DEF 14A
SCHEDULE 14A
(Rule 14a-101)
Information Required in Proxy
Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to
Section 14(a) of the Securities Exchange Act of 1934
(Amendment
No. )
Filed by the Registrant [X]
Filed by a Party other than the
Registrant [ ]
Check the appropriate box:
[ ] Preliminary
Proxy Statement
[ ] Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive
Additional Materials
[ ] Soliciting
Material Pursuant to § 240.14a-11(c) or
§ 240.14a-12
Hess Corporation
(Name of Registrant as Specified
in Its Charter)
(Name of Person(s) Filing Proxy
Statement if other than the Registrant)
Payment of Filing Fee (Check the
appropriate box):
[X] No fee required.
[ ] Fee computed
on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title
of each class of securities to which transaction applies:
2) Aggregate
number of securities to which transaction applies:
3) Per
unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 0-11
(Set forth the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed
maximum aggregate value of transaction:
5) Total
fee paid:
[ ] Fee paid
previously with preliminary materials.
[ ] Check box if
any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the
date of its filing.
1) Amount
Previously Paid:
2) Form,
Schedule or Registration Statement No.:
3) Filing
Party:
4) Date
Filed:
HESS
CORPORATION
1185
AVENUE OF THE AMERICAS
NEW
YORK, N.Y. 10036
March 26, 2007
Dear Stockholder:
The annual meeting of stockholders will be held at the Hess
Office Building, 1 Hess Plaza, Route 9, Woodbridge, New Jersey,
on Wednesday, May 2, 2007, at 2:00 P.M., local
time. The formal notice of annual meeting and proxy statement,
which are contained in the following pages, outline the action
to be taken by the stockholders at the meeting.
You are cordially invited to attend this meeting. The Hess
Office Building can be reached, if you travel by car, from Exits
127 (northbound) and 130 (southbound) of the Garden State
Parkway or Exit 11 of the New Jersey Turnpike or, if you travel
by train, from the Metropark station in Iselin, New Jersey.
It is important that your shares be represented at the
meeting whether or not you are personally able to attend.
Accordingly, you are requested to sign, date and return the
enclosed proxy card promptly. Many stockholders will also be
able to vote their shares by using a toll-free telephone number
or over the internet. Please check your proxy card to see which
methods are available to you and related instructions. Your
cooperation will be appreciated.
Sincerely yours,
Chairman of the Board
and Chief Executive
Officer
HESS
CORPORATION
1185
AVENUE OF THE AMERICAS
NEW
YORK, N.Y. 10036
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
Wednesday, May 2, 2007, at 2:00 P.M.
To the Stockholders:
The annual meeting of stockholders of Hess Corporation will be
held at the Hess Office Building, 1 Hess Plaza, Route 9,
Woodbridge, New Jersey, on Wednesday, May 2, 2007, at 2:00
P.M., local time, for the following purposes:
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1.
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To elect four directors for the ensuing three-year term
(pages 1 to 31 of proxy statement);
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2.
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To act upon the ratification of the selection by the audit
committee of the board of directors of Ernst & Young LLP as
independent auditors (pages 31 and 32);
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3.
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To act upon a stockholder proposal recommending that the board
of directors take action to declassify the board (pages 33
to 35); and
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4.
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To transact any other business which properly may be brought
before the meeting.
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All stockholders are cordially invited to attend, although only
stockholders of record at the close of business on
March 12, 2007 will be entitled to vote at the meeting.
By order of the board of directors,
George C. Barry
Secretary
New York, New York
March 26, 2007
YOUR VOTE
IS IMPORTANT
You are urged to date, sign and promptly return the
accompanying form of proxy, or to use the telephone or internet
method of voting, so that if you are unable to attend the
meeting your shares can be voted.
HESS
CORPORATION
PROXY STATEMENT
The enclosed proxy is solicited by the board of directors of
Hess Corporation for use at the annual meeting of stockholders
on May 2, 2007, at 2:00 P.M., local time.
The companys principal executive office is located at 1185
Avenue of the Americas, New York, New York 10036. The
approximate date on which this proxy statement is first being
sent to stockholders is March 26, 2007.
Holders of record of common stock of the company at the close of
business on March 12, 2007 will be entitled to vote at the
annual meeting. Each share of common stock will be entitled to
one vote. On March 12, 2007, there were
316,734,174 shares of common stock outstanding. There are
no other voting securities of the company outstanding. A
majority of the outstanding shares of common stock, present in
person or represented by proxy, will constitute a quorum at the
annual meeting. Abstentions and broker
non-votes
will be counted for purposes of determining the presence of a
quorum for the transaction of business.
If you are a registered stockholder, you can simplify your
voting by using the internet or calling the toll-free number
listed on the enclosed proxy card. Internet and telephone voting
information is provided on the proxy card. A control number,
located on the instruction sheet attached to the proxy card, is
designated to verify a stockholders identity and allow the
stockholder to vote the shares and confirm that the voting
instructions have been recorded properly. If you vote via the
internet or by telephone, there is no need to return a signed
proxy card. However, you may still vote by proxy by using the
proxy card enclosed with this proxy statement.
Proxies in the form enclosed will be voted at the annual meeting
in accordance with the specifications you make on the proxy. If
you sign the proxy card and do not specify how your shares are
to be voted, your shares will be voted:
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for the election of directors nominated herein,
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for the proposal to ratify the selection of Ernst &
Young LLP as independent auditors for the fiscal year ending
December 31, 2007, and
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neither for nor against the proposal to approve the stockholder
proposal recommending declassification of the board of directors.
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You may revoke the proxy at any time prior to its use by
delivering a written notice to the secretary of the company, by
executing a later-dated proxy in a form permitted under Delaware
law, or by attending the annual meeting and voting in person.
ELECTION
OF DIRECTORS
At the annual meeting, four directors are to be elected to serve
for a term of three years and until their successors are elected
and qualified. It is intended that proxies will be voted for the
nominees set forth herein. Directors are elected by a plurality
of the votes cast. Accordingly, abstentions and broker non-votes
will not affect tabulation of the vote for directors. It is
expected that all candidates will be able to serve. However, if
one or more are unable to do so, the proxy holders will vote the
proxies for the remaining nominees and for
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substitute nominees chosen by the board of directors unless it
reduces the number of directors to be elected.
The following table presents information as of February 1,
2007 on the nominees for election as directors of the company
and the directors continuing in their respective terms of office:
Nominees for Director
Class I
For the three-year term expiring
in 2010
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Principal occupation
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Director
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Name
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and business experience
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Age
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since
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Other directorships
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Nicholas F. Brady
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Chairman, Choptank Partners, Inc.
(investment firm);
Chairman, Darby Overseas Investments, Ltd. (investment firm);
Former Secretary of the United States Department of the
Treasury;
Former Chairman of the Board, Dillon, Read & Co.
Inc. (investment banking firm)
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76
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1994
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Director or trustee of
various Templeton
mutual funds
Weatherford International
Ltd.
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J. Barclay Collins II
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Executive Vice President and
General Counsel
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62
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1986
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Thomas H. Kean
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President, THK Consulting, LLC;
Former President, Drew University;
Former Governor of the
State of New Jersey
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71
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1990
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Franklin Resources, Inc.
The CIT Group, Inc.
The Pepsi Bottling Group UnitedHealth Group
Incorporated
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Frank A. Olson
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Former Chairman of the Board and
Chief Executive Officer, The Hertz Corporation
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74
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1998
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Director or trustee of
various Franklin
Templeton mutual funds
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Members of Board of Directors
Continuing in Office
Class II
Term expiring in 2008
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Principal occupation
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Director
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Name
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and business experience
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Age
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since
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Other directorships
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Edith E. Holiday
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Operating Trustee, TWE Holdings
Trusts (trusts manage and dispose of properties for the benefit
of Comcast Corporation);
Former Assistant to the President
of the United States and Secretary of the Cabinet;
Former General Counsel, United States Department of the Treasury
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54
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1993
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Canadian National
Railway Company
H.J. Heinz Company
RTI International
Metals, Inc.
White Mountains
Insurance Group Ltd.
Director or trustee of
various Franklin
Templeton mutual
funds
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Principal occupation
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Director
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Name
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and business experience
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Age
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since
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Other directorships
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John H. Mullin
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Chairman, Ridgeway Farm LLC
(private company engaged in timber and farming activity)
Former Managing Director, Dillon, Read & Co. Inc.
(investment
banking firm)
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65
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2007
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Progress Energy, Inc.
Sonoco Products Company
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John J. OConnor
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Executive Vice President;
President, Worldwide Exploration and Production
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60
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2001
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F. Borden Walker
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Executive Vice President;
President, Marketing and Refining
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2004
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Robert N. Wilson
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Chairman, Caxton Health Holdings
LLC (investment firm);
Former Vice Chairman of the Board of Directors, Johnson &
Johnson
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1996
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Charles Schwab Corporation
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Class III
Term expiring in 2009
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Principal occupation
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Director
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Name
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and business experience
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Age
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since
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Other directorships
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John B. Hess
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Chairman of the Board and Chief
Executive Officer
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52
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1978
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The Dow Chemical Company
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Craig G. Matthews
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Former Vice Chairman and Chief
Operating Officer, KeySpan Corporation (gas distribution,
electrical generation and energy services company)
Former Chief Executive Officer, President and Director, NUI,
Inc. (natural gas distribution company)
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2002
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National Fuel Gas Company
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Risa Lavizzo-Mourey
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President and Chief Executive
Officer, The Robert Wood
Johnson Foundation
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2004
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Beckman Coulter Inc.
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Ernst H. von Metzsch
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Managing Member, Cambrian Capital,
L.P. (investment firm);
Former Senior Vice President
and Partner, Wellington
Management Company (investment company)
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2003
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All of the nominees and directors named above have held
substantially the positions or former positions indicated for
the past five years, except as described below. Prior to his
serving as president of THK Consulting, LLC in 2005, Mr. Kean
was president of Drew University for thirteen years.
Mr. Matthews served as president and chief executive
officer of NUI, Inc. from February 2004 until December 2004. He
served as vice chairman and chief operating officer of KeySpan
Corporation from March 2001 to March 2002. Mr. Olson
retired as chief executive officer of The Hertz Corporation at
the end of 1999 and as chairman in 2003. Prior to being named
president and chief executive officer of The Robert Wood
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Johnson Foundation in January 2003, Ms. Lavizzo-Mourey
served as a senior vice president of the foundation from April
2001 and prior thereto as a professor of medicine and director
of the Institute on Aging at the University of Pennsylvania. In
December 2002, Mr. von Metzsch withdrew from the
partnership of Wellington Management Company, of which he had
been a partner since 1979. Mr. Wilson retired as vice
chairman of Johnson & Johnson in 2003 and became
chairman of Caxton Health Holdings LLC in 2004.
John B. Hess, Nicholas F. Brady and Thomas H. Kean may be
deemed to be control persons of the company by virtue of their
beneficial ownership of common stock as described under
Ownership of Voting Securities by Certain Beneficial
Owners.
The board of directors met 9 times in 2006, at eight regularly
scheduled meetings and one special meeting. Each director
attended at least 75% of the aggregate of all board of directors
meetings and all meetings of the committees of the board of
directors on which he or she served during 2006.
Non-management directors meet without members of management
present generally after each regularly scheduled board meeting.
The chairman of the corporate governance and nominating
committee, Nicholas F. Brady, presides at these meetings.
The company expects all directors to attend the annual meeting
of stockholders. All directors attended last years annual
meeting.
Director
Independence
The board of directors has affirmatively determined that
Mr. Brady, Ms. Holiday, Mr. Kean,
Ms. Lavizzo-Mourey, Mr. Mullin, Mr. Matthews,
Mr. Olson, Mr. von Metzsch and Mr. Wilson are
independent within the meaning of rules and standards of the New
York Stock Exchange. The board determined that these directors
not only met all bright-line criteria under these
rules, but also that, based on all known relevant facts and
circumstances, there did not exist any relationship that would
compromise the independence of these directors. In particular,
the board affirmatively determined that service by
Messrs. Brady and Kean as executors of the estate of Leon
Hess and as trustees of certain related trusts does not impair
their independence because there are no factors relating to such
service that would exert influence on their decisions with
respect to matters affecting the company.
Corporate
Governance Guidelines
The board has approved a set of corporate governance guidelines
in accordance with rules of the New York Stock Exchange. These
guidelines set forth the key policies relating to corporate
governance, including director qualification standards, director
responsibilities and director compensation. The board has also
approved a code of business conduct and ethics in accordance
with rules of the New York Stock Exchange and the Securities and
Exchange Commission applicable to all directors, officers and
employees, including the chief executive officer, senior
financial officers and the principal accounting officer. The
code is intended to provide guidance to directors and management
to assure compliance with law and promote ethical behavior.
