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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
Apache Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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SEC 1913 (02-02)
(APACHE LOGO)
ONE POST OAK CENTRAL
2000 POST OAK BOULEVARD, SUITE 100
HOUSTON, TEXAS 77056-4400
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
----------------------------------------
TO THE STOCKHOLDERS OF APACHE CORPORATION:
The 2005 annual meeting of stockholders of Apache Corporation, a Delaware
corporation, will be held on Thursday, May 5, 2005, at 10:00 a.m. (Houston
time), at the Hilton Houston Post Oak (formerly the Doubletree Hotel
Houston -- Post Oak), 2001 Post Oak Boulevard, Houston, Texas, for the following
purposes:
1. Election of four directors to serve until the Company's annual meeting
in 2008;
2. Approval of the 2005 Stock Option Plan;
3. Approval of the 2005 Share Appreciation Plan;
4. Consideration of two stockholder proposals, if presented at the meeting;
and
5. Transaction of any other business that may properly come before the
meeting or any adjournment thereof.
Holders of record of the Company's common stock as of the close of business on
March 16, 2005 are entitled to notice of, and to vote at, the annual meeting.
The Company's stock transfer books will not be closed. A complete list of
stockholders entitled to vote at the annual meeting will be available for
examination by any Apache stockholder at 2000 Post Oak Boulevard, Suite 100,
Houston, Texas, for purposes relating to the annual meeting, during normal
business hours for a period of ten days before the meeting.
It is important that your shares are represented at the meeting. We encourage
you to designate the proxies named on the enclosed proxy card to vote your
shares on your behalf and per your instructions. This action does not limit your
right to vote in person or to attend the meeting.
By order of the Board of Directors
APACHE CORPORATION
/s/ C. L. PEPER
C. L. PEPER
Corporate Secretary
Houston, Texas
March 28, 2005
PROXY STATEMENT TABLE OF CONTENTS
PAGE
----
General..................................................... 1
Purpose of the Annual Meeting............................... 1
Who Can Vote................................................ 1
How to Vote................................................. 1
Voting 401(k) Plan Shares................................... 2
Revoking a Proxy............................................ 2
Quorum and Votes Needed..................................... 2
How the Votes are Counted................................... 2
Election of Directors (Item No. 1).......................... 3
Nominees for Election as Directors.................... 4
Continuing Directors.................................. 5
Director Independence................................. 7
Standing Committees and Meetings of the Board of
Directors............................................ 8
Criteria for New Board Members and Re-Election of
Existing Board Members............................... 10
Report of the Audit Committee......................... 11
Director Compensation................................. 13
Securities Ownership and Principal Holders............ 15
Section 16(a) Beneficial Ownership Reporting
Compliance........................................... 16
Equity Compensation Plan Information.................. 17
Executive Officers of the Company..................... 18
Summary Compensation Table............................ 21
Option/SAR Exercises and Year-End Value Table......... 23
Long-Term Incentive Plan Awards Table................. 24
The Management Development and Compensation Committee
Report on Executive Compensation..................... 25
Performance Graph..................................... 30
Employment Contracts and Termination of Employment and
Change-in-Control Arrangements....................... 31
Compensation Committee Interlocks and Insider
Participation........................................ 32
Certain Business Relationships and Transactions....... 32
Approval of the 2005 Stock Option Plan (Item No. 2)......... 34
Approval of the 2005 Share Appreciation Plan (Item No. 3)... 38
Consideration of Stockholder Proposals...................... 42
Proposal 1 -- Director Election Majority Vote Standard
(Item No. 4)......................................... 42
Proposal 2 -- Auditor Independence (Item No. 5)....... 44
Independent Public Accountants.............................. 47
Future Stockholder Proposals................................ 48
Solicitation of Proxies..................................... 48
Appendix A -- Governance Principles......................... A-1
Appendix B -- 2005 Stock Option Plan........................ B-1
Appendix C -- 2005 Share Appreciation Plan.................. C-1
Note: Throughout this proxy statement, references to the "stock split" relate to
the two-for-one stock split of Apache common stock distributed in shares
of common stock on January 14, 2004, to stockholders of record on December
31, 2003, and references to the "stock dividends" relate to the
five-percent stock dividend on Apache common stock distributed in shares
of common stock on April 2, 2003, to stockholders of record on March 12,
2003, and to the ten-percent stock dividend on Apache common stock
distributed in shares of common stock on January 21, 2002, to stockholders
of record on December 31, 2001.
APACHE CORPORATION
ONE POST OAK CENTRAL
2000 POST OAK BOULEVARD, SUITE 100
HOUSTON, TEXAS 77056-4400
March 28, 2005
PROXY STATEMENT
GENERAL
This proxy statement contains information about the 2005 annual meeting of
stockholders of Apache Corporation. In this proxy statement "Apache" and "the
Company" both refer to Apache Corporation. This proxy statement and the enclosed
proxy card are being mailed to you by the Company's board of directors starting
on or about March 28, 2005.
PURPOSE OF THE ANNUAL MEETING
At the Company's annual meeting, stockholders will vote on the election of
directors, approval of the 2005 Stock Option Plan, approval of the 2005 Share
Appreciation Plan, and two stockholder proposals as outlined in the accompanying
notice of meeting, and on any other business that properly comes before the
meeting. As of the date of this proxy statement, the Company is not aware of any
other business to come before the meeting. There are no rights of appraisal or
similar rights of dissenters arising from matters to be acted on at the meeting.
WHO CAN VOTE
Only stockholders of record holding shares of Apache common stock at the close
of business on the record date, March 16, 2005, are entitled to receive notice
of the annual meeting and to vote the shares of Apache common stock they held on
that date. As of February 28, 2005, there were 328,095,581 shares of Apache
common stock issued and outstanding. Holders of Apache common stock are entitled
to one vote per share and are not allowed to cumulate votes in the election of
directors. The enclosed proxy card shows the number of shares that you are
entitled to vote.
Apache currently has outstanding one series of preferred stock -- the 5.68%
Cumulative Preferred Stock, Series B (the "Series B Preferred Stock"). The
holders of the depositary shares, each representing 1/10th of a share of Series
B Preferred Stock, are not entitled to any voting rights, except under certain
circumstances relating to non-payment of dividends on the Series B Preferred
Stock. As of the date of this proxy statement, all dividend payments on the
Series B Preferred Stock were current.
HOW TO VOTE
If your shares of Apache common stock are held by a broker, bank or other
nominee (in "street name"), you will receive instructions from them on how to
vote your shares.
If you hold shares of Apache common stock in your own name (as a "stockholder of
record"), you may give instructions on how your shares are to be voted by:
- using the toll-free telephone number or internet voting site listed on
the enclosed proxy card. Specific directions for using the telephone and
internet voting systems are shown on the proxy card.
1
- marking, signing, dating and returning the enclosed proxy card in the
postage-paid envelope provided.
When using telephone or internet voting, the systems verify that you are a
stockholder through the use of a company number for Apache and a unique control
number for you. IF YOU VOTE BY TELEPHONE OR INTERNET, PLEASE DO NOT MAIL THE
ENCLOSED PROXY CARD.
Whichever of these methods you use to transmit your instructions, your shares of
Apache common stock will be voted as you direct. If you sign and return the
enclosed proxy card or otherwise designate the proxies named on the proxy card
to vote on your behalf, but do not specify how to vote, your shares will be
voted FOR the election of the nominees for director, approval of the 2005 Stock
Option Plan and the 2005 Share Appreciation Plan, and AGAINST the stockholder
proposals. If other matters of business not presently known are properly raised
at the meeting, the proxies will vote on the matters in accordance with their
best judgment.
VOTING 401(K) PLAN SHARES
If you are an employee or former employee participating in the Apache 401(k)
Savings Plan and have shares of Apache common stock credited to your plan
account as of the record date, such shares are shown on the enclosed proxy card
and you have the right to direct the plan trustee regarding how to vote those
shares. The trustee for the 401(k) plan is Fidelity Management Trust Company.
The trustee will vote the shares in your plan account in accordance with your
instructions. If you do not send instructions (by voting your shares as provided
above under "How to Vote") or if your proxy card is not received by May 2, 2005,
the shares credited to your account will be voted by the trustee in the same
proportion as it votes shares for which it did receive timely instructions.
REVOKING A PROXY
You may revoke a proxy before it is voted by submitting a new proxy with a later
date (by mail, telephone or Internet), by voting at the meeting, or by filing a
written revocation with Apache's corporate secretary. Your attendance at the
annual meeting will not automatically revoke your proxy.
QUORUM AND VOTES NEEDED
The presence at the annual meeting, in person or by proxy, of the holders of a
majority of the shares of Apache common stock outstanding on the record date
will constitute a quorum, permitting the business of the meeting to be
conducted. The affirmative vote of a plurality of the votes cast at the annual
meeting is required for the election of directors. For each of the 2005 Stock
Option Plan and the 2005 Share Appreciation Plan, the affirmative vote of the
holders of a majority of the shares represented in person or by proxy and
entitled to vote on such matters will be required for approval. For each of the
stockholder proposals, the affirmative vote of the holders of a majority of the
shares represented in person or by proxy and entitled to vote on such matters
will be required for approval.
HOW THE VOTES ARE COUNTED
Representatives of Wells Fargo Bank, N.A. will tabulate the votes and act as
inspectors of election. A properly signed proxy marked to "withhold" authority
for the election of one or more directors will be counted for quorum purposes
but not for voting purposes. A properly signed proxy
2
marked "abstain" with respect to the 2005 Stock Option Plan, the 2005 Share
Appreciation Plan, or either of the stockholder proposals will be counted for
quorum purposes but not for voting purposes, and such abstention will have the
effect of a vote against the applicable plan or stockholder proposal.
If you hold your shares in "street name" through a broker or other nominee, your
broker or nominee may not have discretionary authority to vote certain shares of
Apache common stock on a matter. Thus, if you do not give your broker or nominee
specific instructions, your shares may not be voted on a matter to be acted upon
and will not be counted in determining the number of shares necessary for
approval. However, the shares of Apache common stock represented by such "broker
non-votes" will be counted for quorum purposes.
ELECTION OF DIRECTORS
(ITEM NO. 1 ON PROXY CARD)
The Company's certificate of incorporation provides that, as near as numerically
possible, one-third of the directors shall be elected at each annual meeting of
stockholders. Unless directors earlier resign or are removed, their terms are
for three years, and continue thereafter until their successors are elected and
qualify as directors.
The present terms of directors G. Steven Farris, Randolph M. Ferlic, A. D.
Frazier, Jr. and John A. Kocur will expire at the 2005 annual meeting. Messrs.
Farris, Ferlic, Frazier, and Kocur have been recommended by the Company's
corporate governance and nominating committee and nominated by the board of
directors for election by the stockholders to an additional three-year term. If
elected, Messrs. Farris, Ferlic, Frazier, and Kocur will serve beginning upon
election until the annual meeting of stockholders in 2008.
Unless otherwise instructed, all proxies will be voted in favor of these
nominees. If one or more of the nominees is unwilling or unable to serve, the
proxies will be voted only for the remaining named nominees. Proxies cannot be
voted for more than four nominees. The board of directors knows of no nominee
for director who is unwilling or unable to serve.
3
NOMINEES FOR ELECTION AS DIRECTORS
Biographical information, including principal occupation and business experience
during the last five years, of each nominee for director is set forth below.
Unless otherwise stated, the principal occupation of each nominee has been the
same for the past five years.
DIRECTOR
SINCE
--------
G. STEVEN FARRIS, 57, was appointed president, chief 1994
executive officer and chief operating officer in May 2002,
having been president and chief operating officer of the
Company since May 1994. He was senior vice president of the
Company from 1991 to 1994, and vice president -- exploration
and production from 1988 to 1991. Prior to joining Apache,
Mr. Farris was vice president of finance and acquisitions
for Terra Resources, Inc., a Tulsa, Oklahoma oil and gas
company, from 1983 to 1988. He is a member of the executive
committee.
RANDOLPH M. FERLIC, 68, retired in December 1993 from his 1986
practice as a thoracic and cardiovascular surgeon. He is the
founder of Surgical Services of the Great Plains, P.C., and
served as its president from 1974 to 1993. Dr. Ferlic was
elected as a Regent of the University of Nebraska in
November 2000. At Apache, he is chairman of the audit
committee and a member of the executive committee.
A. D. FRAZIER, JR., 60, is chairman of WolfCreek 1997
Broadcasting, Inc. and is of counsel with the law firm of
Balch & Bingham LLP, Atlanta, Georgia. He retired as a
director, president and chief operating officer of Caremark
Rx, Inc., a publicly-traded pharmacy benefit management
company, in March 2004 having served in that role since
August 2002. From March 2001 until August 2002, Mr. Frazier
was chairman and chief executive officer of the Chicago
Stock Exchange. He had been a global partner of AMVESCAP
PLC, a London-based independent global investment management
firm and the parent company of INVESCO, Inc., from 1997 to
March 2001, having served INVESCO as president and chief
executive officer of its U.S. institutional business from
1997 to December 2000, and executive vice president from
1996 to 1997. He is a director and chairman of the board of
Gold Kist, Inc., Atlanta, Georgia, a publicly-traded
integrated chicken production, processing and marketing
company, and a director of Gevity HR, Inc., Bradenton,
Florida, a publicly-traded human resources outsourcing firm.
At Apache, Mr. Frazier is a member of the management
development and compensation committee and the stock option
plan committee.
JOHN A. KOCUR, 77, is engaged in the private practice of 1977
law. He served as vice chairman of the Company's board of
directors from 1988 to 1991. Mr. Kocur was employed by the
Company from 1969 until his retirement in 1991, and served
as the Company's president from 1979 to 1988. He is chairman
of the executive committee and a member of the management
development and compensation committee.
4
CONTINUING DIRECTORS
Biographical information, including principal occupation and business experience
during the last five years, for each continuing member of the board of directors
whose term is not expiring at the 2005 annual meeting is set forth below. Unless
otherwise stated, the principal occupation of each director has been the same
for the past five years.
DIRECTOR TERM
SINCE EXPIRES
-------- --------
FREDERICK M. BOHEN, 67, returned to serve as executive vice 1981 2006
president and chief operating officer of The Rockefeller
University in February 2002, having previously served in
those capacities from 1990 through September 1999. He was
senior vice president of Brown University from 1983 to 1990,
and served as vice president of finance and operations at
the University of Minnesota from 1981 to 1983. Mr. Bohen was
with the U.S. Department of Health and Human Services as
assistant secretary for management and budget from 1977 to
1981. He is a director of American Council of Learned
Societies and a member of its executive committee. Mr. Bohen
is also a director of the Polish American Freedom Foundation
and chairman of its investment committee, as well as a
director of the Teak Fellowship, a not-for-profit
organization that mentors and assists gifted adolescent
children from disadvantaged circumstances. At Apache, he is
chairman of the management development and compensation
committee and chairman of the stock option plan committee.
EUGENE C. FIEDOREK, 73, is a private investor. Formerly, he 1988 2007
was managing director of EnCap Investments L.C., a Dallas,
Texas energy investment banking firm, from 1988 until March
1999, when EnCap was acquired by El Paso Energy. Mr.
Fiedorek was the managing director of the Energy Banking
Group of First RepublicBank Corp. in Dallas, Texas from 1978
to 1988. At Apache, he is a member of the audit committee.
PATRICIA ALBJERG GRAHAM, 69, joined the Company's board of 2002 2007
directors in September 2002. She is the Charles Warren
Research Professor of the History of American Education at
Harvard University. Dr. Graham joined the faculty of Harvard
Graduate School of Education in 1974, and was its dean from
1982 to 1991. From 1991 to 2000, she served as president of
the Spencer Foundation, which supports research into
educational improvement. Dr. Graham is also a director of
Northwestern Mutual Life Insurance Company, as well as a
director of Rural School Community Trust, the Center for
Advanced Study in the Behavioral Sciences, Central European
University, the Higher Education Support Sub-Board of the
Open Society Institute, and the Josiah Macy, Jr. Foundation.
At Apache, she is a member of the corporate governance and
nominating committee.
GEORGE D. LAWRENCE, 54, is a private investor, and joined 1996 2006
the Company's board of directors in May 1996. Formerly, he
was president, chief executive officer and a director of The
Phoenix Resource Companies, Inc. from 1990 until May 1996,
when Phoenix became a wholly-owned subsidiary of Apache. Mr.
Lawrence is a member of the executive committee and the
management development and compensation committee.
5
DIRECTOR TERM
SINCE EXPIRES
-------- --------
F. H. MERELLI, 68, became chairman of the board, chief 1997 2007
executive officer, president, and a director of Cimarex
Energy Co., a Denver, Colorado independent oil and gas
exploration and production company, on September 30, 2002,
upon the acquisition by Cimarex of Key Production Company,
Inc. and the exploration and production division of
Helmerich & Payne, Inc. He was chairman of the board and
chief executive officer of Key from 1992 until October 2002,
and served as Key's president from 1992 to September 1999
and from March 2002 to October 2002. Formerly, Mr. Merelli
served as Apache's president and chief operating officer
from 1988 to 1991. Prior to that, he was president of Terra
Resources, Inc., a Tulsa, Oklahoma oil and gas company, from
1979 to 1988. At Apache, Mr. Merelli is a member of the
audit committee and the executive committee.
RODMAN D. PATTON, 61, joined the Company's board of 1999 2006
directors in December 1999. Mr. Patton has nearly 30 years
experience in oil and gas investment banking and corporate
finance activity, most recently serving as managing director
of the Merrill Lynch Energy Group from 1993 until April
1999. Previously, he was with First Boston and Eastman
Dillon, Union Securities (later Blyth Eastman Dillon). Mr.
Patton is a director of Valero GP, LLC, San Antonio, Texas,
and is chairman of their audit committee. Valero GP, LLC is
the general partner of Valero LP, owner and operator of
crude oil and refined products pipeline, terminalling, and
storage assets. At Apache, Mr. Patton is a member of the
audit committee.
CHARLES J. PITMAN, 62, joined the Company's board of 2000 2006
directors in May 2000. He retired from BP Amoco plc in late
1999, having served as regional president -- Middle
East/Caspian/Egypt/India and business unit leader for new
business development -- Middle East/Caspian since December
1998. Prior to the merger of British Petroleum and Amoco
Corporation, Mr. Pitman served as chairman and president of
Amoco Eurasia Petroleum Company from 1997 to 1998, and was
president of Amoco Egypt Oil Company from 1992 to 1996. He
is the sole member of Shaker Mountain Energy Associates LLC,
a consulting company formed in September 1999. At Apache,
Mr. Pitman is chairman of the corporate governance and
nominating committee.
RAYMOND PLANK, 82, has been chairman of the Company's board 1954 2007
of directors since 1979, having served as the company's
chief executive officer from 1966 until May 2002, and
president from 1954 to 1979. Mr. Plank founded the Company
and is a member of the executive committee.
JAY A. PRECOURT, 67, rejoined the Company's board of 2003 2006
directors in February 2003, having been a member of the
Company's board from July 1992 to August 1995. He has been
since 2000, chairman of the board and chief executive
officer of Scissor Tail Energy, LLC, a Denver, Colorado
gatherer, transporter, and processor of natural gas and
natural gas liquids, and since 1999, chairman of the board
of Hermes Consolidated, Inc., a Denver, Colorado gatherer,
transporter, and refiner of crude oil and crude oil
products. Formerly, Mr. Precourt was vice chairman and chief
executive officer of Tejas Gas Corporation from 1986 to 1999
and president from 1996 to 1998, and was chairman of the
board of Coral Energy L.P. from 1996 to 1999. He is a
director of Halliburton Company and a member of its
compensation committee, a director of The Timken Company and
chairman of its audit committee, and a director of Founders
Funds, Inc. At Apache, Mr. Precourt is a member of the
corporate governance and nominating committee.
6
DIRECTOR INDEPENDENCE
During 2004 and the first two months of 2005, the board of directors evaluated
all business and charitable relationships between the Company and the Company's
non-employee directors (all directors other than Mr. Farris and Mr. Plank) and
all other relevant facts and circumstances and, as required by the Company's
Governance Principles, determined that each such director is an independent
director as defined by the standards for director independence established by
applicable laws, rules, and listing standards including, without limitation, the
standards for independent directors established by The New York Stock Exchange,
Inc. ("NYSE"), The NASDAQ National Market ("NASDAQ"), and the Securities and
Exchange Commission ("SEC").
Subject to some exceptions, these standards generally provide that a director
will not be independent if (a) the director is, or in the past three years has
been, an employee of the Company; (b) a member of the director's immediate
family is, or in the past three years has been, an executive officer of the
Company; (c) the director or a member of the director's immediate family has
received more than $60,000 per year in direct compensation from the Company
other than for service as a director (or for a family member, as a non-executive
employee); (d) the director or a member of the director's immediate family is,
or in the past three years has been, employed in a professional capacity by
Ernst & Young LLP, the Company's independent public accountants, or who worked
for such firm in any capacity on the Company's audit; (e) the director or a
member of the director's immediate family is, or in the past three years has
been, employed as an executive officer of a company where an Apache executive
officer serves on the compensation committee; or (f) the director or a member of
the director's immediate family is an executive officer of a company that makes
payments to, or receives payments from, Apache in an amount which, in any
twelve-month period during the past three years, exceeds the greater of $200,000
or two percent of the consolidated gross revenues of the company receiving the
payment.
The Company's Governance Principles require that the independent directors meet
in executive session at least twice each year and, in 2004, they met three times
in executive session. Also included in the Company's Governance Principles are
the procedure by which a presiding director is chosen for each meeting of
independent directors and the method established for communication of concerns
to the independent directors. The Company's Governance Principles are attached
to this proxy statement as Appendix A and are available on the Company's website
(www.apachecorp.com).
7
STANDING COMMITTEES AND MEETINGS
OF THE BOARD OF DIRECTORS
The board of directors has an audit committee, a management development and
compensation ("MD&C") committee, a stock option plan committee, an executive
committee, and a corporate governance and nominating ("CG&N") committee. Actions
taken by these committees are reported to the board of directors at the next
board meeting. During 2004, each of the Company's directors attended at least 75
percent of all meetings of the board of directors and committees of which they
were members.
------------------------------------------------------------------------------------------------------------------
2004 MEMBERSHIP ROSTER
------------------------------------------------------------------------------------------------------------------
NAME BOARD AUDIT MD&C STOCK OPTION EXECUTIVE CG&N
------------------------------------------------------------------------------------------------------------------
Frederick M. Bohen X X* X*
------------------------------------------------------------------------------------------------------------------
G. Steven Farris X X
------------------------------------------------------------------------------------------------------------------
Randolph M. Ferlic X X* X
------------------------------------------------------------------------------------------------------------------
Eugene C. Fiedorek X X
------------------------------------------------------------------------------------------------------------------
A. D. Frazier, Jr. X X X
------------------------------------------------------------------------------------------------------------------
Patricia Albjerg Graham X X
------------------------------------------------------------------------------------------------------------------
John A. Kocur X X X*
------------------------------------------------------------------------------------------------------------------
George D. Lawrence X X X
------------------------------------------------------------------------------------------------------------------
F. H. Merelli X X X
------------------------------------------------------------------------------------------------------------------
Rodman D. Patton X X
------------------------------------------------------------------------------------------------------------------
Charles J. Pitman X X*
------------------------------------------------------------------------------------------------------------------
Raymond Plank X* X
------------------------------------------------------------------------------------------------------------------
Jay A. Precourt X X
------------------------------------------------------------------------------------------------------------------
No. of Meetings in 2004 6 9 4 4 0 5
------------------------------------------------------------------------------------------------------------------
* Chairman
The audit committee reviews with the independent public accountants and internal
auditors of the Company their respective audit and review programs and
procedures, and the scope and results of their audits. It also examines
professional services provided by the Company's independent public accountants
and evaluates their costs and related fees. Additionally, the audit committee
reviews the Company's financial statements and the adequacy of the Company's
system of internal accounting controls. The audit committee makes
recommendations to the board of directors concerning the Company's independent
public accountants and their engagement or discharge.
During 2004 and the first two months of 2005, the board of directors reviewed
the composition of the audit committee pursuant to the rules of the NYSE and
NASDAQ governing audit committees. Based on this review, the board of directors
confirmed that all members of the audit committee are "independent" under the
NYSE and NASDAQ rules. During 2000, the audit committee adopted a charter, which
was approved by the board of directors on May 4, 2000, and which reflects the
NYSE's rules and the regulations of the SEC. On February 4, 2004, the audit
committee adopted an amended and restated charter, which was approved by the
board of directors on February 5, 2004. The audit committee charter is available
on the Company's website
8
(www.apachecorp.com). The board of directors has determined that members of the
audit committee qualify as financial experts, as defined in Item 401 of
Regulation S-K under the Securities Act of 1933.
The MD&C committee reviews the Company's management resources and structure, and
administers the Company's compensation programs and retirement, stock purchase
and similar plans. The duties of the stock option plan committee include the
award and administration of option grants under the Company's stock option
plans, of grants under the executive restricted stock plan, of stock unit grants
under the deferred delivery plan, and of conditional grants under the 2000 Share
Appreciation Plan. During 2004 and the first two months of 2005, the board of
directors reviewed the composition of the MD&C committee pursuant to the rules
of the NYSE and NASDAQ governing compensation committees. Based on this review,
the board of directors confirmed that all members of the MD&C committee are
"independent" under the NYSE and NASDAQ rules. The MD&C committee charter is
available on the Company's website (www.apachecorp.com).
