Control Number located on the reverse side of this card above your
name and address. PLEASE NOTE THAT ALL INSTRUCTIONS THROUGH THE INTERNET
MUST BE RECEIVED BY 5 P.M. (CENTRAL TIME) ON MAY 13, 2002.
TO VOTE BY MAIL: Simply mark, sign, date and detach your proxy card and return it in the
enclosed postage-paid envelope. IF YOU ARE VOTING BY TELEPHONE OR THE INTERNET,
PLEASE DO NOT MAIL YOUR VOTING INSTRUCTIONS. PLEASE NOTE THAT ALL INSTRUCTIONS
BY MAIL MUST BE RECEIVED BY 9 A.M. (CENTRAL TIME) ON MAY 14, 2002.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
KERR-McGEE CORPORATION
Mark box at right if an address change or comment / /
has been noted on the reverse side of this card.
Mark box at right if you wish to vote separately on the two / /
plans and indicate your desired vote in the comment field.
CONTROL NUMBER:
Please be sure to sign and date this Proxy. Date_________
----------------------------------------------------------------------
PARTICIPANT SIGN HERE
----------------------------------------------------------------------
DETACH CARD
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR ITEMS 1, 2, 3, 4 AND 5
1. Election of Three Directors For All Withhold For All
Nominees From All Except
(01) Matthew R. Simmons / / / / / /
(02) Nicholas J. Sutton
(03) Ian L. White-Thomson
NOTE: If you do not wish your shares voted "For" a particular nominee, mark
the "For All Except" box and strike a line through the name(s) of the
nominee(s) you do not support. Your shares will be voted for the remaining
nominees.
For Against Abstain
2. Ratification of the appointment of / / / / / /
Ernst & Young LLP as the Company's
independent public accountants
For Against Abstain
3. Approval of the 2002 Annual / / / / / /
Incentive Compensation Plan
For Against Abstain
4. Approval of the 2002 Long Term / / / / / /
Incentive Plan
For Against Abstain
5. Approval of the Amendment of the / / / / / /
Amended and Restated Certificate of
Incorporation of Kerr-McGee Operating
Corporation
DETACH CARD
KERR-MCGEE CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
May 14, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Luke R. Corbett, Gregory F. Pilcher and
Robert M. Wohleber, and each of them, as Proxies, each with the power to
appoint his substitute, and hereby authorizes them to represent and to vote,
as designated on the reverse side, all the shares of Common Stock of
Kerr-McGee Corporation held of record by the undersigned on March 15, 2002,
at the Annual Meeting of Stockholders to be held on May 14, 2002, or any
adjournment thereof (1) as hereinafter specified on the matters as more
particularly described in the Company's Proxy Statement and (2) in their
discretion on any such other business as may properly come before the
meeting.
-------------------------------------------------------------------------------
UNLESS VOTING BY TELEPHONE OR THE INTERNET,
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THE REVERSE SIDE OF THIS PROXY
CARD. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE. IF A CORPORATION, PLEASE SIGN THE FULL
NAME OF THE CORPORATION BY THE PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN THE NAME OF THE PARTNERSHIP BY AN AUTHORIZED PERSON.
-------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
---------------------------------- ---------------------------------------
---------------------------------- ---------------------------------------
---------------------------------- ---------------------------------------
VOTING INSTRUCTIONS
Kerr-McGee offers three convenient ways to vote your stock. You may vote
your stock 24 hours a day, 7 days a week, either using a touch-tone telephone
or through the Internet. You may also vote by mail. Your telephone or
Internet vote authorizes the named proxies to vote your stock in the same
manner as if you marked, signed and returned your proxy card.
TO VOTE BY PHONE: CALL TOLL-FREE ON A TOUCH-TONE TELEPHONE 1-800-758-6973
You will be asked to enter the Control Number located on the
reverse side of the proxy card above your name and address.
Then simply follow the instructions. PLEASE NOTE THAT ALL
VOTES BY TELEPHONE MUST BE RECEIVED BY 5 P.M. (CENTRAL TIME)
ON MAY 13, 2002.
TO VOTE BY INTERNET: GO TO THE WEB SITE ADDRESS: http://www.eproxyvote.com/kmg
and follow the instructions on the screen. You will be asked
to enter the Control Number located on the reverse side of
this card above your name and address. PLEASE NOTE THAT ALL
VOTES THROUGH THE INTERNET MUST BE RECEIVED BY 5 P.M. (CENTRAL
TIME) ON MAY 13, 2002.
TO VOTE BY MAIL: Simply mark, sign, date and detach your proxy card and return it
in the enclosed postage-paid envelope. IF YOU ARE VOTING BY
TELEPHONE OR THE INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD.
PLEASE NOTE THAT ALL VOTES BY MAIL MUST BE RECEIVED BY 9 A.M.
(CENTRAL TIME) ON MAY 14, 2002.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
KERR-McGEE CORPORATION
CONTROL NUMBER:
Please be sure to sign and date this Proxy. Date_________
----------------------------------------------------------------------
SHAREHOLDER SIGN HERE CO-OWNER SIGN HERE
----------------------------------------------------------------------
DETACH CARD
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR ITEMS 1, 2, 3, 4 AND 5
1. Election of Three Directors For All Withhold For All
Nominees From All Except
(01) Matthew R. Simmons / / / / / /
(02) Nicholas J. Sutton
(03) Ian L. White-Thomson
NOTE: If you do not wish your shares voted "For" a particular nominee, mark
the "For All Except" box and strike a line through the name(s) of the
nominee(s) you do not support. Your shares will be voted for the remaining
nominees.
For Against Abstain
2. Ratification of the appointment of / / / / / /
Ernst & Young LLP as the Company's
independent public accountants
For Against Abstain
3. Approval of the 2002 Annual / / / / / /
Incentive Compensation Plan
For Against Abstain
4. Approval of the 2002 Long Term / / / / / /
Incentive Compensation Plan
For Against Abstain
5. Approval of the Amendment of the / / / / / /
Amended and Restated Certificate of
Incorporation of Kerr-McGee Operating
Corporation
Mark box at right if an address change or comment / /
has been noted on the reverse side of this card.
DETACH CARD