Copies of the companys corporate governance guidelines and
its code of business conduct and ethics may be found on the
companys website at www.hess.com and are
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also available without charge upon request to the companys
corporate secretary at its principal executive office set forth
on the first page of this proxy statement.
Stockholder
and Interested Party Communications
Any stockholder or interested party who wishes to communicate or
request a meeting with members of the board of directors or with
only non-management directors or any specified individual
director may do so by writing to them in care of the Chairperson
of the Corporate Governance and Nominating Committee, Hess
Corporation, P.O. Box 2694, Easton, Maryland 21601. The
stockholders may also communicate directly to the chairperson of
this committee by
e-mail to
directors@hess.com. Communications sent by mail or e-mail
will be reviewed by the chairperson of the corporate governance
and nominating committee and will be referred for resolution and
response as deemed appropriate by the chairperson. If a
stockholder requests a meeting, the corporate governance and
nominating committee will decide whether the subject matter is a
proper one to be addressed by the board and, if so, whether a
meeting is warranted. The corporate governance and nominating
committee will meet periodically to review all stockholder
communications received.
Related
Party Transactions
The company expects all directors and executive officers to
bring to the companys attention any related party
transactions, including transactions which may be required to be
disclosed under Item 4.04 of
Regulation S-K
promulgated by the Securities and Exchange Commission. The
companys code of business conduct and ethics provides that
if any company representative, including a director or officer,
considers conducting any transaction that reasonably would be
expected to give rise to a conflict of interest between the
representative and the company, such representative must
disclose such transaction in advance to the companys legal
department for review. In addition, the company annually sends
each director and executive officer a questionnaire requiring
such person to describe any transaction contemplated under
Item 4.04 or in the case of independent directors, any
transaction that might compromise their independence. The
company also annually conducts a review of its accounting
records to determine whether any such related transaction
occurred in the prior fiscal year. If any proposed or existing
related transaction is identified, the transaction is brought to
the general counsel for review. If the general counsel
determines the transaction poses a conflict of interest, or
would compromise the independence of a non-management director,
the general counsel will advise the audit committee of the
transaction and the audit committee will determine whether the
transaction, if proposed, may proceed and if existing, may
continue to exist.
Compensation
and Management Development Committee
The compensation and management development committee of the
board of directors is composed of Thomas H. Kean, Chairman,
Nicholas F. Brady, Frank A. Olson, Ernst H. von
Metzsch and Robert N. Wilson. The board has determined that
each member of this committee is independent within the meaning
of applicable rules of the New York Stock Exchange. This
committee met four times in 2006.
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The board of directors has adopted a written charter for the
compensation and management development committee in accordance
with applicable rules of the New York Stock Exchange. A copy of
this charter is available on the companys website,
www.hess.com, and also available without charge upon
request to the companys corporate secretary at the
companys principal executive office set forth on the first
page of this proxy statement. As stated in the charter, this
committees principal responsibilities are to:
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approve the compensation of the companys chief executive
officer,
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monitor the companys compensation and benefit programs,
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administer and make awards of stock-based compensation under the
companys long-term incentive plans,
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review management development and succession programs, and
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prepare its annual report on executive compensation for the
companys proxy statement.
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Processes
and Procedures for Determining Compensation
The compensation and management development committee has
exclusive authority for approving the compensation of the chief
executive officer and the other named executive officers. The
senior vice president for human resources, acting under the
supervision of the chief executive officer, develops
compensation recommendations for all officers and employees,
including the named executive officers, in accordance with the
compensation objectives and policies more fully described in the
compensation discussion and analysis.
The compensation recommendations are reviewed annually by the
compensation and management development committee, usually at
its February meeting. To assist its review of the compensation
recommendations, the committee has engaged the firm of Towers
Perrin as compensation consultant. In this capacity, Towers
Perrin reports exclusively to the compensation and management
development committee, which has sole authority to hire, dismiss
and approve the terms of engagement of the consultant.
The compensation consultants principal responsibility is
to advise the compensation and management development committee
on compensation recommendations for the named executive
officers, as well as on general matters relating to executive
compensation strategy and programs. The compensation consultant
also compiles survey data from benchmark groups used for
analysis of competitive compensation levels.
The chief executive officer meets with the compensation and
management development committee and the compensation consultant
to review compensation recommendations for executive officers
directly reporting to him, including the other named executive
officers. Thereafter, the compensation and management
development committee meets privately with the compensation
consultant to review the compensation recommendations. The
compensation and management development committee then
determines the executives compensation based on the advice
of the compensation consultant in accordance with the
compensation objectives and policies set forth in the
compensation discussion and analysis.
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In accordance with its charter, the corporate governance and
nominating committee periodically reviews and determines
appropriate levels of compensation for directors. To assist in
conducting this review and making these determinations, this
committee has engaged a consultant, Mercer Human Resources
Consulting, to compile benchmark data and make recommendations.
The corporate governance and nominating committee last reviewed
director compensation in September 2006.
Corporate
Governance and Nominating Committee and Consideration of
Stockholder Recommended Candidates
The corporate governance and nominating committee is composed of
Nicholas F. Brady, Chairman, Edith E. Holiday and
Thomas H. Kean. The board of directors has determined that
each member of this committee is independent within the meaning
of applicable rules of the New York Stock Exchange. The
corporate governance and nominating committee met three times in
2006.
The board of directors has adopted a written charter for the
corporate governance and nominating committee in accordance with
applicable rules of the New York Stock Exchange. A copy of this
charter is available on the companys website,
www.hess.com, and is also available without charge upon
request to the companys secretary at the companys
principal executive office set forth on the first page of this
proxy statement. As stated in this charter, this
committees principal responsibilities are to:
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identify and recommend individuals to the board for nomination
as members of the board and its committees consistent with
criteria approved by the board,
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make recommendations to the board relating to board practices
and corporate governance, and
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develop, recommend to the board and periodically review a set of
corporate governance principles applicable to the company.
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This committee recommends for election as directors qualified
candidates identified through a variety of sources, including
stockholder suggestions. Stockholders may suggest candidates by
writing to the committee, in care of the secretary of the
company at the companys principal executive office set
forth on the first page of this proxy statement. Stockholder
suggestions should include a summary of the candidates
qualifications, the information required by Securities and
Exchange Commission rules for director nominees and contact
information for the candidate. In accordance with the
companys corporate governance guidelines approved by the
board of directors, nominees are reviewed and recommended based
on a variety of criteria including:
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personal qualities and characteristics, education, background,
accomplishments and reputation in the business community;
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current knowledge of the energy industry or industries relevant
to the companys business and relationships with
individuals or organizations affecting the domestic and
international areas in which the company does business;
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ability and willingness to commit adequate time to board and
committee matters;
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the fit of the individuals skills and personality with
those of other directors and potential directors in building a
board that is effective, collegial and responsive to the needs
of the company;
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diversity of viewpoints, background and experience; and
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compatibility with independence and other qualifications
established by applicable law and rules.
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The committee meets to recommend nominees for election at each
annual meeting early in the year, generally at a February
meeting. From time to time throughout the year, in advance of
that meeting, members of the committee will be furnished
appropriate materials regarding any new nominees and may from
time to time meet with new potential candidates. Stockholder
suggestions should be submitted no later than December 1 for
consideration as nominees for election at the next annual
meeting and otherwise in accordance with the companys
policy and by-laws. The committee follows the same process of
identifying and evaluating nominees recommended by stockholders
as that for candidates recommended by any other source.
Each of the nominees for election at the 2007 annual meeting was
initially recommended either by the non-management directors on
the corporate governance and nominating committee (or its
predecessor committee) or the chief executive officer. The
committee currently does not retain a search firm to identify
potential candidates and has not paid fees to any third parties
to assist in identifying or evaluating potential nominees.
Audit
Committee
The audit committee of the board of directors is composed of
Robert N. Wilson, Chairman, Edith E. Holiday, Craig G. Matthews,
Risa Lavizzo-Mourey and Frank A. Olson. The board has determined
that each member of the audit committee is independent within
the meaning of applicable rules of the Securities and Exchange
Commission and the New York Stock Exchange. The board has also
determined that Craig G. Matthews is the audit committee
financial expert as this term is defined under applicable
rules of the Securities and Exchange Commission. The audit
committee met six times in 2006. In addition, the audit
committee held four reviews of quarterly financial results with
management and independent auditors.
The board of directors has adopted a written charter for the
audit committee in accordance with applicable rules of the New
York Stock Exchange and the Securities and Exchange Commission.
A copy of the charter is attached as Appendix A to this
proxy statement and is available on the companys website
at www.hess.com and without charge upon request to the
companys corporate secretary at its principal executive
office set forth on the first page of the proxy statement. As
stated in the charter, the audit committees principal
responsibility is to provide assistance to the board of
directors in fulfilling its oversight responsibility to the
shareholders, the investment community and others relating to:
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the companys financial statements,
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the financial reporting practices of the company,
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the systems of internal accounting and financial controls,
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the internal audit function,
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the annual independent audit of the companys financial
statements,
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the retention of outside auditors and review of their
independence,
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the review of enterprise risk and risk controls, and
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the companys environmental, health, safety and social
responsibility programs and compliance.
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Report of
the Audit Committee
The audit committee of the board of directors oversees the
companys financial reporting on behalf of the board.
Management is responsible for the system of internal controls
and for preparing financial statements. The independent auditors
are responsible for expressing an opinion on the fair
presentation of the financial statements in conformity with
generally accepted accounting principles. The audit committee
operates in accordance with a charter approved by the board of
directors.
In fulfilling its oversight responsibilities, the audit
committee reviewed the audited December 31, 2006 financial
statements of the company with management and the independent
auditors. Management represented to the committee that these
statements were prepared in accordance with generally accepted
accounting principles. The audit committee also discussed
accounting policies, significant judgements inherent in the
financial statements, disclosures and other matters required by
generally accepted auditing standards with management and the
independent auditors. In addition, the committee has received
from the independent auditors the annual independence
disclosures required by Independence Standards Board Standard
No. 1 and discussed with them their independence from
management and the company. In that connection, the audit
committee considered the compatibility of all non-audit services
with the auditors independence.
During 2006, the audit committee met with management, the
internal auditors and independent auditors to discuss:
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the annual audit scope and plans for their respective audits,
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the adequacy of staffing and related fees,
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the results of their examinations,
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the adequacy and effectiveness of internal controls over
financial reporting and disclosure controls and procedures,
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issues raised on the companys hotline reporting system, and
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all other applicable matters required to be discussed under
Statement on Auditing Standards No. 61, as amended by
Statement on Auditing Standards No. 90.
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The audit committee also met separately with the independent
auditors and the internal auditors without management present.
9
In reliance on the reviews and discussions with management and
the independent auditors, the audit committee recommended to the
board of directors, and the board approved, the inclusion of the
audited financial statements in the Annual Report on
Form 10-K
for the year ended December 31, 2006 filed with the
Securities and Exchange Commission. The audit committee has also
selected Ernst & Young LLP as independent auditors for
2007. The board has proposed that the stockholders ratify this
selection at the annual meeting.
Robert N. Wilson, Chairman
Edith E. Holiday
Risa Lavizzo-Mourey
Craig G. Matthews
Frank A. Olson
10
Executive
Compensation and Other Information
Compensation
Discussion and Analysis
Total
Compensation Objectives and Policies
The compensation and management development committee of the
board of directors approves and oversees our executive
compensation programs. The objective of our executive
compensation programs is to attract and retain executives and
motivate them to achieve our business goals through a
combination of cash and stock-based compensation. We attempt to
reinforce the link between pay and performance by putting a
portion of executive compensation at risk, so that executives
are rewarded if corporate, business unit and individual
performance goals are achieved. Moreover, the committee believes
that a significant portion of compensation should be related to
our common stock in order to align senior management interests
more closely with those of stockholders, and to provide
incentives to work for the long-term profitable growth of the
company. The principal elements of an executives total
compensation consist of:
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cash salary,
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annual cash bonus, and
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long-term equity compensation, principally consisting of stock
options and restricted stock awards.
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However, we also review the competitiveness of other elements of
compensation, including retirement benefits, life insurance,
savings, health and welfare plans and other benefits offered to
employees generally in order to value the entire compensation
package offered to executives.
Total
Compensation Methodology, Competitive Benchmarks and
Compensation Consultant
In order to ensure that our compensation and benefit programs
are properly benchmarked, the committee generally relies on two
surveys for determining competitive compensation levels. The
first is a survey of a broad group of general industrial
companies comparable in size and complexity to our operations,
which in 2006 comprised 284 companies. The second is a
survey of a group of oil and gas companies, which in 2006
consisted of:
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Anadarko Petroleum Corporation
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Marathon Oil Corporation
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BP plc
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Occidental Petroleum Corporation
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Chevron Corporation
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Shell Oil Corporation
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Conoco Phillips
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Sunoco, Inc.