The duties of the CG&N committee include recommending to the board of directors
the slate of director nominees submitted to the stockholders for election at the
annual meeting and proposing qualified candidates to fill vacancies on the board
of directors. The CG&N committee is also responsible for developing corporate
governance principles for the Company and overseeing the evaluation of the board
of directors. During 2004 and the first two months of 2005, the board of
directors reviewed the composition of the CG&N committee pursuant to the rules
of the NYSE and NASDAQ governing governance committees. Based on this review,
the board of directors confirmed that all members of the CG&N committee are
"independent" under the NYSE and NASDAQ rules. The CG&N committee charter is
available on the Company's website (www.apachecorp.com).
The CG&N committee considers director nominee recommendations from executive
officers of the Company, independent members of the board, and stockholders of
the Company. The CG&N committee may also retain an outside search firm to assist
it in finding appropriate nominee candidates. Stockholder recommendations for
director nominees received by Apache's corporate secretary (at the address and
by the deadline for submitting stockholder proposals set forth under the heading
"Future Stockholder Proposals") are forwarded to the CG&N committee for
consideration.
The executive committee is vested with the authority to exercise the full power
of the board of directors, within established policies, in the intervals between
meetings of the board of directors. In addition to the general authority vested
in it, the executive committee may be vested with specific power and authority
by resolution of the board of directors.
9
CRITERIA FOR NEW BOARD MEMBERS AND RE-ELECTION OF EXISTING BOARD MEMBERS
The CG&N committee considers the following criteria in recommending new nominees
or the re-election of existing directors to the Company's board of directors and
its committees from time to time:
- Expertise and perspective needed to govern the business and strengthen
and support top management -- for example: strong financial expertise,
knowledge of international operations, or knowledge of the petroleum
industry and/or the electrical power industry.
- Sound business judgment and a sufficiently broad perspective to make
meaningful contributions, under pressure if necessary.
- Interest and enthusiasm in the Company and a commitment to become
involved in its future.
- The time and energy to meet board of directors commitments.
- Constructive participation in discussions, with the capacity to quickly
understand and evaluate complex and diverse issues.
- Dedication to the highest ethical standards.
- Supportive of management, but independent, objective, and willing to
question and challenge both openly and in private exchanges.
- An awareness of the dynamics of change and a willingness to anticipate
and explore opportunities.
All decisions regarding whether to recommend the nomination of a new nominee for
election to the board of directors or for the re-election of an existing
director shall be within the sole discretion of the CG&N committee.
All new nominees and directors for re-election will be evaluated without regard
to race, sex, age, religion, or physical disability.
10
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the Company's financial reporting process on behalf
of the Board of Directors. The Company's management has the primary
responsibility for the financial statements, for maintaining effective internal
control over financial reporting, and for assessing the effectiveness of
internal control over financial reporting. In fulfilling its oversight
responsibilities, the Committee reviewed the audited consolidated financial
statements in the Annual Report on Form 10-K with Company management, including
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 Committee reviewed with the independent registered public accounting firm,
which is responsible for expressing an opinion on the conformity of those
audited consolidated financial statements with U.S. generally accepted
accounting principles, its judgments 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 by Statement on Auditing
Standards No. 61 (as amended), other standards of the Public Company Accounting
Oversight Board (United States), rules of the Securities and Exchange
Commission, and other applicable regulations. In addition, the Committee has
discussed with the independent registered public accounting firm the firm's
independence from Company management and the Company, including the matters in
the letter from the firm required by Independence Standards Board Standard No.
1, and considered the compatibility of non-audit services with the independent
registered public accounting firm's independence.
The Committee also reviewed management's report on its assessment of the
effectiveness of the Company's internal control over financial reporting as well
as the independent registered public accounting firm's report on (a)
management's assessment and (b) the effectiveness of the Company's internal
control over financial reporting.
The Committee discussed with the Company's internal auditors and independent
registered public accounting firm the overall scope and plans for their
respective audits. At each of the four Committee meetings held in person during
2004, the Committee met with the internal auditors and the independent
registered public accounting firm, with and without management present, to
discuss the results of their examinations; their evaluations of the Company's
internal control, including internal control over financial reporting; and the
overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors, and the Board has approved, that the
audited consolidated financial statements and management's assessment of the
effectiveness of the Company's internal control over financial reporting be
included in the Annual Report on Form 10-K for the year ended December 31, 2004,
filed by the Company with the Securities and Exchange Commission.
11
The Committee is governed by a charter which is available on the Company's
website (www.apachecorp.com). The Committee held nine meetings during fiscal
year 2004. The Committee is comprised solely of independent directors as defined
by the New York Stock Exchange and the NASDAQ National Market listing standards
and Rule 10A-3 of the Securities Exchange Act of 1934, as amended.
March 7, 2005 Members of the Audit Committee
Randolph M. Ferlic, Chairman
Eugene C. Fiedorek
F. H. Merelli
Rodman D. Patton
12
DIRECTOR COMPENSATION
Employee directors do not receive additional compensation for serving on the
board of directors or any committee of the board. During 2004, non-employee
directors received an annual retainer of $50,000, of which $10,000 in value was
paid in the form of shares of Apache common stock, plus $1,500 for each board of
directors or committee meeting attended in person or $1,000 for each meeting
attended by telephone. Non-employee directors are reimbursed for expenses
incurred in attending meetings. Non-employee directors receive an annual
retainer of $2,000 for each committee of which they are members. In addition,
the chairman of each committee receives $4,000 annually for chairing their
respective committees.
Under the terms of the Company's non-employee directors' compensation plan, as
amended in 2003, non-employee directors can elect to defer receipt of all or any
portion of their retainers or meeting attendance fees and, subject to certain
parameters, can defer those amounts in the form of cash or in the form of shares
of Apache common stock. Amounts deferred in the form of cash accrue interest
equal to the Company's rate of return on its short-term marketable securities;
amounts deferred in the form of Apache common stock accrue dividends as if the
stock were issued and outstanding when such dividends were payable. All deferred
amounts, as well as accrued interest and dividends, are maintained in a separate
memorandum account for each participating non-employee director. Amounts are
paid out in cash and/or shares of common stock, as applicable, upon the
non-employee director's retirement or other termination of his or her
directorship, or on a specific date, in a lump sum or in annual installments
over a ten-year (or shorter) period. Five non-employee directors deferred all or
a portion of their fees during 2004.
An unfunded retirement plan for non-employee directors was established in
December 1992. The plan is administered by the MD&C committee and pays retired
non-employee directors benefits equal to two-thirds of the annual retainer for a
period based on length of service. Payments are made on an annual basis, for a
maximum of ten years, and are paid from the general assets of the Company. In
the event of the director's death prior to receipt of all benefits payable under
the plan, the remaining benefits are payable to the director's surviving spouse
or designated beneficiary until the earlier of the termination of the payment
period or the death of the surviving spouse or designated beneficiary. During
2004, benefits were paid under this plan to, or on behalf of, five former
directors who retired from the Company's board of directors during 1997, 1998,
2000, and 2001.
The Company established an equity compensation plan for non-employee directors
in February 1994, which is administered by the MD&C committee. Each non-employee
director was awarded 1,000 restricted shares of the Company's common stock every
five years from July 1, 1994 through July 1, 2000, with the shares vesting at a
rate of 200 shares annually. On May 3, 2001, the plan was amended to provide
that on July 1, 2001 and on July 1 of each third year thereafter through July 1,
2003, each non-employee director was awarded 1,000 restricted shares of common
stock, with one-third of the shares vesting annually. Except as noted below, any
unvested shares are forfeited at the time the non-employee director ceases to be
a member of the board. The unvested portion of any award is automatically vested
upon retirement or death while still serving as a member of the board; provided
that the non-employee director (a) is at least 60 years old and has completed at
least ten years of service at the time of retirement, or (b) has completed at
least ten years of service at the time of death. Awards are made from shares of
common stock held in the Company's treasury, and are automatic and
non-discretionary.
13
On February 5, 2004, the plan was amended to adjust the awards to 2,310
restricted shares of common stock (1,000 shares adjusted for the stock dividends
and stock split) for any awards made during the period July 1, 2004 through July
1, 2009. New non-employee directors will receive awards of 2,310 shares of
common stock on the July 1 next succeeding their election to the board. All
shares of common stock awarded under the plan have full dividend and voting
rights. The plan expires on July 1, 2009, with a maximum of 50,000 shares of
common stock (115,500 shares after adjustment for the stock dividends and stock
split) that may be awarded during the term of the plan. An award of 2,310 shares
was made to each of nine non-employee directors during 2004.
14
SECURITIES OWNERSHIP AND PRINCIPAL HOLDERS
The following tables set forth, as of February 28, 2005, the beneficial
ownership of each director or nominee for director of the Company, the chief
executive officer, the four other most highly compensated executive officers,
and all directors and executive officers of the Company as a group. All
ownership information is based upon filings made by those persons with the SEC
and upon information provided to the Company. (All share numbers in the table
and footnotes have been adjusted for the stock dividends and stock split.)
----------------------------------------------------------------------------------------------------------------
AMOUNT AND PERCENT OF
NATURE OF BENEFICIAL CLASS
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING
----------------------------------------------------------------------------------------------------------------
Common Stock, par value
$0.625 Frederick M. Bohen 21,627(2)(3) *
--------------------------------------------------------------------------------------
G. Steven Farris 788,281(4)(5)(6)(7)(8) *
--------------------------------------------------------------------------------------
Randolph M. Ferlic 472,091(2)(9) *
--------------------------------------------------------------------------------------
Eugene C. Fiedorek 38,995(2) *
--------------------------------------------------------------------------------------
A. D. Frazier, Jr. 16,958(2) *
--------------------------------------------------------------------------------------
Patricia Albjerg Graham 5,857(2)(3) *
--------------------------------------------------------------------------------------
John A. Kocur 38,438(2) *
--------------------------------------------------------------------------------------
George D. Lawrence 33,280(2)(3) *
--------------------------------------------------------------------------------------
F. H. Merelli 26,661(2)(3)(6) *
--------------------------------------------------------------------------------------
Rodman D. Patton 21,589(2)(3) *
--------------------------------------------------------------------------------------
Charles J. Pitman 17,016(2) *
--------------------------------------------------------------------------------------
Raymond Plank 750,832(4)(5)(6)(7)(8) *
--------------------------------------------------------------------------------------
Jay A. Precourt 2,496(2)(3) *
--------------------------------------------------------------------------------------
Roger B. Plank 484,126(4)(5)(6)(7)(8) *
--------------------------------------------------------------------------------------
John A. Crum 185,738(4)(5)(6)(7)(8) *
--------------------------------------------------------------------------------------
Rodney J. Eichler 162,240(4)(5)(6)(7)(8) *
--------------------------------------------------------------------------------------
All directors, nominees, and executive
officers as a group (including the above
named persons) 4,244,386(4)(5)(6)(7)(8) 1.3
----------------------------------------------------------------------------------------------------------------
* Represents less than one percent of outstanding shares of common stock.
(1) All ownership is sole and direct unless otherwise noted. Inclusion of any
common shares not owned directly shall not be construed as an admission of
beneficial ownership. Fractional shares have been rounded to the nearest
whole share.
(2) Includes restricted common shares awarded under the Company's Equity
Compensation Plan for Non-Employee Directors.
(footnotes continued on following page)
15
(3) Includes the following common share equivalents related to retainer fees
deferred under the Company's Non-Employee Directors' Compensation Plan: Mr.
Bohen -- 8,390; Dr. Graham -- 2,838; Mr. Lawrence -- 5,613; Mr.
Merelli -- 861; Mr. Patton -- 1,575; and Mr. Precourt -- 216.
(4) Includes the following common stock equivalents held through the Company's
Deferred Delivery Plan: Mr. Farris -- 8,141; Mr. Raymond Plank -- 121,109;
Mr. Roger Plank -- 36,994; Mr. Crum -- 2,855; Mr. Eichler -- 8,098; and all
directors and executive officers as a group -- 240,862.
(5) Includes the following common shares issuable upon the exercise of
outstanding employee stock options which are exercisable within 60 days: Mr.
Farris -- 177,736; Mr. Raymond Plank -- 271,654; Mr. Roger Plank -- 208,938;
Mr. Crum -- 112,610; Mr. Eichler -- 112,499; and all directors and executive
officers as a group -- 1,546,127.
(6) Includes shares held by the trustee of the Company's 401(k) Savings Plan and
related Non-Qualified Retirement/Savings Plan: Mr. Farris -- 69,604; Mr.
Merelli -- 16,296; Mr. Raymond Plank -- 7,588; Mr. Roger Plank -- 52,252;
Mr. Crum -- 32,383; Mr. Eichler -- 12,364; and all directors and executive
officers as a group -- 272,381.
(7) Includes the following restricted stock units (each equivalent to one share
of common stock) granted under the Company's Executive Restricted Stock
Plan: Mr. Farris -- 35,846; Mr. Raymond Plank -- 35,846; Mr. Roger
Plank -- 17,235; Mr. Crum -- 12,755; Mr. Eichler -- 11,105; and all
directors and executive officers as a group -- 242,328.
(8) Includes shares issuable pursuant to conditional grants made under the
Company's 2000 Share Appreciation Plan: Mr. Farris -- 35,034; Mr. Raymond
Plank -- 40,424; Mr. Roger Plank -- 18,055; Mr. Crum -- 14,821; Mr.
Eichler -- 12,662; and all directors and executive officers as a
group -- 275,441.
(9) Includes 13,860 common shares owned directly by Ferlic Investments, Ltd. in
which Dr. Ferlic owns a 36-percent interest. Also includes a total of 21,090
common shares held by Dr. Ferlic's daughters, son and grandchildren, as to
which he has some power of disposition, but disclaims beneficial ownership.
The following table sets forth the only person known to the Company, as of
February 28, 2005, to be the owner of more than five percent of outstanding
shares of the Company's common stock, according to reports filed with the SEC:
---------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF CLASS
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING
---------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.625.... FMR Corp. 17,639,280* 5.4
82 Devonshire Street
Boston, Massachusetts 02109
---------------------------------------------------------------------------------------------------------------------
* Per Schedule 13G filed with the SEC, dated February 14, 2005. Does not include
1,682,442 shares held by Fidelity Management Trust Company ("FMTC") as trustee
of the Company's 401(k) Savings Plan. FMTC is a wholly-owned subsidiary of FMR
Corp.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers, as well as beneficial owners of ten percent or more of
the Company's common stock, to report their holdings and transactions in the
Company's securities. Based on information furnished to the Company and
contained in reports provided pursuant to Section 16(a), as well as written
representations that no other reports were required for 2004, it appears that:
(a) Raymond Plank, an officer and director of the Company, filed a late report
relating to a charitable gift of shares of the Company's common stock, (b) G.
Steven Farris, an officer and director of the Company, filed two late reports
relating to four charitable gifts of shares of the Company's common stock, and
(c) Matthew W. Dundrea, an officer of the Company, filed a late report relating
to two automatic grants made under the Company's 2000 Stock Option Plan.
16
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes information as of December 31, 2004, relating to
the Company's equity compensation plans, under which grants of stock options,
restricted stock units, and other rights to acquire shares of Apache common
stock may be granted from time to time.
--------------------------------------------------------------------------------------------------------------
(A) (B) (C)
--------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES FUTURE ISSUANCE UNDER
TO BE ISSUED UPON WEIGHTED-AVERAGE EQUITY COMPENSATION
EXERCISE OF EXERCISE PRICE OF PLANS (EXCLUDING
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN (A),
--------------------------------------------------------------------------------------------------------------
Equity compensation plans approved by
security holders(1)................ 3,107,112 $ 19.618(3) 0
--------------------------------------------------------------------------------------------------------------
Equity compensation plans not approved
by security holders(2)............. 7,796,867 $ 22.764(3) 3,961,742(4)
--------------------------------------------------------------------------------------------------------------
Total........................... 10,903,979 $ 21.422(3) 3,961,742
--------------------------------------------------------------------------------------------------------------
(1) Includes the Company's 1995 Stock Option Plan and 1998 Stock Option Plan.
(2) Includes the Company's 1996 Performance Stock Option Plan, 2000 Stock Option
Plan, 2000 Share Appreciation Plan, Executive Restricted Stock Plan,
Non-Employee Directors' Compensation Plan, Equity Compensation Plan for
Non-Employee Directors, and Deferred Delivery Plan.
See Note 8 of the Notes to Consolidated Financial Statements, included in
the Company's Form 10-K for the year ended December 31, 2004, for the
material features of the 1996 Performance Stock Option Plan, 2000 Stock
Option Plan, 2000 Share Appreciation Plan, and Executive Restricted Stock
Plan.
The Company's Deferred Delivery Plan (i) allows officers and certain key
employees to defer income from certain equity compensation plans (such as
the stock option and restricted stock plans) in the form of deferred units,
and (ii) provides for grants of deferred units. Each deferred unit is
equivalent to one share of Apache common stock. Distributions from the plan
are made, at the election of the participant, beginning five years from
deferral or upon termination of employment.
(3) Weighted average exercise price of outstanding stock options; excludes
restricted stock units, performance-based stock units, and deferred stock
units.
(4) As of February 10, 2005, the Company's ability to issue option grants under
its existing stock option plans terminated. At the time of termination,
2,537,877 shares of the Company's common stock that were previously
authorized for new grants became unavailable for such purpose. The only
provisions of these plans that are still effective are those governing
grants previously made under the applicable plan.
17
EXECUTIVE OFFICERS OF THE COMPANY
Biographical information concerning the executive officers of the Company is set
forth below. Biographical information concerning Raymond Plank and G. Steven
Farris is set forth above under the captions "Nominees for Election as
Directors" and "Continuing Directors."
MICHAEL S. BAHORICH, 48, was appointed executive vice president -- exploration
and production technology in May 2000, having been the Company's vice
president -- exploration and production technology since January 1999, vice
president -- exploration technology since December 1997, and the Company's chief
geophysicist since 1996. From 1981 until joining the Company, he held positions
of increasing responsibility at Amoco Corporation in Denver, Colorado and Tulsa,
Oklahoma. Mr. Bahorich is a past president of the Society of Exploration
Geophysicists and serves on an advisory board at Stanford University.
JEFFREY M. BENDER, 53, was appointed vice president -- human resources in
September 2000. Prior to joining the Company, he served as vice president of
human resources for Vastar Resources, Inc., Houston, Texas, since June 1994,
having helped manage its transition from an operating division of Atlantic
Richfield Company (ARCO) to an independent organization following Vastar's
initial public offering in mid 1994. Previously, Mr. Bender held positions of
increasing responsibility with ARCO since 1975.
MICHAEL J. BENSON, 52, was appointed vice president -- corporate security in
December 2002, having been director of corporate security since joining the
Company in 1996. From 1988 until 1996, he owned and operated an international
security consulting company advising large corporations and high profile
individuals. Previously, Mr. Benson was with the Cheshire Police in the United
Kingdom for 14 years.
THOMAS P. CHAMBERS, 49, was appointed vice president -- corporate planning in
September 2001, having been director of planning since March 1995. Prior to
joining the Company, Mr. Chambers was in the international business development
group at Pennzoil Exploration and Production, having held a variety of
management positions with the BP plc group of companies from 1981 to 1992. Mr.
Chambers is a member of the Society of Petroleum Engineers.
JOHN J. CHRISTMANN, 38, was appointed vice president -- business development in
January 2004, having been production manager for the Gulf Coast region since
April 2003. Prior to that, Mr. Christmann held various positions of increasing
responsibility in the business development area since joining the Company in
1997. Previously, he was employed by Vastar Resources/ARCO Oil and Gas Company.
JOHN A. CRUM, 52, was appointed executive vice president -- Apache North Sea in
April 2003, having served as executive vice president -- Eurasia and new
ventures since May 2000, and as the Company's regional vice president in
Australia since 1995. Prior to joining the Company, he served in executive and
management roles with Aquila Energy Resources Corporation, Pacific Enterprises
Oil Company and Southland Royalty Company.
MATTHEW W. DUNDREA, 51, was appointed vice president and treasurer in July 1997,
having been the Company's treasurer since March 1996 and assistant treasurer
since 1994. Prior to joining the Company, he held positions of increasing
responsibility at Union Texas Petroleum Holding, Inc. from 1982 to 1994.
ROBERT J. DYE, 49, was appointed vice president -- investor relations in May
1997, having been director of investor relations since 1995. Prior to that, Mr.
Dye held positions of increasing responsibility in the corporate planning area
since joining the Company in 1992. Previously, he was planning manager for the
offshore division of BP Exploration, Houston, Texas, from 1988 to 1992.
RODNEY J. EICHLER, 55, was appointed executive vice president in February 2003,
having been the Company's regional vice president in Egypt since 1999, and vice
president of exploration and production in Egypt since 1997. Prior to that, Mr.
Eichler was regional vice president for the Western region in Houston since
1996, and regional exploration and development manager for the Rocky Mountain
region in Denver since 1993. Prior to joining the Company, Mr. Eichler was vice
president-exploration for Axem Resources, LLC in Denver, Colorado, since 1989.
18
JANICE K. HARTRICK, 52, was appointed vice president and associate general
counsel in July 2003, having been assistant general counsel since March 2003.
Previously, she was of counsel with the law firm of Thompson & Knight from
February 2002 and a solo practitioner from July 1, 2001. Prior to practicing law
as outside counsel, Ms. Hartrick was senior vice president and general counsel
of EEX Corporation from October 1997 until June 2001. She was chief counsel and
vice president, environmental affairs for Seagull Energy Corporation, since
1992, having held positions of increasing responsibility there from 1987. Ms.
Hartrick has been vice-chairman of the executive committee of the advisory
board, Institute for Energy Law of the Center for American and International Law
(formerly Southwestern Legal Foundation) since 1998, and representative trustee
for the Rocky Mountain Mineral Law Foundation since 2000.
JON A. JEPPESEN, 57, was appointed senior vice president in February 2003,
having been the Company's regional vice president for the Gulf Coast region
since 2002 and the Offshore region since 1996. He served as the Company's vice
president of exploration and development for North America from 1994 to 1996,
and manager of the Company's offshore exploration and development from 1993 to
1994. Prior to joining the Company, Mr. Jeppesen was vice president of
exploration and development for Pacific Enterprises Oil Company, Dallas, Texas,
from 1989 to 1992.
P. ANTHONY LANNIE, 51, was appointed senior vice president and general counsel
in May 2004, having been vice president and general counsel since March 2003.
Prior to joining the Company, he was president of Kinder Morgan Power Company,
Houston, Texas, from 2000 through February 2003, and president of Coral Energy
Canada in 1999. Mr. Lannie was senior vice president and general counsel of
Coral Energy, an affiliate of Shell Oil Company and Tejas Gas Corporation, from
1995 through 1999, and of Tejas Gas Corporation from 1994 until its combination
with Coral Energy in 1998.
ANTHONY R. LENTINI, JR., 55, has been vice president -- public and international
affairs since January 1995. Prior to joining the Company, he was vice president
of public affairs for Mitchell Energy & Development Corp., The Woodlands, Texas,
from 1988 through 1994.
JANINE J. MCARDLE, 44, was appointed vice president -- oil and gas marketing in
November 2002. Prior to joining the Company, she served as managing director for
Aquila Europe Ltd from November 2001 to October 2002, and held executive and
management positions with Aquila Energy Marketing since 1993, including vice
president -- trading and vice president -- mergers and acquisitions. Previously,
she was a partner in Hesse Gas from 1991 to 1993. Ms. McArdle was a member of
the board of directors of Intercontinental Exchange, the electronic trading
platform, from 2000 to October 2002.
THOMAS L. MITCHELL, 44, was appointed vice president and controller in July
1997, having been the Company's controller and chief accounting officer since
February 1996. He held various positions in the Company's natural gas marketing
operation from 1990 through 1995, and served as accounting manager for the
Company's Gulf Coast operations from 1989 to 1990. Prior to joining the Company,
Mr. Mitchell was a manager with Arthur Andersen & Co., an independent public
accounting firm, from 1982 through 1988.
W. KREGG OLSON, 51, was appointed vice president -- corporate reservoir
engineering in January 2004, having been director of technical services since
1995. Prior to that, Mr. Olson held positions of increasing responsibility
within corporate reservoir engineering since joining the Company in 1992.
Previously, he was associated with Grace Petroleum Corporation.
CHERI L. PEPER, 51, was appointed corporate secretary of the Company in May
1995, having been assistant secretary since 1992. Prior to joining the Company,
she was assistant secretary for Panhandle Eastern Corporation (subsequently
PanEnergy Corp.) since 1988. Ms. Peper is a director of MemberSource Credit
Union, formerly known as PT&T Federal Credit Union.
ROGER B. PLANK, 48, was appointed executive vice president and chief financial
officer in May 2000, having been vice president and chief financial officer
since July 1997. Previously, he was vice president -- planning and corporate
development since March 1996, vice president -- corporate planning since 1994,
vice president -- external affairs from 1993 to 1994, and vice
president -- corporate communications from 1987 to 1993. Mr. Plank is a director
of Parker Drilling Company and a member of its audit committee, and is past
president of Texas Independent Producers and Royalty Owners Association (TIPRO),
a large independent trade association. The chairman of the Company's board of
directors is Mr. Plank's father.