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Devon Energy Corporation
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Tesoro Petroleum Corporation
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ExxonMobil Corporation
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Valero Energy Corporation
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The committees compensation consultant, Towers Perrin,
assists it in overseeing executive compensation programs. The
consultant compiles survey data for the benchmark groups and
assists in analyzing this data for the committee regarding
compensation levels.
The consultant is retained exclusively by the committee. While
the consultant interacts with senior executives in our human
resource department and with senior management in developing
compensation recommendations, the consultant meets privately
with the
11
committee in advising on compensation levels for the chief
executive officer and the other named executive officers. Final
decisions on compensation for these individuals are made solely
by the committee.
Total
Direct Compensation
Our objective is to target total direct compensation, consisting
of cash salary, cash bonus and long term equity compensation, at
approximately the
75th
percentile of that of the surveyed companies, if specified
corporate and business unit performance metrics and individual
performance objectives are met. We selected this target for
compensation to remain competitive in attracting and retaining
talented executives. Many of our competitors are significantly
larger and have financial resources greater than our own. The
competition for experienced, technically proficient executive
talent in the oil and gas industry is currently particularly
acute, as companies seek to draw from a limited pool of such
executives to explore for and develop hydrocarbons that
increasingly are in more remote areas and are technologically
more difficult to access.
We structure total direct compensation to the named executive
officers so that most of this compensation is delivered in the
form of equity awards in order to provide incentives to work
toward long-term profitable growth that will enhance stockholder
returns. We also structure their cash compensation so that a
significant portion is at risk under the cash bonus plan,
payable based on corporate, business unit and individual
performance. In the following sections, we further detail each
component of total direct compensation.
In determining base salary level for executive officers, the
committee considers the following qualitative and quantitative
factors:
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job level and responsibilities,
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relevant experience,
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individual performance,
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recent corporate performance, and
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our objective of targeting total direct compensation at the 75th
percentile level if performance metrics are met.
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We review base salaries annually, but we do not necessarily
award salary increases each year. From time to time base
salaries may be adjusted other than as a result of an annual
review, in order to address competitive pressures or in
connection with a promotion.
In February 2006 the committee approved cash salary increases
averaging 6% for our executive officers. These increases were
approved in view of the companys improved financial and
operational performance and individual performance in 2005.
Average salary percentage increases for 2007 are lower than
those in 2006.
12
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Cash
CompensationCash Bonus Plan
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Elements of Cash Bonus Plan. The annual cash bonus
plan for executive officers has both quantitative and
qualitative elements. We establish a target bonus for each
executive officer, based on his or her job level and
responsibility and competitive benchmarks for similar positions.
For executive officers, including the named executive officers:
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one-third of the target bonus is based on the attainment of a
specified target level of a corporate performance measure, which
for 2006 was net income before interest and items affecting the
comparability of income between periods,
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one-third is based on attainment of specified business unit
metrics, and
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one-third is based on individual performance and other
qualitative factors.
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We developed these weightings to link two-thirds of the bonus to
quantifiable performance measures but also to permit discretion
to recognize individual performance. Payouts may range from 0%
to 150% for each component of the target bonus, depending upon
the percent of attainment of the corporate and business unit
performance measures and, with respect to the individual
performance component, the committees determination of an
appropriate amount.
Determination of Metrics. Business unit metrics vary
from exploration and production and marketing and refining and
also vary among units within each division. Business unit
metrics for exploration and production executives may include,
for example, reserve replacement, production growth, and
controllable cost. Metrics for marketing and refining executives
may include, for example, net operating cost, sales and business
unit income. The specific targeted levels of corporate and
business unit performance that are to be attained are
established with the intention of motivating continued improved
performance. For the years 2004, 2005 and 2006, attainment of
maximum payout on the business unit metrics for exploration and
production and marketing and refining on average was never
achieved. In 2006, the marketing and refining division attained
on average less than 100% of the targeted levels.
Assessment of Individual Performance. We assess
individual performance in view of specific performance
objectives developed for each executive at the beginning of each
year. Each executives manager, in consultation with the
executive, develops a set of strategic, financial and
operational objectives that the executive will attempt to
achieve during that year. At the end of the year, the manager
reviews with the executive the extent to which each of these
objectives was attained. The chief executive officer conducts
these performance reviews for the other named executive officers
and makes compensation recommendations to the committee based on
these reviews. The committee then reviews the chief executive
officers attainment of his performance objectives.
Attainment of an executives performance objectives
influences not only the individual performance component of his
or her annual cash bonus, but also the levels of long-term
equity compensation and base salary.
2006 Cash Bonus Plan Payouts. Payouts to the named
executive officers for corporate and business unit performance
are shown in column (g), and payouts for individual performance
are shown in column (d), of the Summary Compensation Table on
page 18. In 2006, the company attained 134% of the
corporate performance goal. Payouts for business unit
13
performance in 2006 were 105% of target for Messrs. Hess,
Collins and Rielly, 119% of target for Mr. OConnor
and 83% for Mr. Walker. In general, cash bonuses for the
named executive officers were slightly higher than those in 2005
due primarily to higher target bonus amounts.
Long-Term
Compensation
General Objectives. Long-term compensation is a
major portion of an executive officers total compensation
package and is an important incentive and retention tool. The
committee has authority to grant a variety of stock-based
compensation under the long-term incentive plan, last approved
by stockholders in 2004. Awards to executive officers under the
plan have consisted of restricted stock and stock options. We
believe the combination of these two types of stock awards gives
executives considerable incentive to maximize long-term
financial growth for stockholders and helps retain individuals
necessary for future growth and profitability.
Timing of Awards. We have adopted a policy generally
to make long-term equity compensation awards annually, at the
committees regular February meeting. We believe this is
the appropriate time to make awards and set prices for options,
because it is soon after the date in late January when we
publicly disclose our earnings for the prior fiscal year and
other material information. However, the committee retains
discretion to vary the timing of awards as it deems appropriate.
For example, the committee did not make awards of long-term
equity compensation for 2003, following a year in which the
company had a net loss, and did not make further awards until
June 2004, after stockholders approved an increase in the number
of shares authorized for award under the long-term incentive
plan. Awards of options and restricted stock to newly-hired
employees and special merit awards to existing employees are
made on the date of the next regularly scheduled board meeting
following commencement of employment or the date management
recommends a special award. Prior to the adoption of our current
policy, awards to newly-hired employees were granted by the
committee on the date they commenced employment. Option exercise
prices have not been set on any date other than the date of
grant. The committee has never opportunistically selected grant
dates to achieve more favorable option exercise prices, nor have
options been repriced to increase the value of an award.
Terms of Awards. Restricted stock awards generally
vest in three years from the date of grant and options vest
pro-rata over a three-year period and remain exercisable until
10 years after the date of grant. We believe these vesting
periods support retention and are consistent with market
practices. The exercise price of an option is set at the closing
market price on the date of grant, and the option may not be
repriced or adjusted, except to reflect customary anti-dilution
adjustments, such as for a stock split or stock dividend.
Shares of restricted stock are issued and outstanding from the
date of grant, but are held in escrow until the vesting date.
Restricted shares are therefore entitled to dividends if and
when paid on shares of common stock generally. Dividends accrued
on shares of restricted stock, together with interest on these
dividends at short-term market rates, are paid upon vesting. For
accounting purposes, the expense associated with a restricted
stock award is the fair value of the award on the date of grant
and this expense is amortized over the vesting period. Expense
associated with a stock option award is the grant date fair
value determined using a Black-Scholes valuation model, and this
expense is also amortized over its vesting period.
14
Value of Awards. We target aggregate long-term
compensation awards to deliver approximately half of their value
in the form of restricted stock and the other half in the form
of options, based on grant date valuations. We believe this
weighting appropriately balances the goals of retention and
motivating performance and also reflects our desired level of
annual share utilization. Annual grant levels depend on the
companys performance as well as oil and gas industry and
general industry benchmarks. As with cash compensation, we aim
to provide long-term awards such that together with cash
compensation, total direct compensation is valued at
approximately the
75th
percentile of such compensation as established from the
benchmark surveys if specified performance criteria and
individual performance objectives are met. The committee bases
individual award levels on market benchmarks for the
executives job level and individual performance. In making
awards to any individual the committee does not consider his or
her gains made, or failure to achieve gains, on prior restricted
stock or option awards.
2006 Awards. In February 2006, the committee granted
stock options and restricted stock in an aggregate amount of
approximately 1.1 million shares. Since these awards,
including those shown for the named executive officers in the
Summary Compensation Table, were made in early 2006, they
reflect 2005, not 2006, performance. Similarly, 2007 awards
reflect 2006 performance. Following the three for one split of
our common stock on May 31, 2006, these and other prior
awards were proportionately increased in accordance with
anti-dilution provisions in the long-term incentive plan. The
aggregate number of shares awarded in the annual grant in 2006
was approximately 88% of the aggregate number of shares awarded
in the annual grant in 2005, reflecting the increase in the
companys share price during 2005. The awards of restricted
stock and stock options to the chief executive officer and named
executive officers were consistent with our objective to deliver
total direct compensation at the desired benchmark level as
discussed above. We believe these levels were warranted given
the companys continued financial and operational
improvements during 2005.
Other
Benefits
We have adopted certain broad-based employee benefits plans in
which executive officers are permitted to participate on the
same terms as other eligible employees of the company, subject
to applicable limits imposed on contributions and benefits under
applicable law. We believe it is necessary to maintain these
plans to remain competitive with the overall compensation
packages offered by other companies in the oil and gas industry.
We target the value of these benefits at approximately the
50th
percentile of that offered by other oil and gas companies. In
addition to group life insurance and health and welfare plans,
we have a savings plan under which participants can elect to
invest (subject to contribution limits imposed by law) up to 25%
of pre-tax salary in a variety of funds, one of which invests in
our common stock, and the company provides matching
contributions up to 6% of pre-tax salary for each participant,
which are invested at the discretion of the participant. As
explained later in this proxy statement, we have a qualified
defined benefit pension plan, and a non-qualified supplemental
plan that provides benefits that would otherwise be paid to
participants under the qualified pension plan but for
limitations imposed by the Internal Revenue Code. The committee
has granted additional years of credited service under our
supplemental pension plan (the restoration plan referred to in
the Pension Benefits table) to Messrs. OConnor,
15
Walker and Rielly as part of the compensation packages necessary
to recruit them. The additional years of service are equal to
their service with their prior employers and their supplemental
benefits are offset by their pension benefits from their prior
employers.
The company did not provide perquisites valued at $10,000 or
more to named executive officers in 2006. We believe that the
other elements of executive compensation provide sufficient
remuneration.
Change in
Control Agreements
As explained in greater detail later in this proxy statement, we
have change in control agreements for certain executives,
including the named executive officers, that provide for a lump
sum cash payment equal to a multiple of the executives
compensation if the executive is actually or constructively
terminated within 24 months following a change in control,
as defined in the agreement, as well as other benefits. We
believe these agreements are necessary to remain competitive
with the overall compensation packages afforded by other
companies in the oil and gas industry. We also believe these
agreements work to provide security to executives, many of whom
would have key roles in effecting or resisting a potential
change in control transaction, and motivate them to act in the
best long-term interests of all stockholders.
Management
Stock Ownership Guidelines
In order to further align the interests of management and
stockholders, following approval and recommendation by the
committee, the board of directors approved management stock
ownership guidelines for corporate officers of the company. The
guidelines require that each officer attain a specified level of
ownership of shares of the companys common stock, as set
forth below, equal in value to a multiple of the officers
base salary within five years of the later of the date of
adoption of the guidelines and the officers first election
to his or her office:
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chief executive officer five times base salary,
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executive vice presidents four times base salary,
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senior vice presidents three times base salary, and
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vice presidents one times base salary.
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The committee has authority to determine the types of
stockholdings that will be counted for determining stock
ownership and otherwise administer the guidelines. Currently,
shares owned outright by an executive and stock held in an
executives savings plan account are counted for purposes
of determining stock ownership levels. Stock options and
unvested restricted stock, however, are not counted. Each of
these officers has attained, or is making progress in attaining,
his or her required level of ownership.
We do not permit executive officers to trade in equity
derivative instruments in order to hedge the economic risks of
holding the companys stock. The purpose of these
guidelines is to align the interests, including the economic
risk of ownership, of management and stockholders. This intent
would be undermined if executives were to insulate themselves
from economic loss on their stock.
16
Deductibility
of Compensation Expense for Named Executive Officers
Section 162(m) of the Internal Revenue Code disallows
deductions by corporations for certain compensation expense to
the chief executive officer and the four other most highly paid
executive officers in excess of $1 million in any year. In
2005 the committee approved a performance incentive plan for
senior officers to permit deductibility of compensation expense
for restricted stock and cash bonuses. The plan limits awards of
incentive cash compensation and restricted and deferred stock
granted in any year to each participant to 1%, and to all
participants in the aggregate to 5%, of adjusted net cash flow
from operations for the prior year minus a specified amount of
not less than $550 million. The plan is not intended to
increase award levels beyond those that the committee would
otherwise approve consistent with its compensation policies
described previously. Participants in the plan include the named
executive officers and any other senior officers that the
committee may designate. The plan was approved by stockholders
in 2006 and will apply to awards earned for 2007 and made in
2008. The plan does not cover stock options, because they
already qualify as performance-based compensation under this
section of the code. Cash salary in excess of $1 million to
any named executive officer in any year is not deductible. We
believe it is important for the committee to retain discretion
to pay types and amounts of compensation even if it is not
deductible, as it deems appropriate.
Conclusion
We believe that our compensation philosophy and programs align
with the interests of the company and shareholders, link
compensation to corporate performance and assist in attracting
and retaining talented executives. The committee will continue
to monitor our programs to ensure that they are consistent with
our compensation objectives and policies.
Compensation
Committee Report
The compensation and management development committee of the
board of directors of the company has reviewed and discussed the
compensation discussion and analysis with management, and based
on this review and discussion, the compensation and management
development committee recommended to the board of directors that
the compensation discussion and analysis be included in this
proxy statement and incorporated by reference into the annual
report on
Form 10-K.
Thomas H. Kean, Chairman
Nicholas F. Brady
Frank A. Olson
Ernst H. von Metzsch
Robert N. Wilson
17
Summary
of Compensation
The following table sets forth information on compensation paid
or accrued for the last fiscal year to the chief executive
officer, the chief financial officer and the three other most
highly compensated executive officers, for services in all
capacities to the company and its subsidiaries.
Summary
Compensation Table
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Change in
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Pension
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Value and
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Non-Equity
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Nonqualified
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Incentive
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Deferred
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Stock
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Option
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Plan
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Compensation
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All Other
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Salary
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Bonus(1)
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Awards(2)
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Awards(3)
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Compensation(1)
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Earnings(4)
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Compensation(5)
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Total
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Name and Title
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Year
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$
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$
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$
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$
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$
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$
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$
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$
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(a)
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(b)
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(c)
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(d)
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(e)
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(f)
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(g)
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(h)
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(i)
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(j)
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Hess, John B.
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2006
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1,250,000
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1,247,978
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4,517,693
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3,549,560
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2,152,022
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2,279,680
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13,200
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15,010,133
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Chairman & Chief
Executive Officer (principal executive officer)
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OConnor, John J.
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2006
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1,100,000
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812,969
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3,525,403
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2,647,020
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1,387,031
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5,656,082
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13,200
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15,141,705
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Executive Vice
President & President, Worldwide Exploration and
Production
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Walker, F. Borden
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2006
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800,000
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255,446
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1,572,687
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1,187,212
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469,554
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1,198,538
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13,200
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5,496,637
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Executive Vice President &
President, Marketing and Refining
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Collins, J. Barclay
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2006
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750,000
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(6)
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251,847
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1,511,400
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1,126,626
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498,153
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158,200
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13,200
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4,309,426
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Executive Vice President &
General Counsel
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rielly, John P.
|
|
|
|
2006
|
|
|
|
|
625,000
|
|
|
|
|
140,960
|
|
|
|
|
936,132
|
|
|
|
|
796,510
|
|
|
|
|
259,040
|
|
|
|
|
339,781
|
|
|
|
|
13,200
|
|
|
|
|
3,110,623
|
|
Senior Vice President &
Chief Financial Officer (principal financial officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The amounts shown in column
(d) represent the discretionary component of the cash
bonuses, and the amounts shown in column (g) represent the
components of the cash bonuses relating to the attainment of
corporate and business unit performance metrics, paid to the
named executive officers under our cash bonus plan, as discussed
more fully in the compensation discussion and analysis starting
on page 13 above.
|
|
(2)
|
|
Consists of compensation costs
recognized in 2006 for restricted stock awards granted in 2006
and prior years in accordance with Statement of Financial
Accounting Standards No. 123R. A discussion of the
valuation assumptions is in Note 9, Share-Based
Compensation, to our consolidated financial statements
included in our annual report on
Form 10-K
for the year ended December 31, 2006.
|
|
(3)
|
|
Consists of compensation costs
recognized in 2006 for stock options granted in 2006 and prior
years in accordance with Statement of Financial Accounting
Standards No. 123R. A discussion of the valuation
assumptions is in Note 9, Share-Based Compensation,
to our consolidated financial statements included in our
annual report on
Form 10-K
for the year ended December 31, 2006.
|
|
(4)
|
|
Consists of aggregate change in
2006 in actuarial present value of the accumulated benefits of
the named executive officers under the companys pension
plans.
|
|
(5)
|
|
Consists of matching contributions
by the company credited to the named executive officers under
the companys employees saving and stock bonus plan.
|
|
(6)
|
|
Of this amount $72,115 was deferred
under our deferred compensation plan and is reported in the
Nonqualified Deferred Compensation table on page 23.
|
18
|
|
|
Grants
of Plan-Based Awards
|
On February 1, 2006, the compensation and management
development committee approved awards of non-qualified stock
options and restricted stock and established target bonuses. The
following table sets forth information concerning possible
payouts under the annual cash bonus plan for 2006 and individual
grants of stock options and restricted stock made under the
incentive plan for the last fiscal year to each of the named
executive officers:
Grants of
Plan-Based Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
All Other
|
|
|
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards:
|
|
|
Option Awards:
|
|
|
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Possible Payouts
|
|
|
Number of
|
|
|
Number of
|
|
|
Exercise or
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Non-Equity Incentive
|
|
|
Shares of
|
|
|
Securities
|
|
|
Base Price of
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
Awards(1)
|
|
|
Stock or
|
|
|
Underlying
|
|
|
Option
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Units
|
|
|
Options
|
|
|
Awards
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Grant Date
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
($/Sh)
|
|
|
Awards ($)(2)
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
|
|
|
|
|
|
|
|
|
Hess, John B.
|
|
|
2/1/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
288,000
|
|
|
|
49.55
|
|
|
|
4,757,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/1/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,000
|
|
|
|
|
|
|
|
|
|
|
|
4,756,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/1/2006
|
|
|
|
900,000
|
|
|
|
1,800,000
|
|
|
|
2,700,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OConnor, John J.
|
|
|
2/1/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216,000
|
|
|
|
49.55
|
|
|
|
3,568,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/1/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,000
|
|
|
|
|
|
|
|
|
|
|
|
3,567,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/1/2006
|
|
|
|
550,000
|
|
|
|
1,100,000
|
|
|
|
1,650,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Walker, F. Borden
|
|
|
2/1/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,000
|
|
|
|
49.55
|
|
|
|
1,486,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/1/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
1,486,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/1/2006
|
|
|
|
216,667
|
|
|
|
433,333
|
|
|
|
650,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collins, J. Barclay
|
|
|
2/1/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,000
|
|
|
|
49.55
|
|
|
|
1,338,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/1/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,000
|
|
|
|
|
|
|
|
|
|
|
|
1,337,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/1/2006
|
|
|
|
208,333
|
|
|
|
416,667
|
|
|
|
625,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rielly, John P.
|
|
|
2/1/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,000
|
|
|
|
49.55
|
|
|
|
1,040,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/1/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,000
|
|
|
|
|
|
|
|
|
|
|
|
1,040,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/1/2006
|
|
|
|
108,333
|
|
|
|
216,667
|
|
|
|
325,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The amount shown in
columns (c), (d) and (e) above represent the
threshold, target and maximum payouts for the components of the
2006 cash bonuses relating to the attainment of corporate and
business unit performance metrics. The actual amounts paid for
2006 relating to these components is shown in column (g) of
the Summary Compensation Table on page 18.
|
|
(2)
|
|
The grant date fair values for
option awards shown in the above table have been determined
using the Black-Scholes option pricing model. This model, like
all pricing models, requires assumptions, and therefore the
amounts shown should not necessarily be considered indicative of
the present value of the amounts that may actually be realized.
The following assumptions were made for purposes of this
valuation: expected holding period of five years for each
option; stock price volatility of .321; risk-free interest rate
of 4.5%; and dividend yield of 0.8%. The grant date fair value
of stock awards is determined by multiplying the number of
shares of stock awarded as shown in column (f) by the closing
price of the companys common stock on the date of grant.
|
We have no employment agreements with our named executive
officers other than agreements relating to credited service
discussed under Pension Benefits and change of
control agreements discussed under Potential Payments upon
Termination or Change in Control.
The stock options shown in the All Other Option
Awards column of the Grants of Plan-Based Awards table
vest in three equal installments on the first, second and third
anniversaries of the grant date, except that options may become
exercisable earlier in full in cases of death, disability,
normal retirement or change in control. At the discretion of the
compensation and management development committee, upon early
retirement of an awardee, options not then exercisable may
become exercisable in proportion to the calendar days
19
elapsed in the vesting period up to the early retirement date.
The options remain exercisable until the tenth anniversary of
the date of grant, except in cases of termination of employment
for reasons other than death, disability or normal retirement,
in which case options remain exercisable only for specified
periods. If a grantees employment terminates (other than
by reason of death, disability or retirement) before these
options become exercisable, they will be forfeited. The shares
of restricted stock shown in the All Other Stock
Awards column of the Grants of Plan-Based Awards table
(i) vest on the third anniversary of the grant date, except
that they may vest earlier upon retirement, death, disability or
a change in control (with proportional vesting of restricted
stock in the case of early retirement at the discretion of the
committee) and (ii) dividends on the shares are accrued and
held in escrow until the vesting date, at which time they are
paid with interest at short-term market rates (the dividends are
forfeited if the shares of restricted stock are forfeited). All
awards and exercise prices shown in columns (f), (g) and (h)
reflect the effect of a three-for-one split of the
companys common stock on May 31, 2006.
Non-equity incentive plan awards are discussed in the
compensation discussion and analysis under the heading
Cash Compensation Cash Bonus Plan.
|
|
|
Outstanding
Equity Awards
|
The following table shows outstanding equity awards held by the
named executive officers at the end of the last fiscal year. The
market value of shares of unvested restricted stock shown in
column (g) is determined by multiplying the number of shares
shown in column (f) by the closing price of the companys
common stock at the end of the last fiscal year.
Outstanding
Equity Awards at Fiscal Year End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Shares or
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Units of
|
|
|
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
|
|
|
Stock that
|
|
|
Stock that
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Options
|
|
|
Exercise
|
|
|
Option
|
|
|
have not
|
|
|
have not
|
|
|
|
|
|
|
|
|
|
|
|
|
(#)
|
|
|
(#)
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
($)
|
|
|
Date
|
|
|
(#)
|
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
|
|
|
|
|
|
|
|
|
Hess, John B.
|
|
|
225,000
|
|
|
|
|
|
|
|
17.67
|
|
|
|
01/05/08
|
|
|
|
630,000
|
(4)
|
|
|
31,229,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
|
|
16.40
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,000
|
|
|
|
|
|
|
|
19.38
|
|
|
|
12/01/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
|
|
20.08
|
|
|
|
12/06/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600,000
|
|
|
|
|
|
|
|
19.43
|
|
|
|
11/07/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240,000
|
|
|
|
120,000
|
(1)
|
|
|
24.14
|
|
|
|
06/02/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,000
|
|
|
|
228,000
|
(2)
|
|
|
29.96
|
|
|
|
02/02/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
288,000
|
(3)
|
|
|
49.55
|
|
|
|
02/01/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OConnor, John J.