19
FLOYD R. PRICE, 55, was appointed executive vice president -- Eurasia, Latin
America and New Ventures in May 2004, having been executive vice
president -- Canada since February 2003. He was president of Apache Canada Ltd
from October 1999 to May 2004, and was president of the Company's international
exploration and production subsidiaries from 1995 to 1999. Mr. Price served as
exploration manager from 1991 to 1994, and geologic manager from 1990 to 1991,
for the Company's Mid-continent region. Prior to joining the Company, he was
vice president of exploration and development from 1988 to 1989, and vice
president of mid-continent exploration from 1989 to 1990, for Pacific
Enterprises Oil Company, Dallas, Texas.
JON W. SAUER, 44, was appointed vice president -- tax in May 2001, having been
director of tax since March 1997, and manager of tax from August 1992. Prior to
joining the Company, Mr. Sauer was tax manager with Swift Energy Company,
Houston, Texas, and a manager in the tax practice of Arthur Andersen & Co.
20
SUMMARY COMPENSATION TABLE
The table below summarizes the annual and long-term compensation paid to the
individuals listed below for all services rendered to the Company and its
subsidiaries during the last three fiscal years, in accordance with SEC rules
relating to disclosure of executive compensation. The persons included in this
table are the Company's chief executive officer and the four other most highly
compensated executive officers who were serving as executive officers of the
Company at year-end 2004.
---------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION(2)
----------------------------------- --------------------------------
OTHER
ANNUAL RESTRICTED LTIP ALL OTHER
SALARY BONUS COMPEN- STOCK PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) SATION($) AWARDS($) ($) ($)
---------------------------------------------------------------------------------------------------------------------------------
Raymond Plank 2004 900,000 1,200,000 15,748 452,408(7) 1,031,947(11) 136,050(3)(10)
Chairman of the Board 2003 881,250 1,100,000 12,126(5) 448,890(7) 0 118,875(3)
2002 750,000 900,000 177,408(5) 752,313(7) 0 96,000(3)
---------------------------------------------------------------------------------------------------------------------------------
G. Steven Farris 2004 900,000 1,200,000 37,701 452,408(7) 894,298(11) 276,638(3)(4)(10)
President, Chief Executive
Officer 2003 881,250 1,100,000 30,225(5) 448,890(6)(7) 0 246,120(3)(4)
and Chief Operating Officer 2002 750,000 900,000 95,760(5) 2,215,443(6)(7) 0 196,092(3)(4)
---------------------------------------------------------------------------------------------------------------------------------
Roger B. Plank 2004 417,292 239,900 14,599 204,864(7) 460,881(11) 86,945(3)(4)(10)
Executive Vice President
and 2003 407,500 254,300 11,153(5) 207,180(7) 0 82,448(3)(4)
Chief Financial Officer 2002 390,000 220,000 51,766(5) 390,703(7) 0 74,200(3)(4)
---------------------------------------------------------------------------------------------------------------------------------
John A. Crum 2004 312,885 165,900 516,857(5)(8) 149,380(7) 378,378(11) 172,508(3)(4)(9)(10)
Executive Vice President -- 2003 300,000 175,000 78,566(5)(8) 149,630(7) 0 145,917(3)(4)(9)
Apache North Sea 2002 300,000 170,000 3,008(5) 297,415(7) 0 58,958(3)(4)
---------------------------------------------------------------------------------------------------------------------------------
Rodney J. Eichler 2004 291,106 180,000 601,723(5)(8) 136,576(7) 323,199(11) 203,392(3)(4)(10)(12)
Executive Vice President -- 2003 271,875 175,000 57,955(5)(8) 138,120(7) 0 212,042(3)(4)(12)
Apache Egypt 2002 240,625 154,000 204,632(5)(8) 238,991(7) 0 155,950(3)(4)(12)
---------------------------------------------------------------------------------------------------------------------------------
(1) Includes amounts awarded under the Company's incentive compensation plans
for performance in the year indicated.
(2) There were no stock options granted to any of the named executive officers
during 2004, 2003, or 2002. There were no adjustments or amendments during
the last fiscal year to the exercise price of stock options previously
granted to any of the named executive officers, except for the stock
dividends and stock split.
(3) Includes Company contributions under the Company's 401(k) Savings Plan, the
Company's Money Purchase Retirement Plan, and related Non-Qualified
Retirement/Savings Plan for 2004, 2003, and 2002, respectively, in the
following amounts: Mr. Raymond Plank -- $136,000, $118,875, and $96,000;
Mr. Farris -- $240,000, $213,750, and $168,000; Mr. Roger Plank -- $80,592,
$75,300, and $70,800; Mr. Crum -- $58,546, $56,400, and $54,530; and Mr.
Eichler -- $55,932, $51,105, and $41,476.
(4) Includes premium for executive life insurance benefits for 2004, 2003, and
2002, respectively, in the following amounts: Mr. Farris -- $36,588,
$32,370, and $28,092; Mr. Roger Plank -- $6,303, $7,148, and $3,400; Mr.
Crum -- $7,467, $4,949, and $4,428; and Mr. Eichler -- $10,435, $7,585, and
$6,728.
(5) For Mr. Farris, Mr. Roger Plank, Mr. Crum, and Mr. Eichler, includes
amounts reimbursed for the payment of taxes relating to executive life
insurance benefits. For Mr. Raymond Plank, Mr. Farris, and Mr. Roger Plank,
includes amounts reimbursed for the payment of taxes on income attributable
to use of Company property as approved by the board of directors. Includes
amounts for foreign assignment tax equalization for Mr. Crum and Mr.
Eichler.
(6) On December 17, 1998, the Company's board of directors granted a
conditional stock award to Mr. Farris for a total of 100,000 shares of the
Company's common stock (230,992 shares after adjustment for the stock
dividends and stock split). The award is composed of five periodic
installments, commencing on January 1st of each of the next five years, and
vesting on the fifth anniversary following the applicable commencement date
(subject to acceleration under specific circumstances). To receive each
installment, which is payable 40 percent
(footnotes continued on following page)
21
in cash and 60 percent in stock, Mr. Farris must be employed by the Company on
the applicable commencement and vesting dates. For December 31, 2002, the last
business day preceding the January 1, 2003 commencement date, the per share
closing price of the Company's common stock was $56.99 ($28.4950 after
adjustment); for December 31, 2001, the last business day preceding January
1, 2002, the per share closing price was $49.88 ($23.7524 after
adjustment); for December 29, 2000, the last business day preceding January
1, 2001, the per share closing price was $70.0625 ($30.3301 after
adjustment); for December 31, 1999, the last business day preceding January
1, 2000, the per share closing price was $36.9375 ($15.9903 after
adjustment); and for December 31, 1998, the last business day preceding
January 1, 1999, the per share closing price was $25.3125 ($10.9578 after
adjustment). Mr. Farris has all voting, dividend and liquidation rights for
each installment of shares as of the applicable commencement date listed
below:
6,667 shares (15,398 shares after adjustment) commencing January 1,
1999, vesting January 1, 2004
13,333 shares (30,798 shares after adjustment) commencing January 1,
2000, vesting January 1, 2005
20,000 shares (46,200 shares after adjustment) commencing January 1,
2001, vesting January 1, 2006
26,667 shares (61,598 shares after adjustment) commencing January 1,
2002, vesting January 1, 2007
33,333 shares (76,998 shares after adjustment) commencing January 1,
2003, vesting January 1, 2008
On January 1, 2004, the first periodic installment of 15,398 shares vested,
of which 9,238 shares (60 percent) were paid to Mr. Farris in the form of
stock. The value of the remaining 6,160 shares (40 percent) was paid in
cash, based on the per share closing price of the Company's common stock of
$40.55 (after adjustment) for December 31, 2003. Required tax withholding
on the full amount of the vested installment was deducted from the portion
paid in cash.
At year-end 2004, the aggregate number of shares of conditional stock held
by Mr. Farris was 215,594 shares (after adjustment) with a value of
$10,902,589 based on the per share closing price of the Company's common
stock of $50.57 for December 31, 2004.
(7) Dollar value of restricted stock units granted during 2004, 2003, and 2002
under the terms of the Executive Restricted Stock Plan, based on the
closing price of the Company's common stock as of the date of grant. Such
restricted stock units vest ratably over four years and no dividends are
paid on such units until vested.
At year-end 2004, the aggregate number of restricted stock units and value,
based on the closing price of the Company's common stock as of December 31,
2004, was: Mr. Raymond Plank -- 35,846 units and $1,812,732; Mr.
Farris -- 35,846 units and $1,812,732; Mr. Roger Plank -- 17,235 units and
$871,574; Mr. Crum -- 12,755 units and $645,020; and Mr. Eichler -- 11,105
units and $561,580.
(8) For Mr. Crum, includes foreign assignment housing allowance of $59,598 and
$51,599 for 2004 and 2003, respectively. For Mr. Eichler, includes foreign
assignment housing allowance of $46,117, $47,503, and $40,297 for 2004,
2003, and 2002, respectively.
(9) For 2004 and 2003, respectively, includes foreign service premium of
$46,933 and $30,000, and foreign service cost of living allowance of
$59,512 and $29,568. For 2003, includes relocation allowance of $25,000.
(10) Includes $50 cash award paid to each of the Company's employees in
connection with the Company's 50th anniversary.
(11) Dollar value of shares distributed during 2004 under the terms of the 2000
Share Appreciation Plan, based on the closing price of the Company's common
stock as of the vesting date. See the footnotes to the Long-Term Incentive
Plan Awards table for the material terms of the awards.
(12) For 2004, 2003, and 2002, respectively, includes foreign service premium of
$43,666, $40,781, and $36,094, location premium of $58,221, $54,375, and
$48,125, and home leave and travel allowance of $35,088, $52,202, and
$18,345. For 2003 and 2002, respectively, includes foreign service cost of
living allowance of $5,994 and $5,182.
22
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
The table below provides supplemental information relating to the value realized
upon the exercise of stock options during the last fiscal year by the executive
officers named in the Summary Compensation Table above and the number and
intrinsic value of stock options held at year end. Year-end values are based
arbitrarily on the closing price of the Company's common stock for December 31,
2004, do not reflect the actual amounts, if any, which may be realized upon the
future exercise of remaining stock options, and should not be considered
indicative of future stock performance. (All share numbers in the table and
footnotes have been adjusted for the stock dividends and stock split.)
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
VALUE OF
UNEXERCISED
SHARES NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY
ACQUIRED ON VALUE UNEXERCISED OPTIONS/SARS AT OPTIONS/SARS
EXERCISE REALIZED FY-END(#)(3) AT FY-END($)(3)(4)
NAME (#)(1) ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE
Raymond Plank 103,488 2,842,960 440,284 0 14,040,344
G. Steven Farris 76,838 1,905,169 395,550 0 12,483,429
Roger B. Plank 34,200 1,110,330 297,166 0 9,804,067
John A. Crum 0 0 112,610 0 3,208,557
Rodney J. Eichler 0 0 114,686 0 3,800,802
NAME UNEXERCISABLE
Raymond Plank 0
G. Steven Farris 0
Roger B. Plank 0
John A. Crum 0
Rodney J. Eichler 0
(1) Number of shares with respect to which stock options were exercised during
2004.
(2) Fair market value on date of exercise minus the exercise price of stock
options.
(3) There were no SARs settled or outstanding at any time during the last fiscal
year for any of the named executive officers.
(4) Based on the closing price of $50.57 per share of the Company's common stock
as reported on The New York Stock Exchange, Inc. Composite Transactions
Reporting System for December 31, 2004, minus the exercise price of the
stock options.
23
LONG-TERM INCENTIVE PLAN AWARDS TABLE
The table below provides supplemental information regarding each award made
during the last fiscal year to the executive officers named in the Summary
Compensation Table under any long-term incentive plan ("LTIP"). (All share
numbers in the table and footnotes have been adjusted for the stock dividends
and stock split.)
LONG-TERM INCENTIVE PLANS
AWARDS IN LAST FISCAL YEAR
--------------------------------------------------------------------------
NUMBER OF SHARES, PERFORMANCES OR OTHER
UNITS OR OTHER PERIOD UNTIL
NAME RIGHTS (#)(1) MATURATION OR PAYOUT
--------------------------------------------------------------------------
Raymond Plank 17,324(2) (4)
43,312(3)
--------------------------------------------------------------------------
G. Steven Farris 15,014(2) (4)
37,536(3)
--------------------------------------------------------------------------
Roger B. Plank 7,738(2) (4)
19,344(3)
--------------------------------------------------------------------------
John A. Crum 6,352(2) (4)
15,880(3)
--------------------------------------------------------------------------
Rodney J. Eichler 5,424(2) (4)
13,568(3)
--------------------------------------------------------------------------
(1) In October 2000, the Company established the 2000 Share Appreciation Plan,
under which essentially all regular, full-time employees in the United
States, Canada, and Australia, including each of the executives named in the
Summary Compensation Table were granted the right to receive shares of the
Company's common stock upon the attainment of certain share price goals. The
2000 Share Appreciation Plan is intended to provide specific individual
incentives toward achieving (i) significant price appreciation for the
Company's common stock based on attainment of per share price goals of $100,
$120 and $180 (after adjustment for the Company's stock dividends and stock
split, the price goals became $43.29, $51.95, and $77.92, respectively)
prior to January 1, 2005, and (ii) a separate goal, not tied to share price,
of doubling production per share from the 2000 level during any quarter
ended prior to January 1, 2005. The first ($43.29) and the second ($51.95)
price goals were attained on April 28, 2004 and October 26, 2004,
respectively. The third ($77.92) price goal and the separate production goal
were not attained prior to January 1, 2005, and the conditional grants
relating to those goals expired on December 31, 2004. Pursuant to the terms
of the plan, no right to receive shares existed until the attainment of the
applicable price goal.
(2) Conditional grant relating to attainment of the $43.29 price goal covering
the indicated number of shares of the Company's common stock.
(3) Conditional grant relating to attainment of the $51.95 price goal covering
the indicated number of shares of the Company's common stock.
(4) Benefits are payable in three equal installments over a two-year period,
with the first installment payable no later than 30 days after attainment of
the price goal. The first installment for the $43.29 price goal was paid on
May 19, 2004, and the first installment on the $51.95 price goal was paid on
November 9, 2004. The remaining installments will be payable no later than
30 days after the first and second anniversaries of attainment of the
applicable price goal. Payment of benefits will be subject to the condition
that the grant recipient remain continuously employed from the date of the
conditional grant through the dates of vesting, which occur upon attainment
of the relevant price goal and the subsequent installment dates, as
described above.
24
THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
This report is issued by the Management Development and Compensation Committee
of the board of directors to set out the executive compensation policies and
programs of the Company. The objective of the Company's executive compensation
program is to attract and retain executives capable of leading the Company in a
complex, competitive, and changing industry. A capable, highly-motivated senior
management is an integral part of the Company's continued success. The Company's
financial performance is in large part due to the talent and efforts of the
Company's executive officers. The program ties a significant portion of
executive compensation to the Company's success and is primarily comprised of a
base salary, an incentive bonus, and a long-term incentive component.
BASE SALARY
The Committee believes that the most effective way to compete in the executive
labor market is to offer executives a competitive base salary. To achieve this
balance, the Committee analyzes each executive's compensation using a four-step
process. First, the key executive positions within the Company are defined in
terms of scope and responsibility, job complexity, knowledge and experience
required, and other relevant factors. Second, the positions are ranked
internally on the basis of these definitions to establish a logical relationship
among them. Third, the Committee identifies the Company's direct competitors
which it believes share comparable operations, employee composition, and
capitalization, and obtains comparative compensation data about the identified
companies from independent compensation resources. Finally, easily-compared
positions are priced in terms of salary ranges by reviewing the comparative
industry data and other surveys to establish relative salary ranges for all key
executive positions in the Company. Base salaries are targeted to fall at or
above the median of executive salaries paid by comparable companies, and for
2004 they generally correspond to that practice. The Committee reviews the
salary of each of the Company's 21 executive officers, taking into account the
individual's contribution to the Company's success, how well the individual's
responsibilities are fulfilled, the individual's specific performance, growth in
qualifications for the individual's job, and other relevant aspects of
performance.
Base salaries of all executives are generally reviewed every 12 to 24 months.
Salary adjustments are made within updated, market-confirmed salary ranges
according to the Committee's assessment of the executive's individual
performance and the performance of the Company as a whole. However, changes in
the circumstances of a particular executive can prompt an interim compensation
adjustment. The Committee retained the services of an outside compensation
consultant, who was proposed by management and approved by the Committee, to
review the base salaries of the Company's executives and confirm that the
salaries are competitive with those of comparable companies. The review included
comparative data from part, but not all, of the companies comprising the U.S.
Exploration and Production Index (formerly the Secondary Oils Index) reflected
in the stock performance chart set forth below. The exclusion from the review of
some of the companies in the Index was due to their integrated operations or
operations in diversified industries.
Based on the factors discussed above, plus additional compensation data
available to the Company from other sources, 18 of the Company's officers
received increases in compensation during 2004 to reflect market changes and
increased responsibilities, including three of the executives named in the
Summary Compensation Table.
25
INCENTIVE BONUS
Executives, other than the Company's chairman of the board and the Company's
chief executive officer (separate plan described below), are eligible to receive
a cash incentive bonus tied directly to the Company's achievement of specified
financial, operational, and strategic objectives and the executive's personal
achievements. In the early months of the year, the Committee establishes a
listing of corporate objectives based on those submitted by senior management.
The objectives are approved by the Committee and, in 2004, 75 percent of each
executive's bonus depended upon the Company's achievement of these specified
objectives. The remaining 25 percent of the executive's eligible bonus depended
upon personal achievements related to financial strategies, operational
improvements, program or project enhancements, or other objectively determinable
criteria. This incentive compensation plan effectively correlates a large
portion of executive compensation to predetermined corporate objectives and
other objectively determinable goals, all designed to translate into value for
the Company's stockholders. Committee policy provides for bonuses to be targeted
at 50 percent of each executive's base salary and to exceed 50 percent if the
Company's performance warrants.
Executive bonuses for 2004 were based on management's achievement during the
year of specific corporate objectives established by the Committee based on
accepted measures of performance in the oil and gas industry including (a)
increases in cash flow and earnings, (b) growth in reserves and production while
maintaining an acceptable ratio of debt to capitalization, and (c) control of
costs throughout the Company. Additionally, the Committee approved 13
operational, financial and administrative strategic objectives considered
important to the Company's long-term success and to maximizing stockholder
value. The Company has elected not to detail the individual items within the
specified strategic corporate objectives as disclosure of such information could
provide a competitive advantage to one or more of the Company's peers; however,
the objectives were annualized for incentive purposes and were broad enough to
have potential impact beyond 2004. As a result of the Company's outstanding
overall performance in 2004, as well as substantial achievement of a majority of
the objectives approved for 2004, the Committee recommended and the full board
of directors unanimously approved an incentive bonus payment in excess of the
targets set for executive officers participating in the corporate plan.
The chairman and the chief executive officer are each eligible to receive a cash
incentive bonus under a separate incentive compensation plan, which functions
and is administered in the same way as the plan described above, except that
their performance goals are tied directly to the Company's annual financial and
operational results, including the performance of the Company's common stock,
all as compared to the results of a group of its peer companies. The goals
include earnings, production, cash flow, reserves and ratio of debt to
capitalization. The Committee determined to pay the chairman and the president
bonuses of 133 percent of their base salaries in recognition of their leadership
and for the Company's outstanding performance during 2004.
In addition to the Company's incentive compensation plans, the Committee may
elect to award a special achievement bonus to an executive officer who has
rendered services during the year that substantially exceed those normally
required. Special achievement bonuses (a) reflect the Committee's decision to
reward any executive whose extraordinary effort has substantially benefited the
Company and its stockholders during the year, (b) are awarded only in
exceptional circumstances, and (c) are in amounts relative to the benefit
provided to the Company. No special achievement bonuses were paid during 2004 to
any of the Company's executive officers, including the executive officers named
in the Summary Compensation Table.
26
LONG-TERM INCENTIVES
Long-term incentives in forms relating to the Company's common stock serve to
align the interests of executive officers with the Company's stockholders by
tying a significant portion of each executive's total long-term compensation to
the continued growth of the Company and appreciation of its common stock. No
stock options were granted to any of the executives named in the Summary
Compensation Table during 2004. In lieu of stock options, the Company's
executive officers received grants of restricted stock units under the Company's
Executive Restricted Stock Plan. Grants of restricted stock units covering an
aggregate of 75,600 shares of the Company's common stock were made in 2004 to
the Company's executive officers as a group, including grants of restricted
stock units covering 32,700 shares made to the Company's officers named in the
Summary Compensation Table presented above. Grants of restricted stock units to
executives are proportionate to each officer's base salary. In 2004, individual
grants of restricted stock units were based on 50 percent of base salary and
vest ratably over four years.
In October 2000, the Company established the 2000 Share Appreciation Plan, under
which essentially all regular, full-time employees in the United States, Canada,
and Australia, including each of the executives named in the Summary
Compensation Table, were granted the right to receive shares of the Company's
common stock upon the attainment of certain share price goals. The 2000 Share
Appreciation Plan is intended to provide specific individual incentives toward
achieving (i) significant price appreciation for the Company's common stock
based on attainment of per share price goals of $100, $120 and $180 (after
adjustment for the Company's stock dividends and stock split, the price goals
are $43.29, $51.95, and $77.92, respectively) prior to January 1, 2005, and (ii)
a separate goal, not tied to share price, of doubling production per share from
the 2000 level during any quarter ended prior to January 1, 2005. The first
($43.29) and the second ($51.95) price goals were attained on April 28, 2004 and
October 26, 2004, respectively. The conditional grants relating to the first and
second price goals made to the Company's executive officers as a group cover an
aggregate of 413,162 shares of the Company's common stock, including grants
covering 181,492 shares made to the Company's officers named in the Summary
Compensation Table presented above. Benefits are payable in three installments
over a two-year period following attainment. The third ($77.92) price goal and
the separate production goal were not attained prior to January 1, 2005, and the
conditional grants relating to those goals expired on December 31, 2004.
Pursuant to the terms of the plan, no right to receive shares existed until the
attainment of the applicable price goal.
In recognition of his past contributions and expected future contributions to
the Company, Mr. Farris, the Company's chief executive officer, was granted a
conditional stock award in December 1998, for a total of 100,000 shares of the
Company's common stock (230,992 shares after adjustment for the stock dividends
and stock split). The award is composed of five periodic installments,
commencing on January 1, 1999 and on January 1st of each of the next four years
(2000 through 2003). Each installment vests on the fifth anniversary following
the applicable commencement date (subject to acceleration under specific
circumstances), and is payable 40 percent in cash and 60 percent in the form of
stock. On January 1, 2004, the first periodic installment of 15,398 shares
vested, of which 60 percent was paid in stock and 40 percent was paid in cash
(after deduction of required tax withholding on the full amount of the vested
installment). To receive each subsequent installment, Mr. Farris must be
employed by the Company on the applicable commencement and vesting dates (see
footnote 6 to the Summary Compensation Table presented above). In the event Mr.
Farris elects to terminate his
27
employment with the Company or his employment is terminated for cause, any
unvested installments will be forfeited.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Raymond Plank, the chairman of the Company's board of directors, was chief
executive officer from 1966 until May 2002. His activities include direction of
Apache's intensive, on-going programs to monitor, analyze and respond creatively
to the changes and new requirements in the oil and gas industry, and leadership
in maintenance of sound business relationships with the management of many of
the nation's large oil and gas companies. These relationships are important to
Apache's strategic alliances and to its acquisition approach, which emphasizes
privately negotiated transactions that develop and achieve mutual business
benefits. Mr. Plank actively participates in developing the Company's
strategies, and has been jointly responsible for the Company's ongoing interest
and successful exploration efforts in international areas such as Egypt,
Australia, and China.
G. Steven Farris, the Company's president, chief executive officer and chief
operating officer, assumed the responsibilities of chief executive officer in
May 2002. His activities include leadership in developing the Company's
strategies, implementing the Company's capital expenditure programs, and
maintenance of sound business relationships with the management of many of the
nation's large oil and gas companies and with the investment community. Mr.
Farris has been jointly responsible for the Company's developing interest and
successful exploration efforts going forward in international areas such as
Egypt, Australia, China, and the North Sea. As chief executive officer, he
oversees all of the Company's major business and staff units and guides and
develops Apache's senior management. Reporting directly to Mr. Farris are each
of the executive vice presidents, corporate and regional vice presidents,
including the chief financial officer and the general counsel.
Base salary, incentive bonus, and long-term incentives for each of Mr. Plank and
Mr. Farris are determined in the manner previously described and are reflected
in the Summary Compensation Table above. Mr. Plank's last base salary adjustment
was effective February 16, 2003, and Mr. Farris' last base salary adjustment was
effective February 16, 2003. Bonuses paid to Mr. Plank and Mr. Farris were based
on the Company's 2004 performance, as discussed above. Mr. Plank's and Mr.
Farris' employment agreements are discussed under "Employment Contracts and
Termination of Employment and Change-in-Control Arrangements."
Base salaries during 2004 for Mr. Plank and Mr. Farris were within the
Committee's percentile targets and took into account the following: their active
roles in the Company's management and leadership of successful acquisitions; the
Company's financial performance during 2003; and the challenges and expectations
for the Company in 2004. As noted above, the bonuses paid to Mr. Plank and Mr.