|
|
|
300,000
|
|
|
|
|
|
|
|
19.43
|
|
|
|
11/07/11
|
|
|
|
396,000
|
(5)
|
|
|
19,629,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180,000
|
|
|
|
90,000
|
(1)
|
|
|
24.14
|
|
|
|
06/02/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,000
|
|
|
|
168,000
|
(2)
|
|
|
29.96
|
|
|
|
02/02/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216,000
|
(3)
|
|
|
49.55
|
|
|
|
02/01/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Walker, F. Borden
|
|
|
30,000
|
|
|
|
|
|
|
|
16.40
|
|
|
|
02/03/09
|
|
|
|
232,500
|
(6)
|
|
|
11,525,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,000
|
|
|
|
|
|
|
|
19.38
|
|
|
|
12/01/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
|
20.08
|
|
|
|
12/06/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,000
|
|
|
|
|
|
|
|
19.43
|
|
|
|
11/07/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,000
|
|
|
|
45,000
|
(1)
|
|
|
24.14
|
|
|
|
06/02/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,500
|
|
|
|
75,000
|
(2)
|
|
|
29.96
|
|
|
|
02/02/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,000
|
(3)
|
|
|
49.55
|
|
|
|
02/01/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Shares or
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Units of
|
|
|
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
|
|
|
Stock that
|
|
|
Stock that
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Options
|
|
|
Exercise
|
|
|
Option
|
|
|
have not
|
|
|
have not
|
|
|
|
|
|
|
|
|
|
|
|
|
(#)
|
|
|
(#)
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
($)
|
|
|
Date
|
|
|
(#)
|
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
|
|
|
|
|
|
|
|
|
Collins, J. Barclay
|
|
|
18,000
|
|
|
|
|
|
|
|
19.38
|
|
|
|
12/01/09
|
|
|
|
228,000
|
(7)
|
|
|
11,301,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,000
|
|
|
|
|
|
|
|
20.08
|
|
|
|
12/06/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,000
|
|
|
|
|
|
|
|
19.43
|
|
|
|
11/07/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,000
|
|
|
|
45,000
|
(1)
|
|
|
24.14
|
|
|
|
06/02/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,000
|
|
|
|
72,000
|
(2)
|
|
|
29.96
|
|
|
|
02/02/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,000
|
(3)
|
|
|
49.55
|
|
|
|
02/01/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rielly, John P.
|
|
|
60,000
|
|
|
|
|
|
|
|
24.89
|
|
|
|
04/02/11
|
|
|
|
105,000
|
(8)
|
|
|
5,204,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,000
|
|
|
|
|
|
|
|
19.43
|
|
|
|
11/07/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
|
|
30,000
|
(1)
|
|
|
24.14
|
|
|
|
06/02/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,000
|
|
|
|
48,000
|
(2)
|
|
|
29.96
|
|
|
|
02/02/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,000
|
(3)
|
|
|
49.55
|
|
|
|
02/01/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Options become fully vested and exercisable on June 2, 2007
if the named executive officer continues to be employed.
|
|
(2)
|
Options become vested and exercisable in 2 equal installments on
February 2, 2007 and February 2, 2008 if the named
executive officer continues to be employed
|
|
(3)
|
Options become vested and exercisable in 3 equal installments on
February 1, 2007, February 1, 2008 and
February 1, 2009 if the named executive officer continues
to be employed.
|
|
(4)
|
Shares of restricted stock vest provided the named executive
officer continues to be employed as follows: 120,000 on
June 2, 2007, 114,000 on February 2, 2008, 300,000 on
February 5, 2008 and 96,000 on February 1, 2009.
|
|
(5)
|
Shares of restricted stock vest provided the named executive
officer continues to be employed as follows: 90,000 on
June 2, 2007, 84,000 on February 2, 2008, 150,000 on
February 5, 2008 and 72,000 on February 1, 2009.
|
|
(6)
|
Shares of restricted stock vest provided the named executive
officer continues to be employed as follows: 45,000 on
June 2, 2007, 37,500 on February 2, 2008, 120,000 on
February 5, 2008 and 30,000 on February 1, 2009.
|
|
(7)
|
Shares of restricted stock vest provided the named executive
officer continues to be employed as follows: 45,000 on
June 2, 2007, 36,000 on February 2, 2008, 120,000 on
February 5, 2008 and 27,000 on February 1, 2009.
|
|
(8)
|
Shares of restricted stock vest provided the named executive
officer continues to be employed as follows: 30,000 on
June 2, 2007, 24,000 on February 2, 2008, 30,000 on
February 5, 2008 and 21,000 on February 1, 2009.
|
The following table sets forth information as to the named
executives regarding the exercise of stock options and the
vesting of restricted stock under the incentive plan as of the
end of the last fiscal year:
Option
Exercises and Stock Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
|
Acquired on
|
|
|
Realized on
|
|
|
Acquired on
|
|
|
Realized on
|
|
|
|
Exercise
|
|
|
Exercise
|
|
|
Vesting
|
|
|
Vesting(1)
|
|
Name
|
|
(#)
|
|
|
($)
|
|
|
(#)
|
|
|
($)
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
Hess, John B.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OConnor, John J.
|
|
|
|
|
|
|
|
|
|
|
120,000
|
|
|
|
5,270,400
|
|
Walker, F. Borden
|
|
|
90,000
|
|
|
|
3,138,482
|
|
|
|
|
|
|
|
|
|
Collins, J. Barclay
|
|
|
48,000
|
|
|
|
1,007,470
|
|
|
|
|
|
|
|
|
|
Rielly, John P.
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
1,407,300
|
|
|
|
|
(1)
|
|
Value based on closing price on
the vesting date, except that for Mr. Rielly, value is based on
closing price on the day following vesting date since vesting
date was not a trading day.
|
21
Pension
Benefits
The following table shows the number of years of credited
service and present value of the accumulated benefit under these
plans as of the end of the last fiscal year for each of the
named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present Value of
|
|
|
|
|
|
|
Number of Years
|
|
Accumulated
|
|
Payments During
|
|
|
|
|
Credited Service
|
|
Benefit
|
|
Last Fiscal Year
|
Name
|
|
Plan Name
|
|
(#)
|
|
($)
|
|
($)
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
Hess, John B.
|
|
Employees Pension Plan
|
|
|
29.58
|
|
|
|
714,164
|
|
|
|
|
|
Restoration Plan
|
|
|
29.58
|
|
|
|
17,557,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OConnor, John J.
|
|
Employees Pension Plan
|
|
|
5.25
|
|
|
|
132,545
|
|
|
|
|
|
Restoration Plan
|
|
|
38.25
|
(1)
|
|
|
19,521,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Walker, F. Borden
|
|
Employees Pension Plan
|
|
|
10.50
|
|
|
|
261,590
|
|
|
|
|
|
Restoration Plan
|
|
|
29.50
|
(2)
|
|
|
5,995,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collins, J. Barclay
|
|
Employees Pension Plan
|
|
|
22.67
|
|
|
|
780,776
|
|
|
|
|
|
Restoration Plan
|
|
|
22.67
|
|
|
|
6,171,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rielly, John P.
|
|
Employees Pension Plan
|
|
|
5.75
|
|
|
|
89,051
|
|
|
|
|
|
Restoration Plan
|
|
|
22.25
|
(3)
|
|
|
1,746,245
|
|
|
|
|
|
|
(1)
|
|
Credited years of service include
33 years for service with prior employers. Benefits shown
are net amounts offset by amounts due from previous employers.
Additional years of credited service result in an increase of
$16,533,235 under the restoration plan.
|
|
(2)
|
|
Credited years of service include
19 years for service with a prior employer. Benefits shown
are net amounts offset by amounts due from previous employer.
Additional years of credited service result in an increase of
$3,939,243 under the restoration plan.
|
|
(3)
|
|
Credited years of service include
16.5 years for service with a prior employer. Benefits
shown are net amounts offset by amounts due from previous
employer. Additional years of credited service result in an
increase of $1,353,107 under the restoration plan.
|
We maintain an employees pension plan, a qualified defined
benefit plan under the Internal Revenue Code, and a
non-qualified supplemental plan, called the pension restoration
plan, that provides benefits that would otherwise be payable to
participants under the employees pension plan but for
limitations imposed by the Internal Revenue Code, with certain
modifications discussed below. Employees participate after one
year of service in the employees pension plan and vest in
a retirement benefit after five years of service. Annual
retirement benefits for a participant at normal retirement age
are determined by multiplying 1.6% of the participants
final average compensation by his or her years of service and
are then reduced by an offset for social security benefits.
Under the employees pension plan, final average
compensation is the average of any three years of highest annual
compensation (consisting of salary and cash bonus as shown in
columns (c), (d) and (g) of the Summary Compensation Table)
paid to the participant during the 10 years immediately
preceding his or her retirement date. Under the restoration
plan, final average compensation is the average of any three
years of highest annual salary (as shown in column (c) of
the Summary Compensation Table) plus the average of any three
years of highest cash bonus (as shown in columns (d)and (g)
of the Summary Compensation Table) paid to the participant
during the 10 years immediately preceding his or her
retirement date. Normal retirement under the plans means
retirement at age 65, but a participant retiring from
active service is entitled to an unreduced benefit at
age 60. A participant may elect early retirement if the
participant is at
22
least 55 years old and has 10 years of service.
Mr. Collins is the only named executive officer currently
eligible for early retirement under the employees pension
plan, and Messrs. Collins and OConnor are the only
named executive officers eligible for early retirement under the
restoration plan. Under both plans, retirement benefits paid
upon early retirement from active service at the age of 55 are
reduced by 25% of the retirement benefit otherwise payable, with
proportionately lower reductions for early retirement between
ages 55 and 60. Early retirement reductions are greater if
employment terminates prior to age 55. Retirement benefits
under the employees pension plan are payable as a straight
life annuity or in other forms of annuities actuarially
equivalent to a straight life annuity. Retirement benefits under
the restoration plan are payable as a lump sum 6 months
after retirement. A participants right to payment under
the restoration plan constitutes a general unsecured claim
against the company.
The valuation method and material assumptions used in
quantifying the present value of the accumulated benefit shown
in the table are explained in Note 11. Retirement Plans,
to our consolidated financial statements in our annual report on
Form 10-K for year ended December 31, 2006. As explained in
footnotes to the table above and in the compensation discussion
and analysis, Messrs. OConnor, Rielly and Walker were
granted years of credited service under the restoration plan for
employment with prior employers by the compensation and
management development committee. Retirement benefits payable
under the restoration plan are offset by retirement benefits
payable by their prior employers.
Nonqualified
Deferred Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
Registrant
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
|
Contributions in
|
|
Contributions in
|
|
|
Earnings in
|
|
|
Withdrawals /
|
|
|
Balance at
|
|
|
|
Last Fiscal Year
|
|
Last Fiscal Year
|
|
|
Last Fiscal Year
|
|
|
Distributions
|
|
|
Last Fiscal Year
|
|
Name
|
|
($)
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
Hess, John B.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OConnor, John J.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Walker, F. Borden
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collins, J. Barclay
|
|
144,615(1)
|
|
|
|
|
|
|
26,897
|
|
|
|
|
|
|
|
248,424
|
|
Rielly, John P.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
$72,115 of this amount is also
included in the Summary Compensation Table on p. 18 in the
salary column. The remaining $72,500 is from bonus compensation
earned in 2005 that was paid in 2006.
|
We maintain a deferred compensation plan for certain highly-paid
employees selected by us as eligible to participate under which
a participant may elect in advance of any year to defer payment
of up to 50% of salary and 100% of cash bonus payable for that
year to a date no earlier than three years from the date of
election, except that payments may be made earlier in the case
of termination, death, disability, retirement or a change of
control. Amounts deferred are deemed invested in investment
vehicles identical to those offered under our qualified
employees savings and stock bonus plan as the participant
elects, except that the deferred compensation plan does not
offer a fund for investing in the companys stock, and
earnings thereon are payable together with the deferred
compensation. Payments may be made in a lump sum or in annual
installments over a five year period, as the participant elects.
The right of any participant to receive a payment constitutes a
general unsecured claim against the company. Mr. Collins is
the only named executive officer who participates in the
deferred compensation plan.
23
Potential
Payments upon Termination or Change in Control
Termination
In the event any of the named executive officers had terminated
employment at the end of the last fiscal year, the officer would
be entitled to the officers accumulated retirement
benefits in accordance with the provisions of our retirement
plans as described under Pension Benefits on
page 22. Retirement benefits under the employees
pension plan are payable solely in the form of an annuity.
Retirement benefits under the restoration plan are payable only
in the form of a lump sum.
Mr. Collins would also be entitled to the amount shown in
the Nonqualified Deferred Compensation table on
page 23. In addition, because Mr. Collins was eligible for
early retirement under the employees pension plan, a pro
rata portion of his unvested equity awards would become vested
at the discretion of the compensation and management development
committee based on the number of calendar days elapsed in the
applicable vesting period and he would be entitled to exercise
all vested stock options until the option expiration date shown
in the Outstanding Equity Awards at Fiscal Year End
table on pages 20 and 21.
Each named executive officer other than Mr. Collins would
also be entitled to exercise the stock options shown in the
Option Awards Exercisable column of the
Outstanding Equity Awards at Fiscal Year End table
on pages 20 and 21 for a period of 60 days from the
date of termination. If any of the named executive officers had
terminated employment due to death or disability (i) stock
options in the Option Awards
Unexercisable column of the Outstanding Equity
Awards at Fiscal Year End table would have become fully
exercisable, (ii) all stock options in the Option
Awards columns of that table would remain exercisable
until the option expiration date shown in the table, and
(iii) all restricted stock awards listed in that table
would have become fully vested. See that table for the market
value of the unvested shares of restricted stock at the end of
the last fiscal year.