Farris for 2004 performance represented 133 percent of their base salaries.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
The Omnibus Budget Reconciliation Act of 1993 ("OBRA") imposes a limit, with
certain exceptions, on the amount that a publicly held corporation may deduct in
any tax year commencing on or after January 1, 1994, for the compensation paid
or accrued with respect to its chief executive officer and its four most highly
compensated executive officers (other than the chief executive officer). In
December 1995, the Internal Revenue Service issued final regulations
implementing the legislation, with the regulations effective as of January 1,
1994. Certain
28
performance-based compensation is specifically exempt from the limit if it meets
the requirements contained in these final regulations. The Committee continues
to review the Company's compensation plans based upon these regulations and,
from time to time, determines what further actions or changes to the Company's
compensation plans, if any, are appropriate.
Grants of stock options made under the Company's 1990 Stock Incentive Plan, 1995
Stock Option Plan and 1998 Stock Option Plan qualify as "performance-based"
under the regulations. The Company's existing incentive compensation plans,
special achievement bonuses, Executive Restricted Stock Plan, 2000 Stock Option
Plan, and 2000 Share Appreciation Plan do not currently meet the requirements of
the regulations, as the stockholder approvals necessary for exemption have not
been sought. However, these plans operate similarly to prior plans and are
designed to reward the contribution and performance of employees and to provide
a meaningful incentive for achieving the Company's goals, which in turn enhances
stockholder value. While the Committee cannot predict with certainty how the
Company's compensation policies may be further impacted by OBRA, it is
anticipated that executive compensation paid or accrued pursuant to the
Company's compensation plans that do not meet the requirements of the
regulations will not result in any material loss of tax deductions in the
foreseeable future.
SUMMARY
According to information provided to the Committee by its independent
compensation consultant, the amount of the Company's compensation paid to all of
its executive officers during 2004 was competitive and at or above the median
for comparable companies. As shown on the Performance Graph following this
report, the cumulative total return on the Company's common stock has equaled or
outperformed that of the Dow Jones U.S. Exploration and Production Index
(formerly the Dow Jones Secondary Oils Stock Index) and the Standard & Poor's
Composite 500 Stock Index over the last five years. In view of the Company's
competitive performance, the Committee believes that its current executive
compensation policy is successful in providing stockholders with talented,
dedicated executives at competitive compensation levels.
March 7, 2005 Management Development and Compensation
Committee
Frederick M. Bohen, Chairman
A. D. Frazier, Jr.
John A. Kocur
George D. Lawrence
29
PERFORMANCE GRAPH
The following stock price performance graph is included in accordance with the
SEC's executive compensation disclosure rules and is intended to allow
stockholders to review the Company's executive compensation policies in light of
corresponding stockholder returns, expressed in terms of the appreciation of the
Company's common stock relative to two broad-based stock performance indices.
The information is included for historical comparative purposes only and should
not be considered indicative of future stock performance. The graph compares the
yearly percentage change in the cumulative total stockholder return on the
Company's common stock with the cumulative total return of the Standard & Poor's
Composite 500 Stock Index and of the Dow Jones U.S. Exploration and Production
Index (formerly Dow Jones Secondary Oils Stock Index) from December 31, 1999
through December 31, 2004.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
FOR THE YEAR ENDED DECEMBER 31, 2004
(PERFORMANCE GRAPH)
------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
------------------------------------------------------------------------------------------------
Apache Corporation 100 190 150 173 260 326
------------------------------------------------------------------------------------------------
S&P's Composite 500 Stock Index 100 91 80 62 80 89
------------------------------------------------------------------------------------------------
DJ US Exploration & Production Index 100 160 147 150 196 279
------------------------------------------------------------------------------------------------
30
EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
Mr. Raymond Plank serves the Company under an employment agreement entered into
in December 1975, amended and restated in December 1990 and amended in April
1996. The agreement has an undefined term and is terminable at will by the
Company's board of directors. Mr. Plank's annual compensation under the
agreement is determined by the board of directors, but may not be less than
$450,000. If his service as a director and an officer is terminated by the board
of directors, Mr. Plank will serve as advisor and consultant to the Company for
the remainder of his life at annual compensation equal to 50 percent of his
then-current annual compensation and will receive health, dental and vision
benefits for himself, his spouse and his eligible dependents during the
remainder of his life. Pursuant to the agreement and in exchange for
surrendering life insurance coverage, an annuity was purchased for Mr. Plank
that pays $31,500 annually until 2008. Mr. Plank has agreed not to render
service to any of the Company's competitors for the entire period covered by the
agreement. Upon Mr. Plank's death, a total of $750,000 shall be paid (a) to his
designee in equal monthly installments over ten years, or (b) if he has made no
designation, in a lump sum to his estate.
Mr. Farris serves the Company pursuant to an employment agreement, dated June 6,
1988, under which he received an annual salary of $900,000 during 2004. The
agreement has an undefined term and may be terminated by either the Company or
Mr. Farris on 30 days advance written notice. If Mr. Farris' employment is
terminated without cause, or if he terminates his employment within 30 days of a
reduction in his salary without a proportionate reduction in the salaries of all
other Company executives, Mr. Farris will receive, for 36 months thereafter, (a)
an amount equal to his base salary as it existed 60 days prior to termination
and (b) 50 percent of the maximum amount for which he qualified under the
Company's incentive compensation plan, calculated on his base compensation as it
existed 60 days prior to termination. In the event of Mr. Farris' death during
the 36-month period, the amounts described above shall be paid to his heirs or
estate. Mr. Farris has agreed not to render service to any of the Company's
competitors for the term of his employment or, unless he is terminated without
cause, for 36 months thereafter.
On December 17, 1998, Mr. Farris was granted a conditional stock award, the
basic provisions of which are discussed above in the footnotes to the Summary
Compensation Table and under the caption "Long-Term Incentives" in the report on
executive compensation. Under the terms of the agreement for this award, the
vesting of one or more of the four remaining periodic installments is subject to
acceleration under specific circumstances. Those circumstances generally relate
to (a) termination of Mr. Farris' employment other than for cause, (b) his death
or total disability, (c) an individual other than Mr. Raymond Plank or Mr.
Farris becoming the Company's chief executive officer, and (d) merger,
acquisition or other "change-in-control" of the Company.
In addition to the foregoing, the Company has established an income continuance
plan. The plan provides that all officers of the Company, including the officers
named in the Summary Compensation Table, and all employees who have either
reached the age of 40, served the Company for more than ten years, or have been
designated for participation based upon special skills or experience, will
receive monthly payments approximating their monthly income and continued
medical and health benefits from the Company for up to two years, if their
employment is terminated as a result of a "change in control" of the Company, as
defined in the plan.
31
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Frederick M. Bohen, John A. Kocur, A. D. Frazier, Jr. and George D. Lawrence
served on the management development and compensation committee of the Company's
board of directors for all of 2004.
Mr. Kocur, a member of the committee since September 1991 and a director of the
Company since 1977, retired as an executive officer in June 1991. Pursuant to
the terms of an employment agreement in place at the time of his retirement, Mr.
Kocur receives health, dental and vision benefits throughout his life.
Mr. Lawrence, a member of the committee since May 1997, is the former president
and chief executive officer of The Phoenix Resource Companies, Inc. ("Phoenix").
Mr. Lawrence joined the Company's board of directors in May 1996, in conjunction
with the Company's acquisition of Phoenix by a merger on May 20, 1996, through
which Phoenix became a wholly-owned subsidiary of Apache. Pursuant to the terms
of his employment agreement with Phoenix, Mr. Lawrence received medical and
dental benefits through December 1997. Since that time, he has purchased medical
and dental coverage through the Company.
CERTAIN BUSINESS RELATIONSHIPS AND TRANSACTIONS
In the ordinary course of business, Cimarex Energy Co. ("Cimarex"), formerly Key
Production Company, Inc., paid to Apache during 2004 approximately $5,942,000
for Cimarex's proportionate share of drilling and workover costs, mineral
interests, and routine expenses relating to oil and gas wells in which Cimarex
owns interests and of which Apache is the operator. Cimarex was paid
approximately $4,923,000 directly by Apache or related entities for its
proportionate share of revenues from wells in which Cimarex marketed its
revenues with Apache as operator. Apache paid to Cimarex during 2004
approximately $4,506,000 for Apache's proportionate share of drilling and
workover costs, mineral interests, and routine expenses relating to oil and gas
wells in which Apache owns interests and of which Cimarex is the operator.
Apache was paid approximately $3,071,000 directly by Cimarex for its
proportionate share of revenues from wells in which Apache marketed its revenues
with Cimarex as operator. F. H. Merelli, a member of Apache's board of
directors, is chairman of the board, chief executive officer, and president of
Cimarex.
During 2004, Apache and it subsidiaries made donations of $103,000, in cash,
property, and services, to Ucross Foundation. In February 2004, Apache purchased
Clear Creek Hunting Preserve, Inc. ("CCHP") from Ucross Foundation for a total
purchase price of $77,000. During 2004, Apache also paid $22,000 to Ucross
Foundation for food, lodging, and other expenses incurred in connection with
executive retreats and board meetings held by Apache at Ucross Foundation
facilities, and $34,000 to Ucross Foundation for the lease of land and other
services utilized by CCHP. Ucross Foundation was founded in 1981 as a non-profit
organization whose primary objectives include the restoration of the historic
Clear Fork headquarters of the Pratt and Ferris Cattle Company of Wyoming, the
promotion of the preservation of other historical sites in the area, and the
maintenance of an artists-in-residence program for writers and other artists. To
help ensure that the accomplishments of Ucross Foundation are reasonably secure,
Apache's board of directors has approved a conditional charitable contribution
of $10,000,000 to be made to Ucross Foundation upon a change of control of the
Company, as defined in the Company's income continuance plan. Raymond Plank,
chairman of Apache's board of directors, is chairman of the board of trustees of
Ucross Foundation, and G. Steven Farris, a director and officer of
32
Apache, George D. Lawrence, a director of Apache, and Roger B. Plank, an officer
of Apache, are trustees of Ucross Foundation.
During 2004, Apache and it subsidiaries made donations of $5,033,000, in cash,
property, and services to The Fund for Teachers: A Foundation to Recognize,
Stimulate and Enhance, which is a Texas non-profit corporation. In addition,
during 2004, Apache made a pledge to The Fund for Teachers for $5,000,000 in
cash, property and services that will be paid in 2005. The Fund for Teachers
seeks to provide resources directly to teachers to support learning experiences
of their own design to increase their effectiveness with students, and is
currently focused on funding summer sabbaticals for selected applicants. The
Company's board of directors also authorized additional donations to The Fund
for Teachers of up to $5,000,000 in cash, property, and services for 2005 that
may be funded through the end of 2006. If a change of control of the Company
occurs, as defined in the Company's income continuance plan, any and all of the
donations that have not yet been made to The Fund for Teachers will become
immediately due and payable to The Fund for Teachers. Raymond Plank, chairman of
Apache's board of directors, is chairman of the board and president of The Fund
for Teachers.
33
APPROVAL OF
THE 2005 STOCK OPTION PLAN
(ITEM NO. 2 ON PROXY CARD)
The board of directors recommends that the stockholders of the Company vote FOR
the proposal to approve the 2005 Stock Option Plan (the "2005 Option Plan"). The
affirmative vote of the holders of a majority of the shares of the Company's
common stock voted, in person or by proxy, and entitled to vote at the annual
meeting is required to approve the 2005 Option Plan.
The 2005 Option Plan was adopted by the board of directors on February 3, 2005,
subject to approval by stockholders at the next annual meeting as required by
the listing standards of the NYSE and the NASDAQ.
The 2005 Option Plan provides for the grant of stock options to eligible
employees of the Company. The material features of the 2005 Option Plan are
described below; however, such description is entirely subject to the detailed
provisions of the 2005 Option Plan included herein as Appendix B.
As of February 10, 2005, the Company's ability to issue option grants under its
existing stock option plans terminated. At the time of termination,
approximately 2,538,000 shares of the Company's common stock that were
previously authorized for new grants became unavailable for such purpose. The
only provisions of these plans that are still effective are those governing
grants previously made under the applicable plan.
PURPOSES OF THE 2005 OPTION PLAN
The board of directors believes that the Company's long-term success is
dependent upon the ability of the Company to attract and retain outstanding
individuals and to motivate them to exert their best efforts on behalf of the
Company's interests, and that stock option plans constitute an important part of
the Company's compensation structure.
The 2005 Option Plan provides eligible employees selected by the stock option
plan committee (the "Committee") for participation in the 2005 Option Plan with
added incentives to continue in the long-term service of the Company. It creates
in the employees a more direct interest in the future success of the operations
of the Company by relating incentive compensation to the Company's long-term
performance and stockholder value, as reflected in the value of the Company's
common stock. The 2005 Option Plan is also designed to retain and motivate
participating employees by providing an opportunity for investment in the
Company.
Substantially all of the Company's employees are eligible for consideration by
the Committee for grants under the 2005 Option Plan. Mr. Plank and Mr. Farris,
both of whom serve as officers and directors of the Company, as well as each of
the Company's other executive officers named in the Summary Compensation Table
presented above, are eligible to receive future grants under the proposed 2005
Option Plan. While the Company's officers were eligible for grants under the
Company's prior stock option plans, for the last three fiscal years
(2002 - 2004), the Company's officers have received grants of restricted stock
in lieu of stock options. The type of equity
34
compensation granted to the Company's officers is subject to the discretion and
approval of the Committee.
ADMINISTRATION
The 2005 Option Plan is administered by the Committee, which is composed of
outside, non-employee directors. The Committee selects the participants who will
receive grants pursuant to the 2005 Option Plan, is authorized to adopt rules,
guidelines and practices governing the 2005 Option Plan, and is authorized to
interpret the provisions of the 2005 Option Plan and any related agreements. The
decisions of the Committee are final.
The 2005 Option Plan empowers the Committee, from time to time during the plan's
existence, to grant stock options to eligible employees of the Company and its
subsidiaries. The 2005 Option Plan also allows creation of sub-plans for
employees outside the U.S. to ensure compliance with local law and those
employees are provided with substantially the same benefits as grants made under
the 2005 Option Plan. The text of a sub-plan for the Company's U.K. employees is
included as part of Appendix B. The 2005 Option Plan authorizes the issuance of
up to 5,000,000 shares of the Company's common stock. The maximum number of
shares available for issuance under the 2005 Option Plan is subject to
appropriate adjustment in the event of a reorganization, stock split, stock
dividend, combination of shares, merger, consolidation, or other
recapitalization of the Company. Except for such adjustments, the Committee may
not adjust the option price of any outstanding option.
ELEMENTS OF THE 2005 OPTION PLAN
The 2005 Option Plan provides for grants of stock options which allow the
participant the right to purchase a specified number of shares of the Company's
common stock at some time in the future at a price of not less than the fair
market value of the stock on the date the option is granted. The terms and
conditions of grants under the 2005 Option Plan, including number of options
granted, number of shares subject to each option, expiration and exercise price,
are determined by the Committee at the time of grant. The 2005 Option Plan,
however, establishes that no eligible employee may be granted options which in
the aggregate pertain to in excess of 25 percent of the shares of the Company's
common stock authorized for issuance under the 2005 Option Plan. Except as
described below in connection with a change in control of the Company, each
option granted under the 2005 Option Plan becomes exercisable in 25-percent
increments on each of the next four anniversaries of the date the option is
granted. Each 25-percent increment becomes exercisable only if the participant
has been continuously employed by the Company from the date the option is
granted through the date on which each additional 25-percent increment becomes
exercisable. Options are generally nontransferable and are designated as
non-qualified stock options under Section 422 of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code"). Options may be exercisable for a
maximum of ten years from the date of grant. The exercise price is payable in
either cash, by delivery of already-owned shares of the Company's common stock
with a fair market value equal to the exercise price, or a combination thereof.
A change in control occurs when a person, partnership, or corporation acting in
concert, or any or all of them, acquires more than 20 percent of the Company's
outstanding voting securities. A change in control does not occur if, prior to
the acquisition of more than 20 percent of the Company's voting securities, the
Company's board of directors, by majority vote, designates the person,
partnership, or corporation as an approved acquirer and resolves that a change
in control will not have occurred.
35
If there is a change in control, the Committee may accelerate the exercise date
of any outstanding options; make any outstanding options fully vested and
exercisable; grant a cash bonus award to any participant in an amount necessary
to pay the exercise price of all or any portion of the options then held by the
participant; pay cash to any or all participants (in exchange for the
cancellation of their outstanding options) in an amount equal to the difference
between the exercise price of the options and the greater of the tender offer
price for the underlying stock or the fair market value of the stock on the date
of the cancellations; or make any other adjustments or amendments to the
outstanding options. The change in control provisions may in certain
circumstances discourage a takeover of the Company or make it more difficult,
and may have a similar effect on removal of incumbent management. The change in
control provisions are not the result of management's knowledge of any specific
efforts to accumulate shares of the Company's common stock or to obtain control
of the Company by means of a merger, tender offer, solicitation of proxies or
consents or otherwise, nor are they part of a plan to implement a series of
anti-takeover measures.
AMENDMENT, MODIFICATION AND TERMINATION OF THE 2005 OPTION PLAN
The board of directors may at any time terminate, and may from time to time
amend or modify the 2005 Option Plan. No amendment or modification may become
effective without approval by the stockholders, if stockholder approval is
required by statutes or regulations, or if the Company, on advice of counsel,
determines that stockholder approval is otherwise necessary or desirable. No
amendment, modification or termination will in any manner adversely affect any
outstanding option without the consent of the participant holding the option.
Unless earlier terminated, options may be granted under the 2005 Option Plan
until no further shares are authorized for option grants under the plan.
FEDERAL INCOME TAX CONSEQUENCES
The Company has been advised by its tax counsel that stock option grants made
under the 2005 Option Plan will give rise to the following tax events for U.S.
citizens and residents under U.S. federal income tax law.
All options granted under the 2005 Option Plan are non-qualified (non-statutory)
options. The participants will not be subject to tax upon the grant of the
option and the Company will not be entitled to a federal income tax deduction by
reason of a grant. When a participant exercises an option granted under the 2005
Option Plan, the excess of the fair market value of the shares on the date of
exercise over the option exercise price will be treated as taxable compensation
to the participant, and the total of such compensation will be subject to
applicable tax withholding. The Company will be entitled to a federal income tax
deduction equal to the amount of the participant's taxable compensation.
The 2005 Option Plan and the stock options granted thereunder are structured to
qualify as "performance-based" pursuant to the regulations relating to Section
162(m) of the Internal Revenue Code as amended by the Omnibus Budget
Reconciliation Act of 1993.
BENEFITS UNDER THE 2005 OPTION PLAN
The benefits to be received by participants under the terms of the 2005 Option
Plan are not yet determinable. Such benefits are subject to the discretion and
approval of the Committee as described above.
36
RECOMMENDATION AND REQUIRED AFFIRMATIVE VOTE
The affirmative vote of the holders of a majority of the shares of the Company's
common stock voted, in person or by proxy, and entitled to vote at the 2005
annual meeting is required to approve the 2005 Option Plan. The 2005 Option Plan
and any stock options granted thereunder are conditional upon and of no force or
effect unless the 2005 Option Plan receives approval by the requisite vote of
stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
PROPOSAL TO APPROVE THE 2005 STOCK OPTION PLAN.
37
APPROVAL OF
THE 2005 SHARE APPRECIATION PLAN
(ITEM NO. 3 ON PROXY CARD)
The board of directors recommends that the stockholders of the Company vote FOR
the proposal to approve the 2005 Share Appreciation Plan (the "2005 Appreciation
Plan"). The affirmative vote of the holders of a majority of the shares of the
Company's common stock present, in person or represented by proxy, and entitled
to vote at the annual meeting is required to approve the 2005 Appreciation Plan.
The board of directors believes that the Company should focus the energies of
its employees on achieving significant share price appreciation by providing for
a meaningful compensation program tied to future stock performance. In 1996 and
again in 2000, the Company established share appreciation plans to accomplish
this goal. While the share price goals of the 1996 plan were not reached during
the plan's term, the first two (of a total of three) goals of the 2000 plan were
achieved, which represented a doubling of the Company's share price from the
inception date of the 2000 plan to the achievement of the second share price
goal. After consideration of a number of alternatives, the board of directors
adopted the 2005 Appreciation Plan on February 3, 2005, subject to approval by
stockholders at the next annual meeting, and authorized the issuance of up to
3,500,000 shares of the Company's common stock pursuant thereto, subject to
adjustment by the stock option plan committee of the board of directors (the
"Committee"). The primary purpose of the 2005 Appreciation Plan is the same as
for the prior plans, to provide employees specific individual incentives to work
toward attainment of significant increases in stockholder value, with a specific
goal of a $108 per share price for Apache common stock prior to January 1, 2009,
with an intermediate goal of $81 per share prior to January 1, 2008. The
achievement of the $108 price goal would represent approximately $18 billion of
market value for the currently outstanding shares of the Company's common stock.
If either price goal is attained before the applicable expiration date, the
deferred payment of benefits under the 2005 Appreciation Plan would also add to
existing incentives established by the Company's other benefit plans for the
eligible employees to continue in the long-term service of the Company.
The material features of the 2005 Appreciation Plan are summarized below.
However, such description is entirely subject to the detailed provisions of the
2005 Appreciation Plan included herein as Appendix C.
ADMINISTRATION AND ELIGIBILITY
The 2005 Appreciation Plan will be administered by the Committee, which is
composed of outside, non-employee directors. The Committee selects the employees
who will receive Conditional Grants, specifies the amounts thereof, and is
authorized to adopt rules, guidelines and practices governing the 2005
Appreciation Plan and to interpret the provisions of the 2005 Appreciation Plan
and any related agreements. Substantially all current, full-time employees and
certain part-time employees of the Company and its subsidiaries are eligible to
participate in the 2005 Appreciation Plan. The decisions of the Committee are
final.
ELEMENTS OF THE 2005 APPRECIATION PLAN
The 2005 Appreciation Plan provides that recipients of Conditional Grants will
be entitled to receive specified numbers of shares of Apache common stock
(payable in stock and cash, as described below) if the Company's common stock
closes for any ten of 30 consecutive trading
38
days at or above the prices of $81 per share, prior to January 1, 2008, and $108
per share, prior to January 1, 2009. Each of the $81- and $108-per-share trading
conditions is herein called a "Price Threshold".
The number of shares subject to each outstanding Conditional Grant will be
determined at the date of grant by the Committee based upon a recipient's annual
base salary, as limited by the terms of the 2005 Appreciation Plan. The
employees eligible to receive grants are divided into three categories for
determining the number of shares the Conditional Grants will entitle the
recipient to receive upon the attainment of a Price Threshold. For the $81 Price
Threshold, the number of shares will be determined by multiplying a recipient's
annual base salary by a factor determined by the category to which the employee
was assigned, and dividing the product by $81. The factor for the first category
of employees (which includes all executive officers) will be one times the
recipient's base salary, for the second category of employees, one-half times
the recipient's base salary, and for the third category of employees, one-fourth
times the recipient's base salary. For the $108 Price Threshold, the number of
shares will be determined by multiplying a recipient's annual base salary by a
higher factor, and dividing the product by $108. The factor for the first
category of employees will be two times the recipient's base salary, for the
second category, one times the recipient's base salary, and for the third
category, one-half times the recipient's base salary. The Committee, in its
discretion, is authorized to reduce future Conditional Grants (to new employees,
for example) to pro rate benefits as it deems appropriate. Under no
circumstances may the executive officers of the Company, as a group, be entitled
to receive more than 49 percent of the shares of common stock issuable under the
2005 Appreciation Plan, and the Committee may make appropriate adjustments to
the executive officers' Conditional Grants to keep the 2005 Appreciation Plan
under this limit.
If a Price Threshold is reached by the applicable date, the shares issuable to a
recipient with respect to such Price Threshold will be paid out in four equal
installments, with the first installment payable no later than 30 days after the
achievement of the Price Threshold. The remaining installments will be paid no
later than 30 days after the first, second, and third anniversaries of the
attainment of the Price Threshold. Participants in the 2005 Appreciation Plan
may generally hold only one Conditional Grant at any time. The Committee, in its
sole discretion and on an exceptional basis, may award an additional Conditional
Grant to an employee who receives a significant salary increase and/or promotion
within the Company during the term of the 2005 Appreciation Plan. Issuance
and/or payment of the shares and cash will be subject to the condition that the
recipient has remained continuously employed full-time with the Company from the
date of the Conditional Grant through the dates of vesting, which occur upon
attainment of the relevant Price Threshold, and the dates upon which installment
payments are due, as set out above, with exceptions for those employees retiring
after age 65 or who suffer death or disability. If Conditional Grants are made
to foreign citizens or residents, certain additional conditions may be imposed.
In the event of the retirement after age 65, death, or disability, of a
Conditional Grant recipient following the attainment of a Price Threshold, all
benefits will vest immediately and the payment of all such vested amount will be
accelerated so that the entire payment amount will be paid as soon as possible,
but in no event later than March 15 of the year following the year of the
employee's retirement, death, or determination of disability. If a Conditional
Grant recipient ceases to be in the continuous employment of the Company for any
other reason (including discharge with or without cause), all of such
recipient's rights to receive future benefits from a Conditional Grant that have
not vested shall be forfeited. If employment is terminated for any
39
reason (including discharge, retirement, death, or disability) prior to
attainment of a Price Threshold, no benefits will thereafter be payable pursuant
to that recipient's Conditional Grant. Conditional Grants are generally
nontransferable. Awards under the 2005 Appreciation Plan will be paid in a
combination of common stock and cash, with the cash portion equaling, and being
used to pay, the withholding taxes payable with respect to the award. The
calculation of withholding taxes will be based upon the market value of the
stock on the date of vesting, and therefore, the value of shares on the dates of
their respective issuances may, as a result of market price fluctuations, be
greater or less than $81 or $108, respectively.
If neither Price Threshold is attained prior to the applicable date, the
Conditional Grants with respect to the applicable Price Threshold will lapse
without any benefit having been issued and/or paid to the holders thereof with
respect to such Price Threshold.
The Committee may, in its sole discretion, adjust the Price Thresholds and the
shares authorized for issuance pursuant to the 2005 Appreciation Plan to take
into account any capital restructuring of the Company. In the event of a
reorganization, liquidation, or a change in control of the Company, the
Committee may, in its sole discretion, accelerate the vesting and payment of any
Conditional Grant benefits if the relevant Price Threshold has first been
attained. A change in control occurs when a person or group acquires more than
20 percent of the Company's outstanding voting securities without first having
been approved by the Company's board of directors. The change in control
provisions may in certain circumstances discourage a takeover of the Company or
make it more difficult or expensive, and may have a similar effect on removal of
incumbent management. The change in control provisions are not the result of
management's knowledge of any specific efforts to accumulate shares of the
Company's common stock or to obtain control of the Company by means of a merger,
tender offer, solicitation of proxies, or consents or otherwise, nor are they
part of a plan to implement a series of anti-takeover measures.
AMENDMENT, MODIFICATION AND TERMINATION OF THE 2005 APPRECIATION PLAN
The board of directors may at any time terminate, and may from time to time
amend or modify the 2005 Appreciation Plan. No amendment or modification may
become effective without approval by the stockholders, if stockholder approval
is required by statues or regulations, or if the Company, on advice of counsel,
determines that stockholder approval is otherwise necessary or desirable. No
amendment, modification or termination will in any manner adversely affect any
outstanding Conditional Grant without the consent of the recipient holding the
Conditional Grant.
FEDERAL INCOME TAX CONSEQUENCES
The Company has been advised that participants in the 2005 Appreciation Plan
will not be subject to tax upon receipt of a Conditional Grant, and the Company
will not be entitled to a federal income tax deduction by reason of a
Conditional Grant. When stock and/or cash is issued or paid to a recipient
pursuant to a Conditional Grant, the market value of the shares and the amount
of cash received will be treated as taxable compensation to the recipient, and
the total of such compensation will be subject to applicable tax withholding.
The Company will be entitled to a federal income tax deduction equal to the
amount of the recipients taxable compensation.
The 2005 Appreciation Plan and the Conditional Grants to be made thereunder have
been structured to qualify as "performance-based" pursuant to the regulations
relating to Section 162(m) of the Internal Revenue Code as amended by the
Omnibus Budget Reconciliation Act of 1993.
40
BENEFITS UNDER THE 2005 APPRECIATION PLAN
The benefits to be received by participants under the terms of the 2005
Appreciation Plan are not yet determinable. Such benefits are subject to the
discretion and approval of the Committee as described above.
RECOMMENDATION AND REQUIRED AFFIRMATIVE VOTE
The affirmative vote of the holders of a majority of the shares of the Company's
common stock voted, in person or by proxy, and entitled to vote at the 2005
annual meeting is required to approve the 2005 Appreciation Plan. The 2005
Appreciation Plan and any Conditional Grants made thereunder are conditional
upon and of no force or effect unless the 2005 Appreciation Plan receives
approval by the requisite vote of stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
PROPOSAL TO APPROVE THE 2005 SHARE APPRECIATION PLAN.
41
CONSIDERATION OF STOCKHOLDER PROPOSALS
Proponents of the following stockholder proposals have stated that they intend
to present such proposals at the annual meeting. If one of the stockholder
proponents, or a qualified representative, is present and submits his or her
proposal for a vote, then the proposal will be voted on at the annual meeting.
In accordance with federal securities regulations, we have included the
stockholder proposals and supporting statements exactly as submitted by the
proponents. The Company is not responsible for the content of the stockholder
proposals or supporting statements. The board of directors has recommended a
vote against each of the proposals for the reasons set forth below. The address
and number of shares of Apache common stock held by each of the proponents will
be provided upon oral or written request to the Company's corporate secretary.
Proposal 1 -- Director Election Majority Vote Standard (Item No. 4 on Proxy
Card)
The following proposal has been sponsored by the United Brotherhood of
Carpenters and Joiners of America.
"DIRECTOR ELECTION MAJORITY VOTE STANDARD PROPOSAL
"RESOLVED: That the shareholders of Apache Corporation ("Company") hereby
request that the Board of Directors initiate the appropriate process to
amend the Company's governance documents (certificate of incorporation or
bylaws) to provide that director nominees shall be elected by the
affirmative vote of the majority of votes cast at an annual meeting of
shareholders.
"SUPPORTING STATEMENT: Our Company is incorporated in Delaware. Among
other issues, Delaware corporate law addresses the issue of the level of
voting support necessary for a specific action, such as the election of
corporate directors. Delaware law provides that a company's certificate of
incorporation or bylaws may specify the number of votes that shall be
necessary for the transaction of any business, including the election of
directors. (DGCL, Title 8, Chapter 1, Subchapter VII, Section 216).
Further, the law provides that if the level of voting support necessary for
a specific action is not specified in the certificate of incorporation or
bylaws of the corporation, directors "shall be elected by a plurality of
the votes of the shares present in person or represented by proxy at the
meeting and entitled to vote on the election of directors."
"Our Company presently uses the plurality vote standard for the election of
directors. We feel that it is appropriate and timely for the Board to
initiate a change in the Company's director election vote standard.
Specifically, this shareholder proposal urges that the Board of Directors
initiate a change to the director election vote standard to provide that in
director elections a majority vote standard will be used in lieu of the
Company's current plurality vote standard. Specifically, the new standard
should provide that nominees for the board of directors must receive a
majority of the vote cast in order to be elected or re-elected to the
Board.
"Under the Company's current plurality vote standard, a director nominee in
a director election can be elected or re-elected with as little as a single
affirmative vote, even while a substantial majority of the votes cast are
"withheld" from that director nominee. So even if 99.99% of the shares
"withhold" authority to vote for a candidate or all the candidates, a 0.01%
"for" vote results in the candidate's election or re-election to the board.
The proposed
42
majority vote standard would require that a director receive a majority of
the vote cast in order to be elected to the Board.
"It is our contention that the proposed majority vote standard for
corporate board elections is a fair standard that will strengthen the
Company's governance and the Board. Our proposal is not intended to limit
the judgment of the Board in crafting the requested governance change. For
instance, the Board should address the status of incumbent directors who
fail to receive a majority vote when standing for re-election under a
majority vote standard or whether a plurality director election standard is
appropriate in contested elections.
"We urge your support of this important director election reform."
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "AGAINST"
THIS PROPOSAL FOR THE FOLLOWING REASONS:
This proposal was made by a stockholder that holds 5,300 shares (less than
0.002%) of Apache's common stock, based on the shareholding numbers disclosed by
the proponent in connection with the proposal and the outstanding shares of
common stock as of December 31, 2004. The Company understands that the proponent
made the same proposal last year to several other companies for inclusion in
their 2004 proxy statements. In each case, the stockholders rejected the
proposal by more than 82 percent of the votes cast. The board of directors of
Apache does not believe it an appropriate use of Company funds to have to oppose
this ill-conceived idea.
The board of directors believes that active stockholder participation in the
election of directors is important to the Company and to effective corporate
governance. It is equally important, however, to ensure that the mechanisms
through which stockholders participate are those that best serve the interests
of the Company and its stockholders. Even though the nominees to the Company's
board of directors have always received the support of a majority of the voting
stockholders, the board of directors believes that the majority voting system
proposed by the proponent presents complex legal and practical issues that the
proposal does not address.
The system of plurality voting, which the proponent seeks to replace, not only
has long been the accepted system among companies comparable to the Company, but
is also the default system under the laws of the State of Delaware. The rules
governing plurality voting are well understood. The higher threshold voting
proposal could make it more difficult for stockholders to elect a full board
leading to possible stagnation in the Company's governance waiting for a
complete board to be selected. Additionally, the proposal may have the
unintended consequence of unnecessarily increasing the cost of soliciting
stockholder votes. The Company may need to employ a proactive telephone
solicitation, a second mailing or other vote-getting strategy to obtain the
required vote. The proponents also fail to suggest how to resolve an election in
which no nominee for a seat on the board of directors receives a majority vote,
leaving open the possibility that a special meeting of stockholders, with the
attendant delay and expense, will be needed to solve the problem. The end result
may be increased spending by the Company in routine elections. The Company's
board of directors believes this would not be a good expenditure of stockholder
funds.
The board of directors also believes that implementation of the proposal at this
time would be premature and, upon further consideration and analysis, could
prove unworkable. The proposal is premature because new federal regulations have
been proposed that would provide stockholders with greater participation in the
annual election of directors. As proposed, these regulations would not require a
majority voting system for electing directors, but instead proposed different
mechanisms to permit direct stockholder nominations in specified circumstances.
If the proposed
43
regulations are adopted, they would more directly and uniformly provide new
avenues for stockholder participation in the process for election of directors,
which may be in conflict with the proposed policy.
For the reasons set forth above, the board of directors believes that the
proposal will not serve the best interests of the Company and its stockholders.
THE COMPANY'S BOARD OF DIRECTORS, THEREFORE, UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "AGAINST" THE PROPONENT'S PROPOSAL.
Proposal 2 -- Auditor Independence (Item No. 5 on Proxy Card)
The following proposal has been sponsored by ProxyVote Plus on behalf of the
United Association S&P 500 Index Fund (an investment vehicle for the United
Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting
Industry of the United States and Canada). The supporting statement is set forth
as provided by the proponent, including blanks.
"AUDITOR INDEPENDENCE PROPOSAL
"RESOLVED: That the shareholders of Apache Corp ("Company") request that
the Board of Directors and its Audit Committee adopt a policy stating that
the public accounting firm retained by our Company to audit the Company's
financial statements will perform only "audit" and "audit-related" work for
the Company and not perform services generating "tax fees" and "all other
fees" as categorized under U.S. Securities and Exchange Commission ("SEC")
regulations.
"SUPPORTING STATEMENT: The issue of auditor independence has been a major
concern for investors and the markets since the demise of Enron. In
response to numerous incidences of accounting fraud that shook the
foundations of the corporate financial auditing and reporting system, both
Congress and the SEC have responded with important reforms.
"The Sarbanes-Oxley Act was a strong effort to address various aspects of
the auditor independence issue. Sarbanes-Oxley enhanced the role of board
audit committees in retaining and monitoring audit firms, while limiting
the types of non-audit services that audit firms are permitted to perform
for audit clients. The SEC followed up with enhanced reporting requirements
(Release No. 33-8183, May 6, 2003) that provide investors better insight
into the range of services beyond audit services for which an audit firm is
being utilized. The following categories of service fees must be reported:
(1) Audit Fees; (2) Audit-Related Fees; (3) Tax Fees, and (4) All Other
Fees.
"We believe important steps have been taken to protect auditor
independence, but we also believe more needs to be done. Congress and the
SEC have acted. Now we think it is important that shareholders use the
enhanced disclosure to protect the integrity of the financial reporting
system.
"Fee disclosures indicate that our Company paid the firm retained to audit
the Company's financial statements more for non-audit services than for the
audit work. Specifically, our Company paid more in combined fees for
"audit-related," ($xxx) "tax" ($xxxx) and "all other" ($xxxx) work
performed by the audit firm than it did for the "audit" work ($xxx)
performed by the firm. We believe that when the fees paid to the audit firm
for the three
44
categories of non-audit services exceed the fees for performing audit
services, the independence necessary to perform the audit is at risk.
"To address this threat to auditor independence, the proposal presents a
straightforward and effective response. Our proposal seeks to reduce the
overall fees paid to the audit firm for other than audit work.
Specifically, the proposal calls for an elimination of fees paid for tax
and "all other" services, since those services bear no direct relationship
to the performance of the audit. The proposal does not however call for the
elimination of "audit-related" services being provided by the audit firm.
We believe that limiting the audit firm to providing only audit and
audit-related services would address the unhealthy fee imbalance identified
above and be another positive step in protecting auditor independence.
"We urge your support for this reasonable measure to advance auditor
independence."
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "AGAINST"
THIS PROPOSAL FOR THE FOLLOWING REASONS:
This proposal was submitted by a stockholder that holds in its S&P 500 Index
Fund 26,600 shares (less than 0.008%) of Apache's common stock, based on the
shareholding numbers disclosed by the proponent in connection with the proposal
and the outstanding shares of common stock as of December 31, 2004. The Company
understands that the proponent made the same proposal last year to several other
companies for inclusion in their 2004 proxy statements. In each case, their
proposal failed, obtaining less than 16 percent of the votes cast. The board of
directors of Apache does not believe it is an appropriate use of Company funds
to have to oppose this ill-conceived idea.
The Sarbanes -- Oxley Act of 2002, the most sweeping corporate governance
legislation in years, required the NYSE and NASDAQ to impose new requirements
regarding auditor independence, including restrictions on the types of services
the Company's independent auditors can perform.
The board of directors recognizes the important role that auditor independence
plays in maintaining the integrity of the Company's financial statements and
protecting the interests of our stockholders. However, the board of directors
believes that the Company's internal policies, together with recently adopted
federal law relating to auditor independence, make the policy suggested by this
stockholder proposal unnecessary to maintain auditor independence. Further, the
board of directors believes that such a policy would be undesirable as it would
unnecessarily limit the ability of the Company to obtain non-audit services from
its outside auditor where it is beneficial and does not affect independence, and
risk needlessly increasing the cost to the Company of tax and accounting
services. For example, if another firm provided tax advice to the Company, the
independent auditors would have to perform duplicative work to assure themselves
of the appropriateness of the tax advice and to assess the impact on the
financial statements, thereby increasing the fees paid by the Company for the
same service.
Our Audit Committee, composed solely of independent directors, carefully
supervises the relationship between the Company and our independent auditors. As
part of its oversight, the Audit Committee pre-approves and monitors all
services by the Company's independent auditors, with the aim of ensuring the
independence and objectivity of the auditors so that investor confidence is
maintained. The Audit Committee may engage the independent auditors to provide
non-audit services, consistent with applicable laws and regulations, when those
services can be obtained in an efficient and cost-effective manner relative to
other service providers. Under certain circumstances, efficiencies can be
obtained due to the independent auditors' expertise and
45
familiarity with the Company's financial statements, financial systems, income
tax matters and management. Examples of these types of services include benefit
plan audits, tax services, regulatory compliance services, and due diligence
services in connection with mergers and acquisitions that would be required to
be reviewed by the auditors in any case. Effective and responsible management of
the Company's operations requires that the board of directors have access to the
best available resources and the discretion to use business judgment to
determine the best allocation of tasks among service providers. Prohibiting the
independent auditor from providing non-audit services expressly permitted by
existing federal law would result in inefficiencies and increased costs to the
Company, and would waste stockholder value.
THE COMPANY'S BOARD OF DIRECTORS, THEREFORE, UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "AGAINST" THE PROPONENT'S PROPOSAL.
46
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP was the Company's independent registered public accounting
firm for the fiscal year 2004. Representatives of Ernst & Young will be present
at the annual meeting and will have an opportunity to make a statement if they
desire to do so and to respond to appropriate questions regarding Apache
business.
Ernst & Young's audit report on Apache's consolidated financial statements as of
and for the fiscal year ended December 31, 2004 did not contain any adverse
opinion or disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope, or accounting principles.
During Apache's most recent fiscal year ended December 31, 2004, and through the
filing date of this proxy statement, there were no disagreements with Ernst &
Young on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to Ernst & Young's satisfaction, would have caused Ernst & Young to make
reference to the subject matter of the disagreement in connection with their
report; and there were no reportable events, as described in Item 304(a)(1)(v)
of Regulation S-K.
During 2004 and 2003, Ernst & Young provided various services to Apache. In 2004
and 2003, respectively, approximately $655,000 and $1,500,000 of the aggregate
fees paid to Ernst & Young were related to services performed in connection with
current year acquisitions. The aggregate fees for each of the following types of
services are set forth below:
------------------------------------------------------------------------------------
DESCRIPTION AMOUNTS (IN THOUSANDS)
------------------------------------------------------------------------------------
2004 2003
------------------------------------------------------------------------------------
Audit Services(1) $3,494 $2,176
Audit-Related Services(2) $ 737 $ 906
Tax Services(3) $1,584 $2,492
All Other Services(4) $ 0 $ 24
(1) Audit Services include the annual financial statement audit (including
required quarterly reviews), subsidiary audits, and other procedures
required to be performed by the independent auditor to be able to form an
opinion on the Company's consolidated financial statements. These other
procedures include information systems and procedural reviews and testing
performed in order to understand and place reliance on the systems of
internal control, and consultations relating to the audit or quarterly
reviews.
(2) Audit-Related Services are assurance and related services that are
reasonably related to the performance of the audit or review of the
Company's financial statements or that are traditionally performed by the
independent auditor. Audit-related services include, among other things, due
diligence services pertaining to potential business
acquisitions/dispositions; accounting consultations related to accounting,
financial reporting or disclosure matters not classified as "Audit
Services"; assistance with understanding and implementing new accounting and
financial reporting guidance from rulemaking authorities; financial audits
of employee benefit plans; agreed upon or expanded audit procedures related
to accounting and/or billing records required to respond to or comply with
financial, accounting or regulatory reporting matters; and assistance with
internal control reporting requirements.
(3) Tax Services include, tax return preparation assistance, tax planning,
tax-related and structuring-related consultation, and tax-related
acquisition due diligence. In 2004 and 2003, respectively, such Tax Services
included $271,000 and $371,000 for assistance with tax return preparation.
(4) All Other Services are fees for products and services other than those in
the three categories above.
The audit committee of the Company's board of director's reviews summaries of
the services provided by Ernst & Young and the related fees, and has taken into
consideration whether the provision of non-audit services by Ernst & Young is
compatible with maintaining auditor independence.
47
FUTURE STOCKHOLDER PROPOSALS
Stockholders are entitled to submit proposals on matters appropriate for
stockholder action consistent with regulations of the SEC and the Company's
bylaws. Should a stockholder wish to have a proposal appear in the Company's
proxy statement for next year's annual meeting, under the regulations of the
SEC, it must be received by the Company's corporate secretary (at 2000 Post Oak
Boulevard, Suite 100, Houston, Texas 77056-4400) on or before November 30, 2005.
SOLICITATION OF PROXIES
Solicitation of proxies for use at the annual meeting may be made in person or
by mail, telephone or telegram, by directors, officers and regular employees of
the Company. These persons will receive no special compensation for any
solicitation activities. The Company has requested banking institutions,
brokerage firms, custodians, trustees, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of shares of the Company's
common stock for whom they are record holder, and the Company will, upon
request, reimburse reasonable forwarding expenses. The Company has retained
Georgeson Shareholder Communications Inc. to assist in soliciting proxies from
brokers, bank nominees, and other institutional holders for a fee not to exceed
$11,500, plus expenses. All costs of the solicitation will be borne by the
Company.
By order of the Board of Directors
APACHE CORPORATION
/s/ C. L. PEPER
C. L. PEPER
Corporate Secretary
NOTE: STOCKHOLDERS ARE REQUESTED TO PROMPTLY VOTE THEIR SHARES USING ONE OF
THE METHODS EXPLAINED ON PAGES 1 AND 2 OF THIS PROXY STATEMENT.
48
APPENDIX A
APACHE CORPORATION
GOVERNANCE PRINCIPLES
The following principles have been recommended by the Corporate Governance and
Nominating Committee (the "CG&N Committee") of the board of directors of Apache
Corporation (the "Company") and have been approved by the board of directors of
the Company and, along with the certificate of incorporation, bylaws, committee
charters, and key policies and practices of the board of directors and its
committees, provide the framework for the governance of the Company. The board
of directors recognizes that there is an on-going and energetic debate about
corporate governance, and it will review these principles and other aspects of
the Company's governance, as it deems necessary from time to time. These
Governance Principles will be posted on the Company's web site and will be
mailed to stockholders upon written request.
ROLE OF THE BOARD OF DIRECTORS AND MANAGEMENT
The Company's business is conducted by its employees, managers, and officers,
under the direction of the chief executive officer ("CEO") and the oversight of
the board of directors, to enhance the long-term value of the Company for its
stockholders. The board of directors is elected by the stockholders to oversee
management and to assure that the long-term interests of the stockholders are
being served. Both the board of directors and management recognize that the
long-term interests of stockholders are advanced by responsibly addressing the
concerns of other stakeholders and interested parties including employees,
customers, suppliers, government officials, and the public at large.
FUNCTIONS OF THE BOARD OF DIRECTORS
The board of directors will hold at least four regularly scheduled meetings a
year at which it will review and discuss reports by management on the
performance of the Company, its plans and prospects, as well as immediate issues
facing the Company. To the extent practicable, the appropriate officers of the
Company will provide the directors with relevant materials in advance of each
board meeting. The standing committees of the board, described below, will meet
on such schedule as the members of the committees deem appropriate. Directors
are expected to attend all scheduled meetings of the board of directors and all
scheduled meetings of any committee of which they are a member and to review the
applicable meeting materials in advance of the meeting. In addition to its
general oversight of management, the board also performs a number of specific
functions, including:
a. selecting, evaluating, and compensating the CEO and overseeing CEO
succession planning;
b. providing counsel and oversight on the selection, evaluation,
development, and compensation of senior management;
c. reviewing, approving, and monitoring fundamental financial and business
strategies and major corporate actions;
d. assessing major risks facing the Company and reviewing options for
their mitigation; and
e. ensuring processes are in place for maintaining the integrity of the
Company and its financial statements and reporting, ensuring the
Company's compliance with law, and
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providing for the Company's ethical conduct in its relationships with
customers, suppliers, government officials, employees, stockholders,
and other stakeholders.
QUALIFICATIONS OF BOARD MEMBERS
Directors should possess the highest personal and professional ethics,
integrity, and values, and be committed to representing the long-term interests
of the Company's stockholders. The CG&N Committee is responsible for
recommending to the board of directors policies and principles for the
qualification and selection of nominees to the board of directors. Nominees for
election to the board of directors shall be selected by the CG&N Committee and
approved by the full board of directors.
Directors must be willing to devote sufficient time to carrying out their duties
and responsibilities effectively, and should be committed to serve on the board
for an extended period of time. If a significant change in the personal
circumstances, including a change in his or her principal job responsibilities,
of a director should occur, the director shall immediately notify the CG&N
Committee to permit the CG&N Committee to review the appropriateness of the
director's continued service on the board of directors or on any committee of
the board of directors, and the CG&N Committee shall present its recommendations
to the full board of directors for its consideration and action.
Directors of the Company who also serve as CEOs or in equivalent positions
should not serve on more than two boards of directors of public companies in
addition to the Company's board of directors, and other Company directors should
not serve on more than four other boards of directors of public companies in
addition to the Company's board of directors.
The board does not believe that arbitrary term limits on directors' service or a
mandatory retirement age are appropriate. Directors who have served on the board
of directors for an extended period of time are able to provide valuable insight
into the operations and future of the Company, based on their experience with
and understanding of the Company's history and objectives. The board of
directors believes that the annual reviews of the directors, described below, as
well as evolving standards of board membership will provide a more effective
means of ensuring a proper evaluation of the continuation of service by
individual directors.
INDEPENDENCE OF DIRECTORS
At least a majority of the directors will be independent directors pursuant to
the standards for director independence established by applicable laws, rules,
and listing standards, including, without limitation, the standards for
independent directors established by the New York Stock Exchange, NASDAQ, and
the Securities and Exchange Commission. Annually, in time for disclosure in the
proxy statement for the annual meeting of stockholders, the board of directors
will make affirmative determinations that each director who is considered to be
independent does meet the applicable standard of independence.
SIZE OF BOARD AND SELECTION PROCESS
The board of directors has determined that the number of directors should be no
less than nine and no more than fifteen. Under the Company's restated
certificate of incorporation, the directors have been divided into three classes
for election at the annual meetings of the stockholders of the Company and serve
three-year terms. The board of directors will propose a slate of nominees to the
stockholders for election to the board. Between annual stockholders meetings,
the board of
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directors may elect directors to fill a vacancy on the board of directors
(including a vacancy created by an increase in the number of directors) to serve
until the next annual meeting.
BOARD COMMITTEES
The board has established the following committees to assist the board in
discharging its responsibilities: (i) the Audit Committee; (ii) Management
Development and Compensation Committee ("MD&C Committee") (with a Stock Option
Plan Subcommittee); (iii) the CG&N Committee; and (iv) the Executive Committee.
The current charters and key practices of the Audit Committee, MD&C Committee,
and the CG&N Committee are published on the Company's web site, and will be
mailed to stockholders upon written request to the corporate secretary of the
Company. In addition to any formal reports submitted to the board of directors,
the committee chairs shall report the highlights of their meetings to the full
board following each meeting of their respective committees.
INDEPENDENCE OF COMMITTEE MEMBERS
In addition to the requirement that a majority of the members of the board of
directors satisfy applicable independence standards, discussed above, all
members of the Audit Committee, the MD&C Committee, and the CG&N Committee shall
be independent. In addition, all members of the Audit Committee must also
satisfy any additional independence requirements provided by applicable laws,
regulations, and listing standards, including, without limitation, restrictions
on compensation to be received by Audit Committee members.