Change in
Control
Equity Awards. In the event of a change in
control of the company, pursuant to the incentive plan all
unexercisable stock options and all nonvested shares of
restricted stock awarded to the named executive officers would
immediately become fully exercisable and vested. See the
Outstanding Equity Awards at Fiscal Year End table
on pages 20 and 21 for the number of unexercisable options
and unvested shares of restricted stock held by each named
executive officer at the end of the last fiscal year. The named
executive officers would also be able to exercise the stock
options shown in the Option Awards-Exercisable
column of that table.
For purposes of the incentive plan change in control
means (i) acquisition by a person or group of 20% or more
of the companys common stock or voting securities,
(ii) a change in majority of the board of directors,
(iii) shareholder approval of a reorganization, merger or
consolidation in which the owners of the companys common
stock and voting securities immediately prior to the transaction
do not own more than 51%, respectively, of the common stock and
voting securities of the surviving entity, or
(iv) shareholder approval of a liquidation, dissolution or
sale of all or substantially all of the companys assets in
which the owners of the companys common stock and voting
securities immediately prior to the transaction do not
24
own more than 51%, respectively, of the common stock and voting
securities of the surviving entity.
Severance Payments. The company has entered
into change in control termination benefit agreements with
executive officers and certain other officers of the company.
These agreements provide for lump sum cash payments equal to a
multiple of an executives annual compensation if within
24 months following a change in control the employment of
the executive is terminated by the executive for good reason or
by the company without cause. For these purposes, annual
compensation consists of the executives base pay at the
date of his termination or immediately before the change in
control, whichever is higher, plus the greater of his or her
target bonus for the year in which the change in control occurs
or the highest bonus earned in the three fiscal years preceding
the change in control. The multiple of annual compensation
received is three times for the named executive officers (other
than Mr. Rielly) and two times for Mr. Rielly and all
other officers with whom such agreements were entered into.
In addition, the executive is entitled to receive a pro rata
portion of his or her target bonus for the fiscal year in which
termination occurs, and continuation of medical, dental and
other welfare benefits. The benefits continuation period is
36 months following termination for the named executive
officers (other than Mr. Rielly) and 24 months
following termination for Mr. Rielly and all other officers
with whom such agreements were entered into. The agreements
provide for immediate vesting of retirement benefits upon
termination, deemed age and service credit in determining
retirement benefits for the number of years equal to the
severance multiple, and deemed compensation in determining
retirement benefits equal to the salary and bonus taken into
account in determining the lump sum severance payment. The named
executive officers are also entitled to a
gross-up
payment from the company for any golden parachute
excise tax imposed by the Internal Revenue Code on
parachute payments resulting from a change in
control.
Value of Change in Control Payments and
Benefits. Set forth below is the estimated value,
assuming that a change in control occurred at the end of the
last fiscal year and the employment of each named executive
officer terminated on that date under circumstances entitling
them to severance payments and benefits under the change in
control termination benefit agreements, as well as the value of
their unvested equity awards at the end of the last fiscal year.
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|
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Cash
|
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|
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|
|
|
|
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Additional
|
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|
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Named
|
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Severance
|
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Stock
|
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Restricted
|
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Welfare
|
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Outplacement
|
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Pension
|
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Excise Tax
|
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Executive
|
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Payment
|
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|
Options
|
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|
Stock
|
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|
Benefits
|
|
|
Benefits
|
|
|
Benefits(1)
|
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|
Gross-up
|
|
|
Total
|
|
Officer
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Hess, J.B.
|
|
|
13,650,000
|
|
|
|
7,527,840
|
|
|
|
31,229,100
|
|
|
|
38,442
|
|
|
|
30,000
|
|
|
|
18,666,752
|
|
|
|
17,394,426
|
|
|
|
88,536,560
|
|
OConnor, J.J.
|
|
|
9,300,000
|
|
|
|
5,587,040
|
|
|
|
19,629,720
|
|
|
|
18,852
|
|
|
|
30,000
|
|
|
|
6,647,455
|
|
|
|
10,513,751
|
|
|
|
51,726,818
|
|
Walker, F.B.
|
|
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4,650,000
|
|
|
|
2,616,700
|
|
|
|
11,525,025
|
|
|
|
38,442
|
|
|
|
30,000
|
|
|
|
6,272,870
|
|
|
|
6,622,042
|
|
|
|
31,755,079
|
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Collins, J.B.
|
|
|
4,425,000
|
|
|
|
2,557,710
|
|
|
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11,301,960
|
|
|
|
29,529
|
|
|
|
30,000
|
|
|
|
1,348,447
|
|
|
|
N/A
|
|
|
|
19,692,646
|
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Rielly, J.P.
|
|
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2,000,000
|
|
|
|
1,705,290
|
|
|
|
5,204,850
|
|
|
|
186
|
|
|
|
30,000
|
|
|
|
796,180
|
|
|
|
1,849,787
|
|
|
|
11,586,293
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|
|
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(1) |
Each named executive officer would also be entitled to his
accumulated retirement benefits in accordance with the
provisions of the employees pension plan and pension
restoration plan described under Pension Benefits on
page 22.
|
25
The amounts in the table above were calculated: assuming a
change in control occurred on December 31, 2006; using the
closing price of our common stock on December 29, 2006 (the
last trading day of our fiscal year) of $49.57 per share;
using the intrinsic value of stock options (i.e., the result of
multiplying the number of unvested options by the difference
between the December 29, 2006 closing price of our common
stock and the exercise price) and for purpose of the golden
parachute excise tax (i) assuming each of the named
executive officers is subject to the maximum federal and state
income tax rates, (ii) using the applicable federal rates
for December 2006 to calculate the present values of accelerated
payments and (iii) assuming that the five-year period for
determining the average total compensation of each named
executive officer (i.e., the base amount under the golden
parachute rules) ended on December 31, 2005.
The definition of change in control under the
termination benefits agreements is substantially similar to the
definition of change in control in the incentive plan, except
that the change in a majority of board of directors must occur
within a
24-month
period, the applicable event for reorganization, merger or
consolidation is consummation rather than shareholder approval,
and the exception for reorganization, merger, consolidation,
liquidation, dissolution and asset sale is 60% rather than 51%.
For purposes of these agreements, good reason is defined as a
failure to maintain the executive in the office or position held
immediately prior to the change in control (or a substantially
equivalent position), the removal of the executive as a director
if the executive was a director immediately prior to the change
in control, a material adverse change in the nature or scope of
the executives authorities, responsibilities or duties, a
reduction in base salary or target annual bonus, termination of
the ability of the executive to participate in the
companys welfare benefit plans or retirement plans as in
effect immediately prior to the change in control or a material
reduction in the scope or value of those welfare or retirement
benefits, a relocation of the executives principal work
location of more than 30 miles from the executives
location immediately prior to the change in control, or an
increase in the executives required business travel of
more than 20% (based on days in any calendar quarter or year)
than required in any of the three full years immediately prior
to the change in control. Cause for purposes of these agreements
is defined as conviction of a felony, gross and willful
misconduct by the executive in performing the executives
duties, or willful and continued failure of the executive to
substantially perform the executives duties after written
demand.
26
Director
Compensation
The following table shows compensation paid to directors in 2006.
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Change in
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Pension Value
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and
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|
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|
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Nonqualified
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Non-Equity
|
|
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Deferred
|
|
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|
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|
|
Fees Earned or
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Stock
|
|
|
Option
|
|
|
Incentive Plan
|
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Compensation
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All Other
|
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|
|
|
|
|
|
|
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Paid in Cash
|
|
|
Awards(1)
|
|
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Awards
|
|
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Compensation
|
|
|
Earnings
|
|
|
Compensation(2)
|
|
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Total
|
|
|
|
|
Name
|
|
($)
|
|
|
($)
|
|
|
($)
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|
|
($)
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|
|
($)
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|
|
($)
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|
|
($)
|
|
|
|
|
(a)
|
|
(b)
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(c)
|
|
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(d)
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|
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(e)
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(f)
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|
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(g)
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(h)
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Brady, Nicholas F.
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|
|
120,000
|
|
|
|
151,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,529
|
|
|
|
281,716
|
|
|
|
|
|
Holiday, Edith E.
|
|
|
132,500
|
|
|
|
151,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186
|
|
|
|
283,873
|
|
|
|
|
|
Kean, Thomas H.
|
|
|
126,000
|
|
|
|
151,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,529
|
|
|
|
287,716
|
|
|
|
|
|
Lavizzo-Mourey, Risa
|
|
|
120,500
|
|
|
|
151,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186
|
|
|
|
271,873
|
|
|
|
|
|
Matthews, Craig G.
|
|
|
122,500
|
|
|
|
151,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186
|
|
|
|
273,873
|
|
|
|
|
|
Olson, Frank A.
|
|
|
130,500
|
|
|
|
151,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,529
|
|
|
|
292,216
|
|
|
|
|
|
Von Metzsch, Ernst H.
|
|
|
107,000
|
|
|
|
151,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186
|
|
|
|
258,373
|
|
|
|
|
|
Wilson, Robert N.
|
|
|
146,500
|
|
|
|
151,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186
|
|
|
|
297,873
|
|
|
|
|
|
|
|
|
(1)
|
|
Stock awards consist of 3,000
common shares granted on January 31, 2006 that were fully
vested on grant. The closing price of our common shares on that
date was $50.3958 per share.
|
|
(2)
|
|
Amounts in this column consist of
$186 in life insurance premiums for each director and, for
Messrs. Brady, Kean and Olson, $10,343 in medical benefits.
|
In 2006, each director who was not an employee of the company or
any of its subsidiaries received an annual fee of $75,000 for
membership on the board of directors and a fee of $2,000 for
each board of directors and stockholders meeting
attended. These directors received an additional annual fee of
$4,000 for membership on each committee of the board of
directors on which such director served, except for audit
committee members who each received an annual fee of $7,500, and
a fee of $2,000 for each committee meeting, and in the case of
audit committee members each quarterly financial review,
attended. The chairperson of each committee received an annual
fee of $5,000, except for the chairman of the audit committee,
who received an annual fee of $10,000. In addition, in February
2006 each non-employee director received 1,000 shares of
common stock (3,000 shares after giving effect to the
three-for-one split of the companys common stock on
May 31, 2006). These awards are made from shares purchased
by the company in the open market.
Effective January 1, 2007, the corporate governance and
nominating committee decided to fix the annual stock award to
each non-management director at $150,000 in value as of the date
of award, increased the annual retainer for members of the
compensation and management development committee and corporate
governance and nominating committee to $5,000 and for chairmen
of these committees to $7,500 and increased the annual retainer
for the chairman of the audit committee to $15,000.
27
Ownership
of Voting Securities by Certain Beneficial Owners
The following table sets forth, as of the most recent
practicable date, information as to the ownership of more than
5% of any class of the companys voting securities by
beneficial owners known by the company to hold more than 5% of
any such class:
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|
|
Amount and
|
|
|
|
|
|
|
Name and address
|
|
nature of
|
|
|
|
|
|
|
of beneficial
|
|
beneficial
|
|
|
Percent
|
|
Title of class
|
|
owner
|
|
ownership(a)
|
|
|
of class
|
|
|
Common Stock
|
|
John B. Hess
|
|
|
39,214,129
|
(b)(c)(d)(e)
|
|
|
12.31
|
|
|
|
Nicholas F. Brady
|
|
|
20,684,229
|
(b)(c)(g)
|
|
|
6.54
|
|
|
|
Thomas H. Kean
|
|
|
20,509,818
|
(b)(c)(h)
|
|
|
6.49
|
|
|
|
John Y. Schreyer
|
|
|
19,294,427
|
(b)(d)(f)
|
|
|
6.10
|
|
|
|
c/o Hess Corporation
1185 Avenue of the Americas
New York, New York 10036
|
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|
|
|
|
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|
Common Stock
|
|
Capital Research and Management
Company
|
|
|
23,897,910
|
(i)
|
|
|
8.5
|
|
|
|
333 South Hope Street
Los Angeles, CA 90071
|
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|
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Common Stock
|
|
Massachusetts Financial Services
Company
|
|
|
17,344,507
|
(j)
|
|
|
6.2
|
|
|
|
500 Boylston Street
Boston, MA 02116
|
|
|
|
|
|
|
|
|
(a) The information in this table and in the notes thereto
was obtained, with respect to Capital Research and Management
Company and Massachusetts Financial Services Company, from
Schedules 13G filed by such reporting persons with the
Securities and Exchange Commission in February 2007. Information
with respect to Messrs. Hess, Brady, Kean and Schreyer is as of
February 7, 2007, and with respect to Capital Research and
Management Company and Massachusetts Financial Services Company
is as of December 31, 2006. The individual amounts and
percentages shown for Messrs. Hess, Brady, Kean and Schreyer
should not be added because they reflect shared beneficial
ownership.