MEETINGS OF INDEPENDENT DIRECTORS
The independent directors shall hold regularly scheduled executive meeting as
often as they determine appropriate, but in any event at least twice each year.
The presiding director for each executive meeting shall rotate through the
independent directors in alphabetical order, and the presiding director shall
act as the chair of the executive meeting. The Company's corporate secretary
shall act as secretary of the executive meetings, unless the independent
directors shall otherwise direct.
SELF-EVALUATION
The board of directors and each committee shall conduct an annual
self-evaluation to determine whether members believe the board of directors or
the committee is functioning properly. The CG&N Committee shall develop policies
and procedures for these evaluations and shall annually report the results of
these evaluations to the board of directors. The results of the evaluations
shall be discussed by the board of directors at the first meeting of the board
of directors after the end of each fiscal year with a particular focus on those
areas where the board of directors or management believe the board of directors
or a committee needs to make improvements or changes.
ETHICS AND CONFLICTS OF INTEREST
Each director, executive officer, and employee of the Company shall comply with
the requirements of the Company's Code of Business Conduct, which is available
on the Company's web site.
A-3
REPORTING OF CONCERNS TO INDEPENDENT DIRECTORS
Anyone who has concerns about the Company may communicate those concerns to the
independent directors. Such communication should be mailed to the Company's
corporate secretary, who will forward such communications to the independent
directors.
COMPENSATION OF THE BOARD MEMBERS
The form and amount of director compensation will be determined by the board of
directors with input and advice from the CG&N Committee. In setting the
director's compensation, the board of directors will consider that directors'
independence may be jeopardized if director compensation and perquisites exceed
customary levels, if the Company makes substantial charitable contributions to
organizations with which a director is affiliated, or if the Company enters into
consulting contracts with (or provides other indirect forms of compensation to)
a director or an organization with which the director is affiliated. The board
of directors believes that all directors should own equity in the Company and
that there should be compensation programs to award equity ownership to
directors.
SUCCESSION PLAN
Following the receipt of the recommendations of the MD&C Committee, the board of
directors shall approve and maintain a succession plan for the CEO.
ANNUAL COMPENSATION REVIEW OF SENIOR MANAGEMENT
The MD&C Committee shall annually approve the goals and objectives for
compensating the Chairman of the Board and the CEO. The MD&C Committee shall
evaluate the performance of the Chairman of the Board and the CEO in light of
these goals and recommend the Chairman of the Board's and the CEO's salary,
bonus, and other incentive and equity compensation for approval by the
independent directors on the board of directors. The MD&C Committee shall also
assist the Chairman of the Board, the CEO, and the board of directors in
evaluating and approving the compensation structure for the Company's other
executive officers.
DIRECTOR ACCESS TO OFFICERS, EMPLOYEES, AND INDEPENDENT ADVISORS
Directors shall have full and free access to the executive officers of the
Company. The directors will use their judgment to ensure that any such contact
is not disruptive to the business operations of the Company.
The board of directors expects regular attendance and participation at each
board meeting by the senior officers of the Company.
The board of directors and, to the extent required by law, regulation, or
listing standard, all committees, shall have the power to hire, and determine
the terms of employment for, independent legal, financial, or other advisors as
they may deem necessary, without consulting or obtaining the approval of any
officer of the Company.
DIRECTOR ORIENTATION AND CONTINUING EDUCATION
All new directors must participate in an orientation program that should be
conducted as soon as reasonably practicable after each new director's election.
This orientation should include presentations or material prepared by senior
management and employees of the Company to familiarize new directors with the
Company's strategic plans, its significant financial, accounting,
A-4
and risk management issues, its compliance programs, its Code of Business
Conduct, its principal officers, and its internal and independent auditors. All
other directors should also be invited to attend the program. The board of
directors will also consider whether or not continuing education for all
directors may be warranted. The Company will pay the expenses for a director's
participation in continuing education programs approved by the CG&N Committee.
LIMITATION
These Guidelines are not intended to, and do not, create any legal or fiduciary
duties or other responsibilities or form the basis for a claim of breach of
fiduciary duty or potential liability. These Guidelines are subject to
modification and interpretation of the board. These guidelines do not modify the
Company's bylaws and are subject to the Company's bylaws and certificate of
incorporation.
A-5
APPENDIX B
APACHE CORPORATION
2005 STOCK OPTION PLAN
SECTION 1
INTRODUCTION
1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter
referred to, together with its Affiliated Corporations (as defined in Section
2.1 hereof) as the "Company" except where the context otherwise requires),
hereby establishes the Apache Corporation 2005 Stock Option Plan (the "Plan")
for Eligible Employees (as defined in Section 2.1 hereof). The Plan permits the
grant of stock options to Eligible Employees selected by the Committee (as
defined in Section 2.1 hereof).
1.2 Purposes. The purposes of the Plan are to provide the Eligible Employees
designated by the Committee for participation in the Plan with added incentives
to continue in the long-term service of the Company and to create in such
employees a more direct interest in the future success of the operations of the
Company by relating incentive compensation to increases in stockholder value, so
that the income of those employees is more closely aligned with the interests of
the Company's stockholders. The Plan is also designed to attract outstanding
individuals and to retain and motivate Eligible Employees by providing an
opportunity for investment in the Company.
1.3 Effective Date. The Effective Date of the Plan (the "Effective Date") is
February 3, 2005. This Plan and each Option (as defined in Section 2.1 hereof)
granted hereunder is conditioned on and shall be of no force or effect until the
Plan is approved by the stockholders of the Company. The Committee may grant
Options, the exercise of which shall be expressly subject to the condition that
the Plan shall have been approved by the stockholders of the Company.
SECTION 2
DEFINITIONS
2.1 Definitions. The following terms shall have the meanings set forth
below:
(a) "Administrative Agent" means any designee or agent that may be
appointed by the Committee pursuant to Section 3.1(b) hereof.
(b) "Affiliated Corporation" means any corporation or other entity
(including but not limited to a partnership) which is affiliated with
Apache Corporation through stock ownership or otherwise and is treated as a
common employer under the provisions of Sections 414(b) and (c) or any
successor section(s) of the Internal Revenue Code.
(c) "Board" means the Board of Directors of the Company.
(d) "Committee" means the Stock Option Plan Committee of the Board,
which is empowered hereunder to take actions in the administration of the
Plan. The Committee shall be constituted at all times as to permit the Plan
to comply with Rule 16b-3 or any successor rule(s) promulgated under the
Securities Exchange Act of 1934, as amended (the "1934 Act").
B-1
(e) "Eligible Employees" means full-time employees (including, without
limitation, officers and directors who are also employees), and certain
part-time employees, of the Company or any division thereof.
(f) "Expiration Date" means the date on which the Option Period (as
defined in subsection 7.2(c) hereof) ends.
(g) "Fair Market Value" means the per share closing price of the Stock
as reported on The New York Stock Exchange, Inc. Composite Transactions
Reporting System for a particular date or, if the Stock is not so listed at
any time, as reported on NASDAQ or on such other exchange or electronic
trading system as, on the date in question, reports the largest number of
traded shares of Stock. If on such date there are no transactions in the
Stock, the Fair Market Value shall be determined as of the immediately
preceding date on which there were transactions in the Stock.
(h) "Internal Revenue Code" means the Internal Revenue Code of 1986, as
it may be amended from time to time, and any successor thereto.
(i) "Option" means a right to purchase shares of Stock at a stated price
for a specified period of time. All Options granted under the Plan shall be
Options which are not "incentive stock options" as described in Section 422
or any successor section(s) of the Internal Revenue Code.
(j)"Option Price" means the price at which shares of Stock subject to an
Option may be purchased, determined in accordance with subsection 7.2(b)
hereof.
(k) "Participant" means an Eligible Employee designated by the Committee
from time to time during the term of the Plan to receive one or more
Options under the Plan.
(l) "Stock" means the U.S. $0.625 par value Common Stock of the Company
or any security into which such Common Stock is converted or exchanged upon
merger, consolidation, or any capital restructuring (within the meaning of
Section 4.3) of the Company.
2.2 Headings; Gender and Number. The headings contained in the Plan are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the Plan. Except when otherwise indicated by the context, the
masculine gender shall also include the feminine gender, and the definition of
any term herein in the singular shall also include the plural.
SECTION 3
PLAN ADMINISTRATION
3.1 Administration by the Committee.
(a) The Plan shall be administered by the Committee. In accordance with
the provisions of the Plan, the Committee shall, in its sole discretion,
select the Participants from among the Eligible Employees, determine the
Options to be granted pursuant to the Plan, the number of shares of Stock
to be issued thereunder, the time at which such Options are to be granted,
fix the Option Price, and establish such other terms and requirements as
the Committee may deem necessary or desirable and consistent with the terms
of the Plan. The Committee shall determine the form or forms of the
agreements with Participants which shall evidence the particular
provisions, terms, conditions, rights and duties of the Company and
B-2
the Participants with respect to Options granted pursuant to the Plan,
which provisions need not be identical except as may be provided herein.
(b) The Committee may from time to time adopt such rules and regulations
for carrying out the purposes of the Plan as it may deem proper and in the
best interests of the Company. The Committee may appoint an Administrative
Agent, who need not be a member of the Committee or an employee of the
Company, to assist the Committee in administration of the Plan and to whom
it may delegate such powers as the Committee deems appropriate, except that
the Committee shall determine any dispute. The Committee may correct any
defect, supply any omission or reconcile any inconsistency in the Plan, or
in any agreement entered into hereunder, in the manner and to the extent it
shall deem expedient and it shall be the sole and final judge of such
expediency. No member of the Committee shall be liable for any action or
determination made in good faith. The determination, interpretations and
other actions of the Committee pursuant to the provisions of the Plan shall
be binding and conclusive for all purposes and on all persons.
3.2 Compliance with Section 162(m). The Plan is intended to comply with the
requirements of Section 162(m) or any successor section(s) of the Internal
Revenue Code ("Section 162(m)") as to any "covered employee" as defined in
Section 162(m), and shall be administered, interpreted and construed
consistently therewith. In accordance with this intent, the amount of income a
Participant may receive from Options granted under the Plan shall be based
solely on an increase in the value of the Stock after the date of the grant of
the Option, or such other bases as may be permitted by applicable law. The
Committee is authorized to take such additional action, if any, that may be
required to ensure that the Plan and any Option granted under the Plan satisfy
the requirements of Section 162(m), taking into account any regulations or other
guidance issued by the Internal Revenue Service.
SECTION 4
STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to Section 7.1 hereof and to adjustment
pursuant to Section 4.3 hereof, five million (5,000,000) shares of Stock are
authorized for issuance under the Plan in accordance with the provisions of the
Plan and subject to such restrictions or other provisions as the Committee may
from time to time deem necessary. This authorization may be increased from time
to time by approval of the Board and the stockholders of the Company if, on the
advice of counsel for the Company, such stockholder approval is required. Shares
of Stock which may be issued upon exercise of Options shall be applied to reduce
the maximum number of shares of Stock remaining available for use under the
Plan. The Company shall at all times during the term of the Plan and while any
Options are outstanding retain as authorized and unissued Stock, or as Stock in
the Company's treasury, at least the number of shares from time to time required
under the provisions of the Plan, or otherwise assure itself of its ability to
perform its obligations hereunder.
4.2 Other Shares of Stock. Any shares of Stock that are subject to an Option
which expires, is forfeited, is cancelled, or for any reason is terminated
unexercised, and any shares of Stock that for any other reason are not issued to
a Participant or are forfeited shall automatically become available for use
under the Plan.
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4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall
at any time increase or decrease the number of its outstanding shares of Stock
or change in any way the rights and privileges of such shares by means of the
payment of a Stock dividend or any other distribution upon such shares payable
in Stock, or through a Stock split, subdivision, consolidation, combination,
reclassification or recapitalization involving the Stock (any of the foregoing
being herein called a "capital restructuring"), then in relation to the Stock
that is affected by one or more of the above events, the numbers, rights and
privileges of the following shall be, in each case, equitably and proportionally
adjusted to take into account the occurrence of any of the above events, (i) the
shares of Stock as to which Options may be granted under the Plan; (ii) the
shares of Stock then included in each outstanding Option granted hereunder; and
(iii) the Option Price for each outstanding Option granted hereunder.
4.4 Dividend Payable in Stock of Another Corporation, Etc. If the Company
shall at any time pay or make any dividend or other distribution upon the Stock
payable in securities or other property (except money or Stock), a proportionate
part of such securities or other property shall be set aside and delivered to
any Participant then holding an Option for the particular type of Stock for
which the dividend or other distribution was made, upon exercise thereof. Prior
to the time that any such securities or other property are delivered to a
Participant in accordance with the foregoing, the Company shall be the owner of
such securities or other property and shall have the right to vote the
securities, receive any dividends payable on such securities, and in all other
respects shall be treated as the owner. If securities or other property which
have been set aside by the Company in accordance with this Section are not
delivered to a Participant because an Option is not exercised, then such
securities or other property shall remain the property of the Company and shall
be dealt with by the Company as it shall determine in its sole discretion.
4.5 Other Changes in Stock. In the event there shall be any change, other
than as specified in Sections 4.3 and 4.4 hereof, in the number or kind of
outstanding shares of Stock or of any stock or other securities into which the
Stock shall be changed or for which it shall have been exchanged, and if the
Committee shall in its discretion determine that such change equitably requires
an adjustment in the number or kind of shares subject to outstanding Options or
which have been reserved for issuance pursuant to the Plan but are not then
subject to an Option, then such adjustments shall be made by the Committee and
shall be effective for all purposes of the Plan and on each outstanding Option
that involves the particular type of stock for which a change was effected.
4.6 Rights to Subscribe. If the Company shall at any time grant to the
holders of its Stock rights to subscribe pro rata for additional shares thereof
or for any other securities of the Company or of any other corporation, there
shall be reserved with respect to the shares then under Option to any
Participant of the particular class of Stock involved the Stock or other
securities which the Participant would have been entitled to subscribe for if
immediately prior to such grant the Participant had exercised his entire Option.
If, upon exercise of any such Option, the Participant subscribes for the
additional shares or other securities, the aggregate Option Price shall be
increased by the amount of the price that is payable by the Participant for such
additional shares or other securities.
4.7 General Adjustment Rules. No adjustment or substitution provided for in
this Section 4 shall require the Company to sell a fractional share of Stock
under any Option, or otherwise issue a fractional share of Stock, and the total
substitution or adjustment with respect to each Option shall be limited by
deleting any fractional share. In the case of any such substitution or
adjustment, the aggregate Option Price for the shares of Stock then subject to
the Option shall
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remain unchanged but the Option Price per share under each such Option shall be
equitably adjusted by the Committee to reflect the greater or lesser number of
shares of Stock or other securities into which the Stock subject to the Option
may have been changed.
4.8 Determination by the Committee, Etc. Adjustments under this Section 4
shall be made by the Committee, whose determinations with regard thereto shall
be final and binding upon all parties.
SECTION 5
REORGANIZATION OR LIQUIDATION
In the event that the Company is merged or consolidated with another corporation
and the Company is not the surviving corporation, or if all or substantially all
of the assets or more than 20 percent of the outstanding voting stock of the
Company is acquired by any other corporation, business entity or person, or in
case of a reorganization (other than a reorganization under the United States
Bankruptcy Code) or liquidation of the Company, and if the provisions of Section
8 hereof do not apply, the Committee, or the board of directors of any
corporation assuming the obligations of the Company, shall, as to the Plan and
outstanding Options make appropriate provision for the adoption and continuation
of the Plan by the acquiring or successor corporation and for the protection of
any such outstanding Options by the substitution on an equitable basis of
appropriate stock of the Company or of the merged, consolidated or otherwise
reorganized corporation which will be issuable with respect to the Stock,
provided that no additional benefits shall be conferred upon the Participants
holding such Options as a result of such substitution, and the excess of the
aggregate Fair Market Value of the shares subject to the Options immediately
after such substitution over the aggregate Option Price thereof is not more than
the excess of the aggregate Fair Market Value of the shares subject to such
Options immediately before such substitution over the aggregate Option Price
thereof. Additionally, upon the occurrence of such an event and upon written
notice to the Participants, the Committee may provide that all unexercised
Options shall be exercised within a specified number of days of the date of such
notice or such Options will be terminated. In the latter event, the Committee
shall accelerate the vesting dates of outstanding Options so that all Options
become fully vested and exercisable prior to any such event.
SECTION 6
PARTICIPATION
Participants in the Plan shall be those Eligible Employees who, in the judgment
of the Committee, are performing, or during the term of their incentive
arrangement will perform, vital services in the management, operation and
development of the Company or an Affiliated Corporation, and significantly
contribute, or are expected to significantly contribute, to the achievement of
the Company's long-term corporate economic objectives. Participants may be
granted from time to time one or more Options; provided, however, that the grant
of each such Option shall be separately approved by the Committee, and receipt
of one such Option shall not result in automatic receipt of any other Option.
Upon determination by the Committee that an Option is to be granted to a
Participant, written notice shall be given to such person, specifying the terms,
conditions, rights and duties related thereto. Each Participant shall, if
required by the Committee, enter into an agreement with the Company, in such
form as the Committee shall determine and which is consistent with the
provisions of the Plan, specifying such terms,
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conditions, rights and duties. Options shall be deemed to be granted as of the
date specified in the grant resolution of the Committee, which date shall be the
date of any related agreement with the Participant. In the event of any
inconsistency between the provisions of the Plan and any such agreement entered
into hereunder, the provisions of the Plan shall govern.
SECTION 7
STOCK OPTIONS
7.1 Grant of Stock Options. Coincident with or following designation for
participation in the Plan, an Eligible Employee may be granted one or more
Options. Grants of Options under the Plan shall be made by the Committee. In no
event shall the exercise of one Option affect the right to exercise any other
Option or affect the number of shares of Stock for which any other Option may be
exercised, except as provided in subsection 7.2(j) hereof. During the duration
of the Plan, no Eligible Employee may be granted Options which in the aggregate
cover in excess of 25 percent of the total shares of Stock authorized under the
Plan.
7.2 Stock Option Agreements. Each Option granted under the Plan shall be
evidenced by a written stock option agreement which shall be entered into by the
Company and the Participant to whom the Option is granted (the "Stock Option
Agreement"), and which shall contain the following terms and conditions set out
in this Section 7.2, as well as such other terms and conditions, not
inconsistent therewith, as the Committee may consider appropriate. This
requirement for delivery of a written Stock Option Agreement is satisfied by
electronic delivery of such agreement provided that evidence of the
Participant's receipt of such electronic delivery is available to the Company
and all applicable laws and regulations permit such delivery.
(a) Number of Shares. Each Stock Option Agreement shall state that it
covers a specified number of shares of Stock, as determined by the
Committee.
(b) Price. The price at which each share of Stock covered by an Option
may be purchased shall be determined in each case by the Committee and set
forth in the Stock Option Agreement, but in no event shall the price be
less than the Fair Market Value of the Stock on the date the Option is
granted.
(c) Duration of Options; Employment Required For Exercise. Each Stock
Option Agreement shall state the period of time, determined by the
Committee, within which the Option may be exercised by the Participant (the
"Option Period"). The Option Period must end, in all cases, not more than
ten years from the date an Option is granted. Except as otherwise provided
in Sections 5 and 8 and subsection 7.2(d)(iv) hereof, each Option granted
under the Plan shall become exercisable in increments such that 25 percent
of the Option becomes exercisable on each of the four subsequent one-year
anniversaries of the date the Option is granted, provided that each such
additional 25-percent increment shall become exercisable only if the
Participant has been continuously employed by the Company from the date the
Option is granted through the date on which each such additional 25-percent
increment becomes exercisable.
(d) Termination of Employment, Death, Disability, Etc. Each Stock
Option Agreement shall provide as follows with respect to the exercise of
the Option upon termination of the employment or the death or disability of
the Participant:
(i) If the employment of the Participant by the Company is
terminated within the Option Period for cause, as determined by the
Company, the Option shall thereafter be
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void for all purposes. As used in this subsection 7.2(d), "cause" shall
mean a gross violation, as determined by the Company, of the Company's
established policies and procedures, provided that the effect of this
subsection 7.2(d) shall be limited to determining the consequences of a
termination and that nothing in this subsection 7.2(d) shall restrict or
otherwise interfere with the Company's discretion with respect to the
termination of any employee.
(ii) If the Participant retires from employment by the Company on
or after attaining age 60, the Option may be exercised by the
Participant within 36 months following his or her retirement (provided
that such exercise must occur within the Option Period), but not
thereafter. In the event of the Participant's death during such 36-month
period, each Option may be exercised by those entitled to do so in the
manner referred to in (iv) below. In any such case, the Option may be
exercised only as to the shares as to which the Option had become
exercisable on or before the date of the Participant's retirement.
(iii) If the Participant becomes disabled (as determined pursuant
to the Company's Long-Term Disability Plan or any successor plan),
during the Option Period while still employed, or within the three-month
period referred to in subsection 7.2(d)(v) below, or within the 36-month
period referred to in subsection 7.2(d)(ii) above, the Option may be
exercised by the Participant or by his or her guardian or legal
representative, within twelve months following the Participant's
disability, or within the 36-month period referred to in subsection
7.2(d)(ii) above if applicable and if longer (provided that such
exercise must occur within the Option Period), but not thereafter. In
the event of the Participant's death during such twelve-month period,
each Option may be exercised by those entitled to do so in the manner
referred to in subsection 7.2(d)(iv) below. In any such case, the Option
may be exercised only as to the shares of Stock as to which the Option
had become exercisable on or before the date of the Participant's
disability.
(iv) In the event of the Participant's death while still employed
by the Company, each Option of the deceased Participant may be exercised
by those entitled to do so under the Participant's will or under the
laws of descent and distribution within twelve months following the
Participant's death (provided that in any event such exercise must occur
within the Option Period), but not thereafter, as to all shares of Stock
which are subject to such Option, including each 25-percent increment of
the Option, if any, which has not yet become exercisable at the time of
the Participant's death. In the event of the Participant's death within
the 36-month period referred to in subsection 7.2(d)(ii) above or within
the twelve-month period referred to in subsection 7.2(d)(iii) above,
each Option of the deceased Participant that is exercisable at the time
of death may be exercised by those entitled to do so under the
Participant's will or under the laws of descent and distribution within
twelve months following the Participant's death or within the 36-month
period referred to in subsection 7.2(d)(ii) above, if applicable and if
longer (provided that in any event such exercise must occur within the
Option Period). The provisions of this paragraph (iv) of subsection
7.2(d) shall be applicable to each Stock Option Agreement as if set
forth therein word for word. Each Stock Option Agreement executed by the
Company prior to the adoption of this provision shall be deemed amended
to include the provisions of this paragraph and all Options granted
pursuant to such Stock Option Agreements shall be exercisable as
provided herein.
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(v) If the employment of the Participant by the Company is
terminated (which for this purpose means that the Participant is no
longer employed by the Company or by an Affiliated Corporation) within
the Option Period for any reason other than cause, the Participant's
retirement on or after attaining age 60, or the Participant's disability
or death, the Option may be exercised by the Participant within three
months following the date of such termination (provided that such
exercise must occur within the Option Period), but not thereafter. In
any such case, the Option may be exercised only as to the shares as to
which the Option had become exercisable on or before the date of
termination of the Participant's employment.
(e) Transferability. Each Stock Option Agreement shall provide that
the Option granted therein is not transferable by the Participant except by
will or pursuant to the laws of descent and distribution, and that such
Option is exercisable during the Participant's lifetime only by him or her,
or in the event of the Participant's disability or incapacity, by his or
her guardian or legal representative.
(f) Agreement to Continue in Employment. Each Stock Option Agreement
shall contain the Participant's agreement to remain in the employment of
the Company, at the pleasure of the Company, for a continuous period of at
least one year after the date of such Stock Option Agreement, at the salary
rate in effect on the date of such agreement or at such changed rate as may
be fixed, from time to time, by the Company. Termination of the Stock
Option Agreement and all unvested Options granted under such Stock Option
Agreement shall be the Company's sole and exclusive remedy for an
employee's breach of this Section 7.2(f).
(g) Exercise, Payments, Etc.
(i) Each Stock Option Agreement shall provide that the method for
exercising the Option granted therein shall be by delivery to the Office
of the Secretary of the Company or to the Administrative Agent of
written notice specifying the number of shares of Stock with respect to
which such Option is exercised and payment to the Company of the
aggregate Option Price. Such notice shall be in a form satisfactory to
the Committee and shall specify the particular Options (or portions
thereof) which are being exercised and the number of shares of Stock
with respect to which the Options are being exercised. The Participant's
obligation to deliver written notice of exercise is satisfied by
electronic delivery of such notice through means satisfactory to the
Committee and prescribed by the Company. The exercise of the Option
shall be deemed effective on the date such notice is received by the
Office of the Secretary or by the Administrative Agent and payment is
made to the Company of the aggregate Option Price (the "Exercise Date");
however, if payment of the aggregate Option Price is made pursuant to a
sale of shares of Stock as contemplated by subsection 7.2(g)(iii)(E)
below, the Exercise Date shall be deemed to be the date of such sale. If
requested by the Company, such notice shall contain the Participant's
representation that he or she is purchasing the Stock for investment
purposes only and his or her agreement not to sell any Stock so
purchased in any manner that is in violation of the Securities Act of
1933, as amended, or any applicable state law, and such restriction, or
notice thereof, shall be placed on the certificates representing the
Stock so purchased. The purchase of such Stock shall take place upon
delivery of such notice to the Office of the Secretary of the Company or
to the Administrative Agent, at which time the aggregate Option Price
shall
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be paid in full to the Company by any of the methods or any combination
of the methods set forth in subsection 7.2(g)(iii) below.