(b) This amount includes 12,530,979 shares held by a
charitable lead annuity trust established under the will of Leon
Hess. Mr. John B. Hess has sole voting power over the stock
held by this trust and shares dispositive power over such stock
with Messrs. Schreyer, Brady and Kean.
(c) This amount includes 7,956,219 shares held by a
limited partnership. Messrs. Hess, Brady and Kean serve on
the management committee of the general partner of this limited
partnership and share voting and dispositive power with respect
to shares held by the limited partnership.
(d) This amount includes 6,436,881 shares held by the
Hess Foundation, Inc. of which Messrs. Hess and Schreyer are
directors and as to which Mr. Hess has sole voting power
and shares dispositive power with Mr. Schreyer.
(e) This amount includes:
|
|
|
|
|
1,368,999 shares owned directly by Mr. Hess, as to which he
has sole voting and dispositive power,
|
28
|
|
|
|
|
655,065 shares held by three trusts for the benefit of Mr.
Hess and his children, as to which Mr. Hess is a trustee or
co-trustee
and has sole voting power and as to 151,438 of which shares he
has sole dispositive power and as to 503,627 of which
shares he has shared dispositive power,
|
|
|
|
715,000 shares held in escrow under the companys
incentive plan as to which Mr. Hess has voting but not
dispositive power,
|
|
|
|
2,439,000 shares underlying options to purchase common
stock, as to which Mr. Hess has no voting or dispositive
power until they are acquired upon exercise of the options,
|
|
|
|
47,851 shares vested in the name of Mr. Hess under the
employees savings and stock bonus plan as to which he has
sole voting and dispositive power,
|
|
|
|
2,703,213 shares held by a trust of which Mr. Hess is
a co-trustee and as to which he has sole voting power and shared
dispositive power,
|
|
|
|
63,635 shares held by a trust of which Mr. Hess is a
co-trustee and has shared voting and dispositive power,
|
|
|
|
2,371,878 shares held by Mr. Hess siblings and
five trusts for the benefit of Mr. Hess siblings as
to which Mr Hess has sole voting power and as to
1,541,950 shares of which he shares dispositive power
pursuant to a shareholders agreement among Mr. Hess, his
siblings and others,
|
|
|
|
735,216 shares held by a trust for the benefit of
Mr. Hess and his heirs, of which Mr. Hess spouse
is trustee, but as to which he has sole voting power and shares
dispositive power pursuant to a shareholders agreement among
Mr. Hess, his spouse and others,
|
|
|
|
1,121,175 shares held by a trust for the benefit of
Mr. Hess mother, as to which he has sole voting power
and shared dispositive power, and
|
|
|
|
69,018 shares held by two trusts as to which Mr. Hess has
sole voting and dispositive power.
|
(f) This amount includes:
|
|
|
|
|
75,289 shares owned directly by Mr. Schreyer, as to which
he has sole voting and dispositive power,
|
|
|
|
100,000 shares underlying options to purchase common stock,
as to which Mr. Schreyer has no voting or dispositive power
until they are acquired upon exercise of the options, and
|
|
|
|
151,278 shares held by four trusts as to which Mr. Schreyer
has shared voting and dispositive power.
|
(g) This amount includes 156,150 shares held directly
by Mr. Brady, as to which he has sole voting and dispositive
power, 6,000 shares held by a limited liability company of
which Mr. Brady is the managing member and as to which he
has sole voting and dispositive power. This amount also includes
9,966 shares held by a charitable foundation, and
24,915 shares held by two trusts of which Mr. Brady is
a
co-trustee,
in each case as to which Mr. Brady shares voting and
dispositive power.
29
(h) This amount includes 22,620 shares held directly
by Mr. Kean, as to which he has sole voting and dispositive
power.
(i) This amount includes 12,851,610 shares as to which
such beneficial owner has sole voting power and
23,897,910 shares as to which such beneficial owner has
sole dispositive power.
(j) This amount includes 13,358,655 shares as to which
such beneficial owner has sole voting power and
17,344,507 shares as to which such beneficial owner has
sole dispositive power.
Ownership
of Equity Securities by Management
The table below sets forth as to each director and named
executive officer, and all directors and executive officers as a
group, information regarding their ownership of equity
securities of the company on February 7, 2007. The persons
listed below have sole voting and investment power as to all
shares indicated except as set forth in the footnotes to the
table. Where no information appears in the column Percent
of outstanding shares of common stock owned, the
securities held represent less than one percent of the common
stock.
Individual amounts and percentages shown for Messrs. Brady, Hess
and Kean cannot be added because they reflect shared beneficial
ownership of shares as explained in footnotes (b) and (c)
to the table under the caption Ownership of Voting
Securities by Certain Beneficial Owners.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
Of total number of
|
|
|
|
|
|
|
shares of
|
|
|
shares beneficially
|
|
|
|
Total number of shares
|
|
|
common stock
|
|
|
owned, number of
|
|
Name
|
|
beneficially owned(a)
|
|
|
owned
|
|
|
option shares
|
|
|
Nicholas F. Brady
|
|
|
20,684,229
|
(b)
|
|
|
6.54
|
|
|
|
|
|
J. Barclay Collins
|
|
|
988,139
|
(c)
|
|
|
|
|
|
|
549,000
|
|
John B. Hess
|
|
|
39,214,129
|
(d)
|
|
|
12.31
|
|
|
|
2,439,000
|
|
Edith E. Holiday
|
|
|
19,620
|
|
|
|
|
|
|
|
|
|
Thomas H. Kean
|
|
|
20,509,818
|
(e)
|
|
|
6.49
|
|
|
|
|
|
Risa Lavizzo-Mourey
|
|
|
10,320
|
|
|
|
|
|
|
|
|
|
Craig G. Matthews
|
|
|
18,105
|
|
|
|
|
|
|
|
|
|
John H. Mullin
|
|
|
5,320
|
|
|
|
|
|
|
|
|
|
John J. OConnor
|
|
|
1,252,420
|
|
|
|
|
|
|
|
720,000
|
|
Frank A. Olson
|
|
|
26,520
|
|
|
|
|
|
|
|
|
|
Ernst H. von Metzsch
|
|
|
41,820
|
|
|
|
|
|
|
|
|
|
John P. Rielly
|
|
|
378,579
|
|
|
|
|
|
|
|
234,000
|
|
F. Borden Walker
|
|
|
816,393
|
|
|
|
|
|
|
|
555,000
|
|
Robert N. Wilson
|
|
|
54,030
|
|
|
|
|
|
|
|
|
|
All directors and executive
officers as a group
|
|
|
44,774,636
|
|
|
|
13.92
|
|
|
|
5,335,698
|
|
|
|
(a) |
These figures include 5,636 shares vested in the name of
Mr. Collins, 47,851 shares vested in the name of
Mr. Hess, 3,974 shares vested in the name of
Mr. Rielly, 3,893 shares vested in the name of Mr.
Walker, and 74,777 shares vested for all executive officers
and directors as a group under the employees savings and
stock bonus plan as to which these individuals and the group
have voting and dispositive power. These amounts also include
|
30
|
|
|
252,000 shares held in escrow under the incentive plan for
Mr. Collins, 715,000 shares held in escrow under this
plan for Mr. Hess, 466,000 shares held in escrow under this
plan for Mr. OConnor, 124,000 shares held in
escrow under this plan for Mr. Rielly, 257,500 shares
held in escrow under this plan for Mr. Walker and
2,620,700 shares held in escrow under this plan for all
executive officers and directors as a group. As to these shares,
these individuals and the group have voting power but not
dispositive power. Holders of stock options do not have the
right to vote or any other right of a stockholder with respect
to shares of common stock underlying such options until they are
exercised.
|
|
|
(b) |
See footnotes (b), (c) and (g) to the table under the caption
Ownership of Voting Securities by Certain Beneficial
Owners.
|
|
|
(c) |
This amount includes 35,000 shares pledged as security for a
third party loan.
|
|
|
(d) |
See footnotes (b), (c), (d) and (e) to the table under the
caption Ownership of Voting Securities by Certain
Beneficial Owners.
|
|
|
(e) |
See footnotes (b), (c) and (h) to the table under the caption
Ownership of Voting Securities by Certain Beneficial
Owners.
|
RATIFICATION
OF SELECTION OF INDEPENDENT AUDITORS
The audit committee has selected the firm of Ernst & Young
LLP as the independent auditors of the company for the fiscal
year ending December 31, 2007. Ernst & Young LLP has
acted for the company in this capacity for many years. The
board proposes that the stockholders ratify this selection at
the annual meeting.
If the stockholders do not ratify the selection of Ernst &
Young LLP, the selection of independent auditors will be
reconsidered by the audit committee.
Representatives of Ernst & Young LLP are expected to be
present at the annual meeting and will be afforded the
opportunity to make a statement if they desire and will be
available to respond to appropriate questions.
Independent
Auditor Fee Information
Ernst & Young LLPs fees, by category of
professional service in each of the last two fiscal years, were
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Audit Fees
|
|
$
|
8,288
|
|
|
$
|
7,470
|
|
Audit-Related Fees
|
|
|
1,019
|
|
|
|
1,039
|
|
Tax Fees
|
|
|
480
|
|
|
|
533
|
|
All Other Fees
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,787
|
|
|
$
|
9,090
|
|
|
|
|
|
|
|
|
|
|
Ernst & Young LLP audit fees include fees
associated with the last annual audit, the reviews of the
companys quarterly reports on Form 10-Q, reporting on
the effectiveness of internal controls over financial reporting,
SEC registration statements, and statutory audits required
internationally.
31
Ernst & Youngs fees for audit-related services
include pension and savings plan audits, attest services not
required by statute or regulation, accounting consultations,
acquisition reviews, and consultations on internal accounting
controls.
Tax fees include tax compliance services and United States and
international tax advice and planning.
All other fees in 2005 principally include miscellaneous
advisory services.
As part of its responsibility for oversight of the independent
auditor, the audit committee has established a pre-approval
policy for the provision of engaging audit and permitted
non-audit services provided by the companys independent
auditors. In accordance with this policy, each type of audit,
audit-related, tax and other permitted service to be provided by
the independent auditor is specifically described and each such
service, together with a fee level or budgeted amount for such
service, is pre-approved annually by the audit committee. Each
such service and budgeted amount is thereafter updated
quarterly. Any type of permitted service not previously approved
by the audit committee must be specifically pre-approved before
the service can be provided. For each fiscal year, the audit
committee may determine appropriate ratios between categories of
services and the total fees paid to the independent auditor. The
audit committee has delegated authority to the chairman of the
audit committee to approve additional services or an increase in
fees for a previously approved service in excess of the budgeted
amount for that service. However, any increased fees or
additional services so approved must be reported to the audit
committee at its next scheduled meeting. The audit committee has
determined that the provision of all services approved in
accordance with this policy is not incompatible with the
independence of the independent auditors.
32
STOCKHOLDER
PROPOSAL
The company has received notice from the Employees Pension Plan
of the American Federation of State, County and Municipal
Employees, 1625 L Street, N.W., Washington, D.C. 20036, holder
of 845 shares of the companys common stock, of its
intention to present the following resolution for action at the
annual meeting. The proponent also furnished the supporting
statement immediately following the resolution. The affirmative
vote of a majority of the votes cast at the annual meeting on
this proposal is necessary to adopt the proposal. Abstentions
will not be counted as a vote cast and therefore will have no
effect on the vote on the stockholder proposal. Broker non-votes
will not be counted as present and are not entitled to vote on
the proposal.
RESOLVED, that shareholders of Hess Corporation urge the
board of directors to take the necessary steps (excluding those
steps that must be taken by shareholders) to eliminate the
classification of Hesss board and to require that all
directors stand for election, annually. The declassification
should be completed in a manner that does not affect the
unexpired terms of directors.
SUPPORTING
STATEMENT
We believe the election of directors is the most powerful way
shareholders influence Hesss strategic direction.
Currently, the board is divided into three classes and each
class serves staggered three-year terms. Because of this
structure, shareholders may only vote on roughly one third of
the directors each year.
In our opinion, the classified structure of the board is not in
shareholders best interest because it reduces
accountability to shareholders. Annual election of directors
gives shareholders the power to completely replace the board, or
replace a majority of directors, if a situation arises
warranting such drastic action. We dont believe
destaggering the board will destabilize Hess or affect the
continuity of director service. Our directors, as well as the
directors of the majority of other public companies, are
routinely elected with over 90% shareholder approval.
A 2004 Harvard study by Lucian Bebchuk and Alma Cohen found that
staggered boards are associated with a lower firm value (as
measured by Tobins Q) and found evidence that
staggered boards may bring about, not merely reflect, that lower
value.