(ii) The shares of Stock to which the Participant is entitled as a
result of the exercise of the Option shall be issued by the Company and
(A) delivered by electronic means to an account designated by the
Participant, or (B) delivered to the Participant in the form of a
properly executed certificate or certificates representing such shares
of Stock. If shares of Stock are used to pay all or part of the
aggregate Option Price, the Company shall issue and deliver to the
Participant the additional shares of Stock, in excess of the aggregate
Option Price or portion thereof paid using shares of Stock, to which the
Participant is entitled as a result of the Option exercise. The
Company's obligation to deliver the shares of Stock to which the
Participant is entitled as a result of the exercise of the Option shall
be subject to the payment in full to the Company of the aggregate Option
Price and the required tax withholding.
(iii) The aggregate Option Price shall be paid by any of the
following methods or any combination of the following methods:
(A) in cash, including the wire transfer of funds in U.S.
dollars to one of the Company's bank accounts located in the United
States, with such bank account to be designated from time to time by
the Company;
(B) by personal, certified or cashier's check payable in U.S.
dollars to the order of the Company;
(C) by delivery to the Company or the Administrative Agent of
certificates representing a number of shares of Stock then owned by
the Participant, the aggregate Fair Market Value of which (as of the
Exercise Date) is not greater than the aggregate Option Price of the
Option being exercised, properly endorsed for transfer to the
Company, provided that the shares of Stock used for this purpose
must have been owned by the Participant for a period of at least six
months;
(D) by certification or attestation to the Company or the
Administrative Agent of the Participant's ownership (as of the
Exercise Date) of a number of shares of Stock, the aggregate Fair
Market Value of which (as of the Exercise Date) is not greater than
the aggregate Option Price of the Option being exercised, provided
that the shares of Stock used for this purpose have been owned by
the Participant for a period of at least six months; or
(E) by delivery to the Company or the Administrative Agent of
a properly executed notice of exercise together with irrevocable
instructions to a broker to promptly deliver to the Company, by wire
transfer or check as noted in subsection 7.2(g)(iii)(A) and (B)
above, the amount of the proceeds of the sale of all or a portion of
the Stock or of a loan from the broker to the Participant necessary
to pay the aggregate Option Price.
(iv) For purposes of the Plan, the income resulting from an Option
exercise shall be based on the Fair Market Value of the Stock for the
Exercise Date; however, if payment of the aggregate Option Price is made
pursuant to a sale of shares of Stock as contemplated by subsection
7.2(g)(iii)(E) hereof, the Fair Market Value shall be deemed to be the
per share sale price and the Exercise Date shall be deemed to be the
date of such sale.
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(h) Date of Grant. An Option shall be considered as having been
granted on the date specified in the grant resolution of the Committee.
(i) Tax Withholding. Each Stock Option Agreement shall provide that,
upon exercise of the Option, the Participant shall make appropriate
arrangements with the Company to provide for the minimum amount of tax
withholding required by law, including without limitation Sections 3102 and
3402 or any successor section(s) of the Internal Revenue Code and
applicable state and local income and other tax laws, by payment of such
taxes in cash (including wire transfer), by check, or as provided in
Section 13.2 hereof.
(j) Adjustment of Options. Subject to the provisions of Sections 4, 5,
7, 8 and 12 hereof, the Committee may make any adjustment in the number of
shares of Stock covered by, or the terms of an outstanding Option and a
subsequent granting of an Option, by amendment or by substitution for an
outstanding Option; however, except as provided in Sections 4, 5, 8 and 12
hereof, the Committee may not adjust the Option Price of any outstanding
Option. Such amendment or substitution may result in terms and conditions
(including the number of shares of Stock covered, vesting schedule or
Option Period) that differ from the terms and conditions of the original
Option. The Committee may not, however, adversely affect the rights of any
Participant to previously granted Options without the consent of such
Participant. If such action is effected by amendment, the effective date of
such amendment will be the date of grant of the original Option.
7.3 Stockholder Privileges. No Participant shall have any rights as a
stockholder with respect to any shares of Stock covered by an Option until the
Participant becomes the holder of record of such Stock. Except as provided in
Section 4 hereof, no adjustments shall be made for dividends or other
distributions or other rights as to which there is a record date preceding the
date on which such Participant becomes the holder of record of such Stock.
SECTION 8
CHANGE OF CONTROL
8.1 In General. In the event of the occurrence of a change of control of the
Company, as defined in Section 8.3 hereof, all outstanding Options shall become
automatically vested, without further action by the Committee or the Board, so
as to make all such Options fully vested and exercisable as of the date of such
change of control.
8.2 Limitation on Payments. If the provisions of this Section 8 would result
in the receipt by any Participant of a payment within the meaning of Section
280G or any successor section(s) of the Internal Revenue Code, and the
regulations promulgated thereunder, and if the receipt of such accelerated
vesting or payment by any Participant would, in the opinion of independent tax
counsel of recognized standing selected by the Company, result in the payment by
such Participant of any excise tax provided for in Sections 280G and 4999 or any
successor section(s) of the Internal Revenue Code, then the amount of such
accelerated vesting or payment shall be reduced to the extent required, in the
opinion of independent tax counsel, to prevent the imposition of such excise
tax; provided, however, that any payment or vesting of any Options shall occur
as otherwise provided herein to the fullest extent possible without triggering
such excise tax.
8.3 Definition. For purposes of the Plan, a "change of control" shall mean
any of the events specified in the Company's Income Continuance Plan or any
successor plan which constitute a change of control within the meaning of such
plan.
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SECTION 9
RIGHTS OF EMPLOYEES, PARTICIPANTS
9.1 Employment. Nothing contained in the Plan or in any Option granted under
the Plan shall confer upon any Participant any right with respect to the
continuation of his or her employment by the Company or any Affiliated
Corporation, or interfere in any way with the right of the Company or any
Affiliated Corporation, subject to the terms of any separate employment
agreement to the contrary, at any time, to terminate such employment or to
increase or decrease the level of the Participant's compensation from the level
in existence at the time of the grant of an Option. Whether an authorized leave
of absence, or absence in military or government service, shall constitute a
termination of employment shall be determined by the Committee at the time.
9.2 Nontransferability. No right or interest of any Participant in an Option
granted pursuant to the Plan shall be assignable or transferable during the
lifetime of the Participant, either voluntarily or involuntarily, or subjected
to any lien, directly or indirectly, by operation of law, or otherwise,
including execution, levy, garnishment, attachment, pledge or bankruptcy. In the
event of a Participant's death, a Participant's rights and interests in Options
shall, to the extent provided in Section 7 hereof, be transferable by
testamentary will or the laws of descent and distribution, and payment of any
amounts due under the Plan shall be made to, and exercise of any Options may be
made by, the Participant's legal representatives, heirs or legatees. If, in the
opinion of the Committee, a person entitled to payments or to exercise rights
with respect to the Plan is disabled from caring for his or her affairs because
of mental condition, physical condition or age, payment due such person may be
made to, and such rights shall be exercised by, such person's guardian,
conservator or other legal personal representative upon furnishing the Committee
with evidence of such status satisfactory to the Committee.
SECTION 10
GENERAL RESTRICTIONS
10.1 Investment Representations. The Company may require a Participant, as a
condition of exercising an Option, to give written assurances in substance and
form satisfactory to the Company and its counsel to the effect that such person
is acquiring the Stock subject to the Option for his own account for investment
and not with any present intention of selling or otherwise distributing the
same, and to such other effects as the Company deems necessary or appropriate in
order to comply with federal and applicable state securities laws.
10.2 Compliance with Securities Laws. Each Option shall be subject to the
requirement that, if at any time counsel to the Company shall determine that the
listing, registration or qualification of the shares of Stock subject to such
Option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, is necessary as a
condition of, or in connection with, the issuance or purchase of shares of Stock
thereunder, such Option may not be accepted or exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained on conditions acceptable to the Committee. Nothing
herein shall be deemed to require the Company to apply for or to obtain such
listing, registration, qualification, consent or approval.
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SECTION 11
OTHER EMPLOYEE BENEFITS
The amount of any income deemed to be received by a Participant as a result of
an Option exercise shall not constitute "earnings" or "compensation" with
respect to which any other employee benefits of such Participant are determined
including, without limitation, benefits under any pension, profit sharing, life
insurance or salary continuation plan.
SECTION 12
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time to time may amend or modify
the Plan provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the Company's
stockholders if stockholder approval is required to enable the Plan to satisfy
any applicable statutory or regulatory requirements unless the Company, on the
advice of counsel, determines that stockholder approval is otherwise necessary
or desirable.
No amendment, modification or termination of the Plan shall in any manner
adversely affect any Option theretofore granted under the Plan, without the
consent of the Participant holding such Option.
The Committee shall have the authority to adopt such modifications, procedures
and subplans as may be necessary or desirable to comply with the provisions of
the laws (including, but not limited to, tax laws and regulations) of countries
other than the United States in which the Company may operate, so as to assure
the viability of the benefits of the Plan to Participants employed in such
countries.
SECTION 13
WITHHOLDING
13.1 Withholding Requirement. The Company's obligations to deliver shares of
Stock upon the exercise of an Option shall be subject to the Participant's
satisfaction of all applicable federal, state and local income and other tax
withholding requirements.
13.2 Satisfaction of Required Withholding. At the time the Committee grants
an Option, it may, in its sole discretion, grant the Participant an election to
pay all such amounts of required tax withholding, or any part thereof:
(a) by the delivery to the Company or the Administrative Agent of a
number of shares of Stock then owned by the Participant, the aggregate Fair
Market Value of which (as of the Exercise Date) is not greater than the
amount required to be withheld, provided that such shares have been held by
the Participant for a period of at least six months;
(b) by certification or attestation to the Company or the Administrative
Agent of the Participant's ownership (as of the Exercise Date) of a number
of shares of Stock, the aggregate Fair Market Value of which (as of the
Exercise Date) is not greater than the amount required to be withheld,
provided that such shares of Stock have been owned by the Participant for a
period of at least six months; or
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(c) by the Company or the Administrative Agent withholding from the
shares of Stock otherwise issuable to the Participant upon exercise of the
Option, a number of shares of Stock, the aggregate Fair Market Value of
which (as of the Exercise Date) is not greater than the amount required to
be withheld. Any such elections by Participants to have shares of Stock
withheld for this purpose will be subject to the following restrictions:
(i) all elections shall be made on or prior to the Exercise Date;
and
(ii) all elections shall be irrevocable.
13.3 Section 16 Requirements. If the Participant is an officer or director
of the Company within the meaning of Section 16 or any successor section(s) of
the 1934 Act ("Section 16"), the Participant must satisfy the requirements of
such Section 16 and any applicable rules and regulations thereunder with respect
to the use of shares of Stock to satisfy such tax withholding obligation.
SECTION 14
REQUIREMENTS OF LAW
14.1 Requirements of Law. The issuance of Stock and the payment of cash
pursuant to the Plan shall be subject to all applicable laws, rules and
regulations.
14.2 Federal Securities Laws Requirements. If a Participant is an officer or
director of the Company within the meaning of Section 16, Options granted
hereunder shall be subject to all conditions required under Rule 16b-3, or any
successor rule(s) promulgated under the 1934 Act, to qualify the Option for any
exception from the provisions of Section 16 available under such Rule. Such
conditions are hereby incorporated herein by reference and shall be set forth in
the Stock Option Agreement with the Participant which describes the Option.
14.3 Governing Law. The Plan and all Stock Option Agreements hereunder shall
be construed in accordance with and governed by the laws of the State of Texas.
SECTION 15
DURATION OF THE PLAN
The Plan shall terminate at such time as may be determined by the Board, and no
Option shall be granted after such termination. If not sooner terminated under
the preceding sentence, the Plan shall fully cease and expire at midnight on the
first date that no further shares remain available for Option grants hereunder.
Any Options outstanding at the time of the Plan termination shall continue to be
exercisable in accordance with the Stock Option Agreement pertaining to each
such Option.
Dated: February 3, 2005
ATTEST:
/s/ CHERI L. PEPER
------------------------------------------------------------
Cheri L. Peper
Corporate Secretary
APACHE CORPORATION
By: /s/ JEFFREY M. BENDER
-----------------------------------------------------------
Jeffrey M. Bender
Vice President, Human Resources
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APACHE CORPORATION 2005 STOCK OPTION PLAN
UK SUB-PLAN
This Schedule (the "UK Sub-Plan") shall require Inland Revenue approval under
paragraph 28 of Schedule 4 to the Act. It shall be read in conjunction with the
provisions of the Apache Corporation 2005 Stock Option Plan (the "Plan"), but
shall vary from that Plan as follows:
PURPOSE OF THE UK SUB-PLAN
The purpose of the UK Sub-Plan is to enable tax advantaged Options to be granted
to Eligible Employees (as defined below) in the United Kingdom. In the event of
any conflict between the Plan and the UK Sub-Plan the provisions of the UK
Sub-Plan shall take precedence in respect to Options granted under the UK
Sub-Plan.
DEFINITIONS
The following definitions shall, where applicable, either be inserted as an
additional definition, or shall completely replace the definition contained in
the Plan.
"Act" means the Income Tax (Earnings and Pensions) Act 2003 of the United
Kingdom;
"Associated Company" shall have the meaning assigned to it in paragraph 35(1) of
Schedule 4 to the Act;
"Control" has the meaning given to it by Section 719 of the Act;
"Eligible Employee" means any director of a Participating Company who is
required to devote to his/her duties not less than 25 hours per week (excluding
meal breaks) or any employee (other than one who is a director) of any
Participating Company;
"Inland Revenue" means the Board of Inland Revenue of the United Kingdom;
"Fair Market Value" means the per share closing price of the Stock as reported
on The New York Stock Exchange, Inc. Composite Transactions Reporting System for
a particular date or, if the Stock is not so listed at any time, the market
value of a share of the Stock as determined in accordance with the provisions of
part VIII Taxation of Chargeable Gains Act 1992 of the United Kingdom and agreed
for the purposes of the UK Sub-Plan with Shares Valuation of the Inland Revenue
on or before that date; Where necessary, the market value of a share of the
Stock shall be converted from US Dollars into Pounds Sterling at the closing
exchange rate on the Date of Grant taken from the Wall Street Journal;
"Option" means a stock option granted under the UK Sub-Plan to a Participant to
acquire Shares in accordance with the UK Sub-Plan as evidenced by the issue of a
Stock Option Agreement which shall be executed by the Company in such manner so
as to take effect in law as a deed;
"Participant" means an Eligible Employee who has been selected to participate in
the UK Sub-Plan;
"Participating Companies" are the Company and all subsidiaries which are
Controlled by the Company, which have been nominated by the Committee to
participate for the time being in the UK Sub-Plan;
"Rules" these rules together with any amendment thereto effected in accordance
with Rule 12;
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"Shares" means the U.S. $0.625 par value Common Stock of the Company which
comply with provisions of paragraphs 16 to 20 of Schedule 4 to the Act;
GRANT OF OPTIONS
1. Only Options may be granted under the UK Sub-Plan. Only Eligible Employees
may participate in the UK Sub-Plan. While the Committee may grant Options
subject to terms and conditions as described in Sections 3 and 7 of the
Plan, such conditions must be stated at the time the Option is granted. Any
performance conditions must be objective and may be waived or amended if an
event happens which causes the Committee, acting fairly and reasonably, to
consider that the performance conditions could not be fairly or reasonably
met, provided that any amended performance condition should be no more
difficult to satisfy than the original condition.
2. The number of Shares over which an Option may be granted to any Eligible
Employee shall be limited and take effect so that the aggregate market value
at the relevant dates of grant of Shares over which Options have been
granted and are outstanding at any time under the UK Sub-Plan and under any
other Inland Revenue approved discretionary share option plan operated by
the Company or by any Associated Company shall not exceed L30,000 (or such
other amount as may from time to time be permitted under paragraph 6(1) of
Schedule 4 to Act).
3. No Option will be granted to an Eligible Employee under the UK Sub-Plan if
at that time the Eligible Employee is excluded from participating in the UK
Sub-Plan by virtue of paragraph 9 of Schedule 4 to the Act.
EXERCISE OF PARTICIPANTS OPTIONS
4. The Shares shall rank pari passu with other issued Shares of the same class
and shall be acquired subject to the Company's statutes and bylaws.
5. Upon exercise of an Option the Company shall allot and transfer Shares
within 30 days of the date such an Option is exercised.
6. Upon the exercise of an Option under the UK Sub-Plan, payment may be made in
one of the ways specified in Section 7.2(g)(iii)(A), (B) or (E); provided
that any broker arrangement to be utilised under (E) must have been
previously agreed with the Inland Revenue. The date of exercise shall be the
date the Company receives a written notice of exercise together with the
aggregate Option Price in accordance with the Stock Option Agreement. The
Participant's obligation to deliver written notice of exercise is satisfied
by electronic delivery of such notice pursuant to Section 7.2(g)(i) of the
Plan. For the avoidance of doubt the Option Price shall not be paid on the
exercise of such Option in instalments or in the form of shares or other
securities.
7. Notwithstanding the wording of Section 13.2 of the Plan, a Participant will
be given the opportunity to pay any tax withholding from his or her own
resources either through deductions from salary or other means.
8. No Option shall be exercised by the Participant if at that time he/she has
been excluded from participating in the UK Sub-Plan by virtue of paragraph 9
of Schedule 4 to the Act.
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ADJUSTMENTS OR REDUCTIONS OF OPTION PRICE
9. For the purposes of the UK Sub-Plan, no adjustment pursuant to Section 4.3
or 4.6 of the Plan shall be made to any Option which has been granted under
the UK Sub-Plan unless such adjustment would be permitted under paragraph 22
of Schedule 4 to the Act and where so permitted no such adjustment shall
take affect until such alteration or amendment has been approved by the
Inland Revenue.
10. The following provisions of the Plan shall not form part of and shall
therefore be disregarded for the purposes of the UK Sub-Plan.
a. Section 4.3 (Adjustments for Stock Split, Stock Dividend, Etc.) the
words: "or change in any way the rights and privileges of such shares
by means of the payment of a Stock dividend or any other distribution
upon such shares payable in Stock," and the words "combination,
reclassification" and the words "rights and privileges";
b. Section 4.4 (Dividend Payable in Stock of Another Corporation, etc);
c. Section 4.5 (Other Changes in Stock);
d. Section 4.7 (General Adjustment Rules), the words "or substitution" and
substitution or" wherever they appear.
e. Section 5 (Reorganization or Liquidation), the words:
"the Committee, or the board of directors of any corporation assuming
the obligations of the Company, shall, as to the Plan and outstanding
Options make appropriate provision for the adoption and continuation of
the Plan by the acquiring or successor corporation and for the
protection of any such outstanding Options by the substitution on an
equitable basis of appropriate stock of the Company or of the merged,
consolidated or otherwise reorganized corporation which will be issuable
with respect to the Stock, provided that no additional benefits shall be
conferred upon the Participants holding such Options as a result of such
substitution, and the excess of the aggregate Fair Market Value of the
shares subject to the Options immediately after such substitution over
the aggregate Option Price thereof is not more than the excess of the
aggregate Fair Market Value of the shares subject to such Options
immediately before such substitution over the aggregate Option Price
thereof. Additionally,";
f. Section 7.2(d)(iii) the words "or by his or her guardian or legal
representative";
g. Section 7.2(d)(iv) from the words "those entitled to do so" until the
end of the section shall be deleted and replaced with the words "the
Participant's legal representatives within a 12 month period from the
date of the Participant's death."
h. Section 7.2(e) the words "by will or pursuant to the laws of descent
and distribution" shall be deleted and replaced with the words "to the
Participant's legal representatives upon his death."
i. Section 7.2(j);
j. Section 8.2 (Limitation on Payments);
k. Section 9.2 (Nontransferability) the words "by testamentary will or the
laws of descent and distribution" and the words "heirs or legatees",
and the whole of the last sentence;
l. Section 13.2 (a) and (b);
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m. Section 14.1 "and the payment of cash" only.
EXCHANGE OF OPTIONS
11.1 This Rule applies if a company (the "Acquiring Company"):
11.1.1 obtains Control of the Company as a result of making a general
offer to acquire:
(i) the whole of the ordinary issued shares of common stock in the
capital of the Company (other than that which is already owned by it
and its subsidiary or holding company) made on a condition such that,
if satisfied, the Acquiring Company will have Control of the Company;
or
(ii) all the Shares (or those Shares not already owned by the Acquiring
Company or its subsidiary or holding company); or
11.1.2 obtains Control of the Company under a compromise or arrangement
sanctioned by the court under the Delaware Statutory equivalent of
Section 425 of the UK Companies Act 1985 and agreed in advance by
the Inland Revenue to be equivalent; or
11.1.3 becomes bound or entitled to acquire Shares under the Delaware
Statutory equivalent of Sections 428 to 430F of the UK Companies
Act 1985 and agreed in advance by the Inland Revenue to be
equivalent.
11.2 If any of the events described in Rule 14.1 happen, a Participant may,
during the period referred to in Rule 14.3, agree with the Acquiring
Company to release his Option ("Old Option") in consideration of the grant
to him of a new option ("New Option"). The New Option must be equivalent
to the Old Option within the meaning of Paragraph 27(4) of Schedule 4 to
the Act. It will be over shares in the Acquiring Company or some other
company falling within Paragraph 16(b) or Paragraph 16(c) of Schedule 4 to
the Act.
11.3 The period referred to in Rule 11.2 is
11.3.1 in a case falling within Rule 11.1.1, 6 months starting with the
time when the Acquiring Company obtains Control of the Company and
any condition subject to which the offer is made is satisfied;
11.3.2 in a case falling within Rule 11.1.2, 6 months starting with the
time when the court sanctions the compromise or arrangement;
11.3.3 in a case falling within Rule 11.1.3, the period during which the
Acquiring Company remains so bound or entitled.
11.4 Where a Participant is granted a New Option for release of his or her Old
Option as described in this Rule 11, then
11.4.1 the New Option will be treated as having been acquired at the same
time as the Old Option and be exercisable in the same manner and at
the same time as the Old Option;
11.4.2 the New Option will be subject to the provisions of the Plan and
this UK Sub-Plan as it had effect in relation to the Old Option
immediately before the release; and
11.4.3 with effect from the release and grant, the Rules of the Plan and
the UK Sub-Plan will be construed, in relation to the New Option as
if references to Shares were
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references to shares over which the New Option is granted, and
references to the Company were references to the Acquiring Company.
AMENDMENTS
12. Notwithstanding Section 3.1 of the Plan and Section 12 of the Plan and the
UK Sub-Plan, no alterations or amendments to the Plan or the UK Sub-Plan
shall take effect in relation to Options granted or to be granted under the
UK Sub-Plan until such alteration or amendment has been approved by the
Inland Revenue.
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APPENDIX C
APACHE CORPORATION
2005 SHARE APPRECIATION PLAN
SECTION 1
INTRODUCTION
1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter
referred to, together with its Affiliated Corporations (as defined below) as the
"Company" except where the context otherwise requires), hereby establishes the
Apache Corporation 2005 Share Appreciation Plan (the "Plan").
1.2 Purposes. The primary purpose of this Plan is to focus the energies of
the Company's employees on significantly increasing shareholder wealth through
stock price appreciation to share prices of $81 and $108. The share price goals
of this Plan seek to increase shareholder wealth by approximately $7.6 to $18.2
billion with the Company's employees sharing in less than one percent of the
additional shareholder value created. Additional purposes of this Plan include
the retention of existing key employees and as an additional inducement in the
recruitment of talented personnel in a competitive environment.
1.3 Effective Date. The Effective Date of the Plan (the "Effective Date")
shall be February 3, 2005. This Plan and each Conditional Grant awarded
hereunder are conditioned on and shall be of no force or effect until the Plan
is approved by the stockholders of the Company. The Committee (as defined in
Section 2.1 hereof) may award Conditional Grants, the entitlement to which shall
be expressly subject to the condition that the Plan shall have been approved by
the stockholders of the Company.
SECTION 2
DEFINITIONS
2.1 Definitions. The following terms shall have the meanings set forth
below:
"Affiliated Corporation" means any corporation or other entity
(including but not limited to a partnership) which is affiliated with
Apache Corporation through stock ownership or otherwise and is treated as a
common employer under the provisions of Sections 414(b) and (c) or any
successor section(s) of the Internal Revenue Code.
"Base Salary" means, with regard to any Participant, such Participant's
annual base compensation as an employee of the Company at the date of award
of a Conditional Grant, without regard to any bonus, pension, profit
sharing, stock option, life insurance or salary continuation plan which the
Participant either receives or is otherwise entitled to have paid on his
behalf.
"Board" means the Board of Directors of the Company.
"Category" means one of the three groupings of Participants in the Plan
whose Conditional Grant represents the right to receive the same multiple
of their base salary for each Payout Amount (before any pro-ration for late
participation).
"Committee" means the Stock Option Plan Committee of the Board or such
other Committee of the Board that is empowered hereunder to administer the
Plan. The
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Committee shall be constituted at all times so as to permit the Plan to be
administered by "non-employee directors" (as defined in Rule 16b-3 of the
Securities Exchange Act of 1934, as amended).
"Conditional Grant" means the conditional entitlement, evidenced by an
executed Conditional Grant Agreement between the Company and a Participant,
to receive all or a portion of an Initial Amount and Final Amount, subject
to and in accordance with the provisions of Section 6 and other provisions
of this Plan.
"Conditional Grant Agreement" has the meaning set forth in Section 6.1.
"Eligible Employees" means those full-time employees of the Company
(including, without limitation, the Company's executive officers), and
those part-time employees of the Company who are designated as Eligible
Employees by the Committee.
"Fair Market Value" means the closing price of the Stock as reported on
The New York Stock Exchange, Inc. Composite Transactions Reporting System
("Composite Tape") for a particular date or, if the Stock is not so listed
at any time, as reported on NASDAQ or on such other exchange or electronic
trading system as, on the date in question, reports the largest number of
traded shares of stock. If there are no Stock transactions on such date,
the Fair Market Value shall be determined as of the immediately preceding
date on which there were Stock transactions.
"Final Amount" means with regard to any:
(a) Category I Participant, such number of shares of Stock
(rounded down to the nearest full share) which equals two (2) times such
Participant's Base Salary divided by $108;
(b) Category II Participant, such number of shares of Stock
(rounded down to the nearest full share) which equals one (1) times such
Participant's Base Salary divided by $108; and
(c) Category III Participant, such number of shares of Stock
(rounded down to the nearest full share) which equals 50 percent (.50)
times such Participant's Base Salary divided by $108;
which amount, in each case, shall be fixed and not subject to adjustment
due to market fluctuation.
"Final Price Threshold Date" means the last of any 10 trading days
(which need not be consecutive) during any period of 30 consecutive trading
days occurring prior to January 1, 2009, but not thereafter, on each of
which 10 days the Fair Market Value of the Stock equaled or exceeded $108
per share. If the above trading criteria are met more than once, the first
occurrence shall be deemed to be the Final Price Threshold Date.
"Initial Amount" means, with regard to any:
(a) Category I Participant, such number of shares of Stock
(rounded down to the nearest full share) which equals one (1) times such
Participant's Base Salary divided by $81;
(b) Category II Participant, such number of shares of Stock
(rounded down to the nearest full share) which equals 50 percent (.50)
times such Participant's Base Salary divided by $81; and
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(c) Category III Participant, such number of shares of Stock
(rounded down to the nearest full share) which equals 25 percent (.25)
times such Participant's Base Salary divided by $81;
which amount, in each case, shall be fixed and not subject to adjustment
due to market fluctuation.
"Initial Price Threshold Date" means the last of any 10 trading days
(which need not be consecutive) during any period of 30 consecutive trading
days occurring prior to January 1, 2008, but not thereafter, on each of
which 10 days the Fair Market Value of the Stock equaled or exceeded $81
per share. If the above trading criteria are met more than once, the first
occurrence shall be deemed to be the Initial Price Threshold Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as it
may be amended from time to time, and any successor thereto.
"Participant" means an Eligible Employee designated by the Committee
from time to time during the term of the Plan to receive one or more
Conditional Grants under the Plan.
"Payout Amounts" means the Initial Amount and/or the Final Amount.
"Price Threshold Date" means the Initial Price Threshold Date, and/or
the Final Price Threshold Date, as the context may require.
"Stock" means the $0.625 par value common stock of the Company and or
any security into which such common stock is converted or exchanged upon
merger, consolidation, or any capital restructuring (within the meaning of
Section 4.3) of the Company.
2.2 Headings; Gender and Number. The headings contained in the Plan are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the Plan. Except when otherwise indicated by the context, the
masculine gender shall also include the feminine gender, and the definition of
any term herein in the singular shall also include the plural.
SECTION 3
PLAN ADMINISTRATION
3.1 Administration by the Committee. The Plan shall be administered by the
Committee. In accordance with the provisions of the Plan, the Committee shall,
in its sole discretion, adopt rules and regulations for carrying out the
purposes of the Plan, including, without limitation, selecting the Participants
from among the Eligible Employees and the Category of participation for each
Participant, appointing designees or agents (who need not be members of the
Committee or employees of the Company) to assist the Committee with the
administration of the Plan, and establish such other terms and requirements as
the Committee may deem necessary or desirable and consistent with the terms of
the Plan. No member of the Committee shall be liable for any action or
determination made in good faith. The determinations, interpretations and other
actions of the Committee pursuant to the provisions of the Plan shall be binding
and conclusive for all purposes and on all persons.
3.2 Compliance with Section 162(m). The Plan is intended to comply with the
requirements of Section 162(m) or any successor section(s) of the Internal
Revenue Code ("Section 162(m)") as to any "covered employee" as defined in
Section 162(m), and shall be administered, interpreted and construed
consistently therewith. The Committee is authorized to take such
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additional action, if any, that may be required to ensure that the Plan and any
Conditional Grant awarded under the Plan satisfy the requirements of Section
162(m), taking into account any regulations or other guidance issued by the
Internal Revenue Service.
SECTION 4
STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to Sections 4.3 and Section 6.1 hereof, up to
3,500,000 shares of Stock are authorized for issuance under the Plan in
accordance with the Plan's terms and subject to such restrictions or other
provisions as the Committee may from time to time deem necessary. Shares of
Stock which may be issued pursuant to the terms of the Conditional Grants
awarded hereunder shall be applied to reduce the maximum number of shares of
Stock remaining available for use under the Plan. The Company shall at all times
during the term of the Plan and while any Conditional Grants are outstanding
retain as authorized and unissued Stock and/or Stock in the Company's treasury,
at least the number of shares from time to time required under the provisions of
the Plan, or otherwise assure itself of its ability to perform its obligations
hereunder.
4.2 Other Shares of Stock. Any shares of Stock that are subject to a
Conditional Grant which expires, is forfeited, is cancelled, or for any reason
is terminated, and any shares of Stock that for any other reason are not issued
to a Participant or are forfeited shall automatically become available for use
under the Plan.
4.3 Certain Adjustments. If the Company shall at any time increase or
decrease the number of its outstanding shares of Stock (other than by way of
issuing Stock in a public or private offering for cash or property) or change in
any way the rights and privileges of such shares by means of a Stock dividend or
any other distribution upon such shares payable in Stock, or through a Stock
split, subdivision, consolidation, combination, reclassification or
recapitalization involving the Stock or a subscription for shares of Stock that
has the effect of diluting the Company's capital (hereinafter a "capital
restructuring"), then for purposes of determining the entitlement to payments
under Section 6, (i) the number of shares authorized for issuance under this
Section 4, and (ii) the per share amounts referenced in Section 1 and contained
in the definitions set forth in Section 2 hereof shall be, in each case,
equitably and proportionally adjusted to take into account any capital
restructuring. Any adjustment under this Section shall be made by the Committee,
whose determination with regard thereto, including whether any adjustment is
needed, shall be final and binding upon all parties.
SECTION 5
REORGANIZATION OR LIQUIDATION
In the event that the Company is merged or consolidated with another corporation
and the Company is not the surviving corporation, or if all or substantially all
of the assets or more than 20 percent of the outstanding voting stock of the
Company is acquired by any other corporation, business entity or person, or in
case of a reorganization (other than a reorganization under the United States
Bankruptcy Code) or liquidation of the Company, and if the provisions of Section
7 hereof do not apply, the Committee, or the board of directors of any
corporation assuming the obligations of the Company, shall, as to the Plan and
outstanding Conditional Grants make appropriate provision for the adoption and
continuation of the Plan by the acquiring or successor
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corporation and for the protection of any holders of such outstanding
Conditional Grants by the substitution on an equitable basis of appropriate
stock of the Company or of the merged, consolidated or otherwise reorganized
corporation which will be issuable with respect to the Stock, provided that no
additional benefits shall be conferred upon the Participants holding such
Conditional Grants as a result of such substitution. Additionally, upon the
occurrence of such an event and provided that a Price Threshold Date has
occurred, upon written notice to the Participants, the Committee may accelerate
the vesting and payment dates of the entitlement to receive cash and Stock under
outstanding Conditional Grants so that all such existing entitlements are paid
prior to any such event. In the latter event, such acceleration shall only apply
to entitlements to cash and Stock payable as the result of the occurrence of the
most recent Price Threshold Date and shall not by such acceleration, deem the
occurrence of a Price Threshold Date that has not occurred by the date of the
notice.
SECTION 6
CONDITIONAL GRANTS
6.1 Grants. Each Participant may be awarded a Conditional Grant under this
Plan by the Committee, which Conditional Grant shall be composed of one Initial
Amount and one Final Amount. The Committee, in its sole discretion, on an
exceptional basis, may award additional Conditional Grants to any Participant in
connection with such Participant's receiving a significant increase in salary
and/or a promotion within the Company. Each Conditional Grant awarded by the
Committee shall be evidenced by a written agreement entered into by the Company
and the Participant to whom the Conditional Grant is awarded (the "Conditional
Grant Agreement"), which shall contain the terms and conditions set out in this
Section 6, as well as such other terms and conditions as the Committee may
consider appropriate. This requirement for delivery of a written Conditional
Grant Agreement is satisfied by electronic delivery of such agreement provided
that evidence of the Participant's receipt of such electronic delivery is
available to the Company and all applicable laws and regulations permit such
delivery.
6.2 Conditional Grant Agreements. Each Conditional Grant Agreement entered
into by the Company and each Participant shall specify which Category applies
for such Participant and contain at least the following terms and conditions. In
the event of any inconsistency between the provisions of the Plan and any
Conditional Grant Agreement, the provisions of the Plan shall govern.
6.2.1 Conditional Grant Terms. Each Conditional Grant Agreement evidencing a
Conditional Grant shall entitle the Participant to receive the indicated share
amounts which shall convert into the right to receive (i) a conditional payment
of cash to meet the employer's minimum statutory tax withholding requirements,
pursuant to Section 6.4, and (ii) issuance of Stock, upon the occurrence of one
or more of the Price Threshold Dates, all as set forth below.
(a) If, at any time prior to January 1, 2008, the Initial Price
Threshold Date occurs, the Participant shall become entitled to receive a
portion or all of the Initial Amount payable to Participants in such
Category, as specified in the applicable Conditional Grant Agreement, in
accordance with the payment schedule and as otherwise set out in Section
6.2.2.
(b) If, at any time prior to January 1, 2009, the Final Price Threshold
Date occurs, the Participant shall become entitled to receive a portion or
all of the Final Amount payable to
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Participants in such Category, as specified in the applicable Conditional
Grant Agreement, in accordance with the payment schedule and as otherwise
set out in Section 6.2.2.
6.2.2 Payment of Payout Amounts. Subject to the provisions of Section 6.3,
the Payout Amounts shall be payable in increments strictly in accordance with
the following schedule:
(a) The entitlement to receive the first one-fourth (1/4) of any Payout
Amount shall vest on the applicable Price Threshold Date and shall be paid
by the Company to the Participant within thirty (30) days of the applicable
Price Threshold Date in the manner set out in Section 6.4 below.
(b) The entitlement to receive the remainder of any Payout Amount shall
vest and become payable in equal parts on the dates occurring,
respectively, 12 months, 24 months, and 36 months after the applicable
Price Threshold Date, in the same proportions and amounts as set forth in
Section 6.4 below, and shall be paid by the Company to the Participant
within thirty (30) days of such date. If any of the above dates is not a
business day during which the Company is open for business, such date of
vesting or payment shall be the first business date occurring immediately
thereafter.
(c) No Initial Amount or portion thereof shall be payable under this
Section 6.2.2 if the Initial Price Threshold Date has not occurred prior to
January 1, 2008. No Final Amount or portion thereof shall be payable under
this Section 6.2.2 if the Final Price Threshold Date has not occurred prior
to January 1, 2009.
6.3 Termination of Employment, Death, Disability, etc. Except as set forth
below, each Conditional Grant Agreement shall state that each Conditional Grant
shall be subject to the condition that the Participant has remained an Eligible
Employee from the initial award of a Conditional Grant until the applicable
vesting date as follows:
(a) If the Participant voluntarily leaves the employment of the Company,
or if the employment of the Participant is terminated by the Company for
cause or otherwise, any Conditional Grant not previously vested and the
right to receive any Payout Amounts not yet paid in accordance with Section
6.2.2 shall thereafter be void and forfeited for all purposes.
(b) A Participant shall become vested in all Payout Amounts on the date
the Participant retires from employment with the Company on or after
attaining age 65, on the date the Participant dies while employed by the
Company, or on the date the Participant becomes disabled (as determined
pursuant to the Company's Long-Term Disability Plan or any successor plan)
while employed by the Company. Such Participant shall not become entitled
to any payment which may arise due to the occurrence of a Price Threshold
Date after the Participant dies, becomes disabled, or retires. Payment
shall occur as soon as administratively convenient following the date the
Participant dies, becomes disabled, or retires, but in no event shall the
payment occur later than March 15 in the calendar year immediately
following the calendar year in which the Participant died, became disabled,
or retired. If the Participant dies before receiving payment, the payment
shall be made to those entitled under the Participant's will or, if there
is no will, by the laws of descent and distribution.
6.4 Payment and Tax Withholding. Each Conditional Grant Agreement shall
provide that, upon payment of any entitlement under a Conditional Grant, the
Participant shall make appropriate arrangements with the Company to provide for
the amount of minimum tax withholding required by law, including without
limitation Sections 3102 and 3402 or any successor
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section(s) of the Internal Revenue Code and applicable state and local income
and other tax laws. Each payment of the Payout Amount shall be made in a
proportion of cash and shares of Stock, determined by the Committee, such that
the cash portion shall be sufficient to cover the withholding amount required by
this Section. The cash portion of any payment of a Payout Amount shall be based
on the Fair Market Value of the shares of Stock on the applicable date of
vesting to which such tax withholding relates. Such cash portion shall be
withheld by the Company to satisfy applicable tax withholding requirements.
6.5 Subsequent Conditional Grant Agreements. Following the award of
Conditional Grants in 2005, additional Participants may be designated by the
Committee for grant of Conditional Grants thereafter subject to the same terms
and conditions set forth above for initial grants except that the Committee, in
its sole discretion, may reduce the value of the Initial Amount and Final Amount
to which subsequent Participants may become entitled and the applicable
Conditional Grant Agreement shall be modified to reflect such reduction.
6.6 Stockholder Privileges. No Participant shall have any rights as a
stockholder with respect to any shares of Stock covered by a Conditional Grant
until the Participant becomes the holder of record of such Stock.
6.7 Limitations on Stock Issuable to Officers and Directors. Any provision
of the Plan notwithstanding, the total number of shares of Stock issuable to
Participants who are directors or officers of the Company (as defined for the
purposes of Section 16 of the Securities Exchange Act of 1934, as amended) shall
not exceed 49 percent of the total shares issuable under the Plan (the "D&O
Limitation"). If the total number of shares of Stock issuable to all of the
Company's directors and officers who are Participants in the Plan shall exceed
the D&O Limitation, then the total number of shares of Stock issuable to such
Participants shall be reduced to a number equal to the D&O Limitation and the
number of shares of Stock issuable to each such Participant shall be reduced pro
rata.
SECTION 7
CHANGE OF CONTROL
7.1 In General. In the event of the occurrence of a change of control of the
Company as defined in Section 7.3 hereof, and assuming the occurrence of a Price
Threshold Date, the entitlement to receive cash and Stock under any outstanding
Conditional Grants shall vest automatically, without further action by the
Committee or the Board, and shall become payable as follows:
(a) If such change of control occurs subsequent to the occurrence of a
Price Threshold Date, (i) the first one-fourth (1/4) of the applicable
Payout Amount shall vest and be paid pursuant to Section 6.2.2(a) hereof
and (ii) the remainder of such Payout Amount shall vest as of the date of
such change of control and shall be paid by the Company to the Participant
within thirty (30) days of the date of such change of control in the manner
set out in Section 6.4 hereof.
(b) If the occurrence of a Price Threshold Date occurs subsequent to the
date of a change of control, the applicable Payout Amount shall vest in
full as of such Price Threshold Date and shall be paid by the Company to
the Participant within thirty (30) days of such Price Threshold Date in the
manner set out in Section 6.4 hereof.
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7.2 Limitation on Payments. If the acceleration of the payment or vesting of
any Payout Amount under this Section 7 would result in the receipt by any
Participant of a payment within the meaning of Section 280G or any successor
section(s) of the Internal Revenue Code, and the regulations promulgated
thereunder, and if the receipt of such accelerated payment or vesting by any
Participant would, in the opinion of independent tax counsel of recognized
standing selected by the Company, result in the payment by such Participant of
any excise tax provided for in Sections 280G and 4999 or any successor
section(s) of the Internal Revenue Code, then the amount of such accelerated
payment or vesting shall be reduced to the extent required, in the opinion of
independent tax counsel, to prevent payment of the remainder of all Payout
Amounts shall be made on the previously scheduled dates for vesting and payment
to the fullest extent possible without triggering such excise tax.
7.3 Definition. For purposes of the Plan, a "change of control" shall mean
any of the events specified in the Company's Income Continuance Plan or any
successor plan which constitute a change of control within the meaning of such
plan.
SECTION 8
RIGHTS OF EMPLOYEES, PARTICIPANTS
8.1 Employment. Neither anything contained in the Plan or any Conditional
Grant granted under the Plan shall confer upon any Participant any right with
respect to the continuation of his or her employment by the Company or any
Affiliated Corporation, or interfere in any way with the right of the Company or
any Affiliated Corporation, at any time, to terminate such employment or to
increase or decrease the level of the Participant's compensation from the level
in existence at the time of the award of a Conditional Grant.
8.2 Non-transferability. No right or interest of any Participant in a
Conditional Grant granted pursuant to the Plan shall be assignable or
transferable during the lifetime of the Participant, either voluntarily or
involuntarily, or subjected to any lien, directly or indirectly, by operation of
law, or otherwise, including execution, levy, garnishment, attachment, pledge or
bankruptcy. In the event of a Participant's death, a Participant's rights and
interests in any Conditional Grant shall, to the extent provided in Section 6.3
hereof, be transferable by testamentary will or the laws of descent and
distribution, and payment of any entitlements due under the Plan shall be made
to the Participant's legal representatives, heirs or legatees. If in the opinion
of the Committee a person entitled to payments or to exercise rights with
respect to the Plan is disabled from caring for his or her affairs because of
mental condition, physical condition or age, payment due such person may be made
to, and such rights shall be exercised by, such person's guardian, conservator
or other legal personal representative upon furnishing the Committee with
evidence satisfactory to the Committee of such status.
SECTION 9
OTHER EMPLOYEE BENEFITS
The amount of any income deemed to be received by a Participant as a result of
the payment under a Conditional Grant shall not constitute "earnings" or
"compensation" with respect to which any other employee benefits of such
Participant are determined, including without limitation benefits under any
pension, profit sharing, life insurance or salary continuation plan.
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SECTION 10
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Committee or the Board may at any time terminate, and from time to time may
amend or modify the Plan. No amendment, modification or termination of the Plan
shall in any manner adversely affect any Conditional Grant theretofore awarded
under the Plan, without the consent of the Participant holding such Conditional
Grant.
The Committee shall have the authority to adopt such modifications, procedures
and subplans as may be necessary or desirable to comply with the provisions of
the laws (including, but not limited to, tax laws and regulations) of countries
other than the United States in which the Company may operate, so as to assure
the viability of the benefits of the Plan to Participants employed in such
countries.
SECTION 11
REQUIREMENTS OF LAW
11.1 Requirements of Law. The issuance of Stock and the payment of cash
pursuant to the Plan shall be subject to all applicable laws, rules and
regulations, including applicable federal and state securities laws. The Company
may require a Participant, as a condition of receiving payment under a
Conditional Grant, to give written assurances in substance and form satisfactory
to the Company and its counsel to such effect as the Company deems necessary or
appropriate in order to comply with federal and applicable state securities
laws.
11.2 Section 16 Requirements. If a Participant is an officer or director of
the Company within the meaning of Section 16, Grants awarded hereunder shall be
subject to all conditions required under Rule 16b-3, or any successor rule(s)
promulgated under the Securities Exchange Act of 1934, as amended, to qualify
the Conditional Grant for any exemption from the provisions of Section 16
available under such Rule. Such conditions are hereby incorporated herein by
reference and shall be set forth in the agreement with the Participant, which
describes the Conditional Grant.
11.3 Governing Law. The Plan and all Conditional Grant Agreements hereunder
shall be construed in accordance with and governed by the laws of the State of
Texas.
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SECTION 12
DURATION OF THE PLAN
The Plan shall terminate at such time as may be determined by the Committee, and
no Conditional Grants shall be awarded after such termination. If not sooner
terminated under the preceding sentence, the Plan shall fully cease and expire
at midnight on December 31, 2008. Payout Amounts for which one or more of the
Price Threshold Dates has occurred and which remain outstanding at the time of
the Plan termination shall continue in accordance with the Conditional Grant
Agreement pertaining to such Conditional Grant.
Dated: February 3, 2005
ATTEST:
/s/ CHERI L. PEPER
------------------------------------------------------------
Cheri L. Peper
Corporate Secretary
APACHE CORPORATION
By: /s/ JEFFREY M. BENDER
-----------------------------------------------------------
Jeffrey M. Bender
Vice President
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NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
MAY 5, 2005
AND PROXY STATEMENT
(APACHE LOGO)
ONE POST OAK CENTRAL
2000 POST OAK BOULEVARD, SUITE 100
HOUSTON, TEXAS 77056-4400
(LOGO)Printed on recycled paper
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APACHE CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
THURSDAY, MAY 5, 2005
10:00 A.M.
HILTON HOUSTON POST OAK
2001 POST OAK BOULEVARD
HOUSTON, TEXAS
If you would like to access the proxy materials electronically next year
go to the following consent site address:
http://www.econsent.com/apa/
APACHE CORPORATION - 2005 PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR USE AT THE ANNUAL MEETING ON MAY 5, 2005.
By signing this proxy, you revoke all prior proxies and appoint George D.
Lawrence, Charles J. Pitman, and Raymond Plank as Proxies, with full power of
substitution, and authorize them to represent the undersigned at the annual
meeting of stockholders to be held May 5, 2005, or any adjournment thereof, and
to vote all the shares of common stock of Apache Corporation held of record by
the undersigned on March 16, 2005.
This Proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
"FOR" THE ELECTION OF DIRECTORS, "FOR" APPROVAL OF THE 2005 STOCK OPTION PLAN
AND THE 2005 SHARE APPRECIATION PLAN, AND "AGAINST" EACH OF THE STOCKHOLDER
PROPOSALS.
For participants in the Apache 401(k) Savings Plan, this proxy, when properly
executed, will be voted in the manner directed by the undersigned. If no
direction is given, if the card is not signed, or if the card is not received by
May 2, 2005, the shares credited to your account will be voted in proportion to
directions received by Fidelity, the plan trustee.
See reverse side for voting instructions
COMPANY#___________________
THERE ARE THREE WAYS TO VOTE YOUR PROXY
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
VOTE BY TELEPHONE - TOLL FREE - 1-800-560-1965 - QUICK *** EASY *** IMMEDIATE
- Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week, until 12:00 noon (central time) on May 4, 2005.
- Please have available your proxy card and the last 4-digits of your U.S.
Social Security Number or the Tax Identification Number for this account.
- Follow the simple instructions provided.
VOTE BY INTERNET - http://www.eproxy.com/apa/ - QUICK *** EASY *** IMMEDIATE
- Use the internet to vote your proxy 24 hours a day, 7 days a week, until
12:00 noon (central time) on May 4, 2005.
- Please have available your proxy card and the last 4-digits of your U.S.
Social Security Number or the Tax Identification Number for this account.
- Follow the simple instructions to obtain your records and create an
electronic ballot.
VOTE BY MAIL
Mark, sign, and date your proxy card and return it in the postage-paid envelope
provided or return it to Apache Corporation, c/o Shareowner Services(SM), P.O.
Box 64873, St. Paul, MN 55164-0873.
IF YOU VOTE BY TELEPHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3
1. Election of directors -- director nominees:
01 G. Steven Farris 03 A. D. Frazier, Jr. __ Vote FOR __ Vote WITHHELD
02 Randolph M. Ferlic 04 John A. Kocur all nominees from all nominees
(except as marked)
(Instructions: To withhold authority to vote for any indicated nominee, write
the number(s) of the nominee(s) in the box provided to the right.) _________________________________
Please fold here
2. Approval of the 2005 Stock Option Plan __ For __ Against __ Abstain
3. Approval of the 2005 Share Appreciation Plan __ For __ Against __ Abstain
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEMS 4 AND 5
4. Stockholder proposal concerning director election majority vote standard __ For __ Against __ Abstain
5. Stockholder proposal concerning auditor independence __ For __ Against __ Abstain
6. The Proxies are authorized to vote in their best judgment upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR ITEMS 1, 2 AND 3, AND AGAINST ITEMS 4 AND 5.
Address Change? Mark Box __ Date __________________________________
Indicate change below:
________________________________________________________
Signature(s) In Box
Please sign exactly as your name(s) appear on Proxy. If
held in joint tenancy, all persons should sign.
Trustees, administrators, etc. should include title and
authority. Corporations should provide full name of
corporation and title of authorized officer signing the
proxy.