A 2002 study by Professor Bebchuk and two colleagues provides
evidence that classified boards harm shareholders. The study,
which included all hostile bids from 1996 through 2000, found
that an effective staggered board a
classified board plus provisions that disable shareholders from
changing control of the board in a single election despite the
classification doubles the odds that a target
company will remain independent, without providing any
countervailing benefit such as a higher acquisition premium. The
study estimated that effective staggered boards, like the one
Hess has, cost target shareholders $8.3 billion during that
period.
The classification of Hesss board is effected in its
bylaws, and amendment of the bylaw classifying the board
requires approval of 80% of outstanding shares. Such a
threshold, while still challenging, is more likely to be
obtained if a declassifying bylaw amendment is recommended by
33
the board. Accordingly, we urge Hesss board to approve
bylaw amendments necessary to declassify the board and submit
them for shareholder approval, with the boards
recommendation in favor of the amendments, at the 2008 annual
meeting of shareholders.
A growing number of shareholders appear to agree with our
concerns. In 2006 shareholder proposals seeking board
declassification at 43 companies were supported by an average of
67 percent of shares voted. At the same time, management
submitted 70 declassification proposals to a shareholder vote in
2006 (source: Institutional Shareholder Services).
We urge shareholders to vote for this proposal.
BOARD OF
DIRECTORS STATEMENT
For the
reasons discussed below the board of directors does not
recommend a vote FOR or AGAINST the stockholder
proposal.
This stockholder proposal recommends that the board of directors
of the company act to implement the election of all directors
each year. The company currently has a board composed of three
classes, with directors in each class elected for a three-year
term. This structure was adopted by the board and approved by
the stockholders in 1985.
The board is mindful of recent initiatives to declassify boards
of other companies and the arguments in favor of
declassification, some of which are referred to in the
proponents supporting statement. However, the board
believes the classified board structure has served the company
well and considers it important for stockholders to weigh the
important corporate governance benefits that it believes the
classified structure does provide to the company and its
stockholders.
In the boards view, the principal advantages of a
classified board are that it:
|
|
|
|
|
promotes continuity and stability of strategy, oversight and
policies and fosters long-term focus on maximizing shareholder
value; and
|
|
|
|
provides negotiating leverage to the board to maximize
shareholder value in a potential takeover situation.
|
A staggered board means that at any one time a majority of the
directors in office will be individuals with prior experience
and in-depth knowledge of the companys business, which
better equips them to make decisions in the long-term best
interests of the company and its stockholders. Election to a
three-year term also promotes the directors focus on
long-term strategies.
Such a long-term focus is especially important in our industry,
where exploring for, developing and producing oil and gas
resources to meet the worlds growing demand for energy is
a process requiring many years and substantial investment. Our
board has made a long-term strategic commitment to reshape our
company and our portfolio of assets for sustainable profitable
growth. The continuity of service of our directors has permitted
them to focus their commitment to this comprehensive, multi-year
strategy, which is already reaping benefits for our
shareholders. Our reserves and production have increased
significantly over the past several years. Our
reserves-to-production ratio has increased for four consecutive
34
years, and in 2006 we replaced 232% of production. Our company
is bringing into production world-class oil and gas
developments, and we have assembled an exciting portfolio of
exploration opportunities, led by our prospects in the deepwater
Gulf of Mexico. Our successful strategy has enabled us to
attract world-class talent. As a result of our directors
commitment to the strategic direction of our business, our
company is well-positioned to sustain profitable growth and
create significant value for our shareholders.
Moreover, the board believes that the classified structure will
provide it valuable leverage to deliver shareholder value in a
potential takeover situation. By requiring two election cycles
to take control of the board, the classified structure requires
that a potential buyer negotiate with a board consisting of a
majority of seasoned directors who are independent of the
potential acquiror, and hence allows the board to evaluate the
adequacy and fairness of an acquisition proposal, carefully
evaluate potential alternatives and negotiate on behalf of all
stockholders. Over two-thirds of our directors are independent.
They have an historical perspective and in depth knowledge of
our companys operations and our industry generally. Our
board is accordingly well-positioned to assess the
companys strategic value particularly in the
context of a hostile approach and pursue a course of
action designed to maximize value for all our stockholders.
On the other hand, the board is aware of the arguments the
proponent has advanced concerning classified boards that:
|
|
|
|
|
director accountability may be reduced by directors not being
subject annually to the stockholders vote, and
|
|
|
|
a classified board may decrease the likelihood of an acquisition
proposal and thereby diminish stockholder value.
|
The proponent also cites university studies as support for its
arguments. While the board believes that concerns about reduced
accountability and shareholder value may be overstated,
particularly amid the increasing scrutiny of corporate
governance and heightened regulatory oversight of recent years,
it nonetheless recognizes that these views are shared by
shareholder groups and other constituencies.
The board understands the companys stockholders may wish
to have an informed debate as to whether the potential
advantages of our classified board continue to outweigh its
potential disadvantages. For this reason, the board has decided
to put the proposal before the stockholders without any
recommendation as to how to vote, explaining the benefits it
believes the classified board affords our company for
stockholders to consider together with the opposing views put
forth by the proponent.
Approval of this stockholder proposal will not automatically
eliminate our classified board. However, the board will
carefully consider the views of our stockholders as expressed in
the vote on this proposal. If it is approved by stockholders,
the board will then consider whether to approve and submit to
stockholders at next years annual meeting a proposed
amendment to the companys certificate of incorporation
that would declassify the board. Approval of any such proposed
amendment by a vote of 80% of the shares of common stock
outstanding would be required to effect the amendment.
35
OTHER
MATTERS
The board of directors knows of no other matters to come before
the meeting. Should any unanticipated business properly come
before the meeting, the persons named in the enclosed form of
proxy will vote in accordance with their best judgment. The
accompanying proxy confers discretionary authority to such
persons to vote on any unanticipated matters.
The cost of preparing and mailing this proxy statement and the
accompanying proxy and the cost of solicitation of proxies on
behalf of the board of directors will be borne by the company.
Solicitation will be made by mail. Some personal solicitation
may be made by directors, officers and employees without special
compensation, other than reimbursement for expenses. In
addition, D. F. King & Co. has been retained to
aid in the solicitation. Its fees for this solicitation are not
expected to exceed $25,000, exclusive of expenses.
Proposals which stockholders wish to include in the
companys proxy materials relating to the 2008 annual
meeting of stockholders must be received by the company no later
than November 27, 2007. Notice of any stockholder proposal
for the 2008 annual meeting which the proponent does not wish to
include in the companys proxy materials for that meeting
will be considered untimely if not received by the company on or
before February 10, 2008.
It is important that proxies be returned promptly.
Stockholders are urged to date and sign the enclosed proxy and
return it promptly in the accompanying envelope, or to vote via
the internet or by calling the toll-free number as instructed on
the proxy card.
By order of the Board of Directors,
George C. Barry
Secretary
New York, New York
March 26, 2007
36
Appendix A
HESS
CORPORATION
AUDIT COMMITTEE CHARTER
A. ORGANIZATION
1. The Audit Committee (the Committee) shall be
appointed by the Board of Directors and shall consist of not
less than three directors, all of whom shall have no material
relationship with the Company and each of whom shall be
independent under the rules of the New York Stock
Exchange, Inc. (NYSE), and the Securities and
Exchange Commission (SEC) in each case as
affirmatively determined by the Board in its business judgment.
Each member shall be financially literate, and one
member of the Committee shall have accounting or related
financial management expertise, in each case within the
meaning of applicable NYSE rules and as determined by the Board
of Directors in its business judgment. When and as required by
applicable law and rules of the SEC, at least one member shall
be a financial expert within the meaning of such
laws and rules and as determined by the Board in its business
judgment, or in the alternative, the Company shall make
appropriate disclosures as required by applicable SEC rules
explaining why there is not a member of the Committee who is a
financial expert.
2. No director may serve as a member of the Committee if
such director serves on the audit committees of more than two
other public companies unless the Board of Directors determines
that such simultaneous service would not impair the ability of
such director to effectively serve on the Committee, and
discloses this determination in the Companys annual proxy
statement. No member of the Committee may receive any
compensation from the Company other than
(i) directors fees, which may be received in cash,
stock options or other in-kind consideration ordinarily
available to directors; (ii) a pension or other deferred
compensation for prior service that is not contingent on future
service; and (iii) any other regular benefits that other
directors receive. No member of the Committee may be an
affiliated person of the Company or its subsidiaries.
3. Members shall be appointed by the Board of Directors
based on nominations recommended by the Companys Corporate
Governance and Nominating Committee, and shall serve at the
pleasure of the Board and for such term or terms as the Board
may determine.
4. The Board shall designate one member of the Committee as
its chairperson.
B. STATEMENT
OF POLICY
1. The Committee shall provide assistance to the Board of
Directors in fulfilling its oversight responsibility to the
shareholders, the investment community, and others relating to
the Companys financial statements, the financial reporting
practices of the Company, the systems of internal accounting and
financial controls and disclosure controls, the internal audit
function, the annual independent audit of the Companys
financial statements and the review of the independence of
outside auditors.
2. In fulfilling its duties, the Committee should maintain
free and open communication between the Committee, the Board of
Directors, independent auditors, the internal auditors
37
and management of the Company. The foregoing shall have direct
and unfettered access to members of the Committee both at and
between meetings of the Committee.
C. PURPOSES
OF THE AUDIT COMMITTEE
The purposes of the Committee are to:
1. Assist Board oversight of (i) the integrity of the
Companys financial statements, (ii) the
Companys compliance with legal and regulatory
requirements, (iii) the independent auditors
qualifications and independence, and (iv) the performance
of the independent auditors and the Companys internal
audit function; and
2. Prepare the report required to be prepared by the
Committee pursuant to SEC rules for inclusion in the
Companys annual proxy statement.
The function of the Committee is oversight. Management of the
Company is responsible for the preparation, presentation and
integrity of the Companys financial statements and for
maintaining appropriate accounting and financial reporting
principles and policies. Management and the internal auditing
department are responsible for maintaining internal controls and
procedures that provide for compliance with accounting standards
and applicable laws and regulations. The independent auditors
are responsible for planning and carrying out a proper audit of
the Companys annual financial statements, reviews of the
Companys quarterly financial statements prior to the
filing of each quarterly report on
Form 10-Q,
and other procedures. In fulfilling their responsibilities
hereunder, it is recognized that members of the Committee are
not full-time employees of the Company and are not, and do not
represent themselves to be, accountants or auditors by
profession or experts in the fields of accounting or auditing.
As such, it is not the duty or responsibility of the Committee
or its members to conduct field work or other types
of auditing procedures or accounting reviews or to set auditor
independence standards. Each member of the Audit Committee shall
be entitled in his or her reasonable judgment to rely on
(i) the integrity of those persons and organizations within
and outside the Company from which it receives information and
(ii) the accuracy of the financial and other information
provided to the Committee by such persons or organizations
absent actual knowledge to the contrary (which shall be promptly
reported to the Board of Directors).
D. MEETINGS
OF THE AUDIT COMMITTEE
The Committee shall meet at least once every fiscal quarter. The
Committee shall meet separately periodically at such times as it
deems appropriate with management, the director of the internal
auditing department and the independent auditors to discuss any
matters that the Committee or any of these persons or firms
believe should be discussed privately. The Committee may request
any officer or employee of the Company or the Companys
outside counsel or independent auditors to attend a meeting of
the Committee or to meet with any members of, or consultants to,
the Committee. Members of the Committee may participate in a
meeting of the Committee by means of conference call or similar
communications equipment by means of which all persons
participating in the meeting can hear each other.
38
E. DUTIES
AND POWERS OF THE AUDIT COMMITTEE
To carry out its purposes, the Committee shall have the
following duties and powers:
1. With respect to the independent auditors,
(i) to retain and terminate the independent auditors
(subject, if applicable, to shareholder ratification);
(ii) to approve all audit engagement fees and terms;
(iii) to pre-approve all non-audit services permitted to be
provided to this Company by the independent auditors when and as
required by applicable law and SEC rules; provided, however,
that for this purpose the Committee may delegate authority to
one of its members, but any approval of non-audit services
pursuant to such delegation shall be presented to the Committee
at its next scheduled meeting;
(iv) to require that the independent auditors prepare and
deliver annually a formal written statement (the
Auditors Statement) describing: the
auditors internal quality-control procedures; any material
issues raised by the most recent internal quality-control review
or peer review of the auditors, or by any inquiry or
investigation by governmental or professional authorities,
within the preceding five years, respecting one or more
independent audits carried out by the auditors, and any steps
taken to deal with any such issues; and (to assess the
auditors independence) all relationships between the
independent auditors and the Company, including each non-audit
service provided to the Company and the matters set forth in
Independence Standards Board No. 1;
(v) to discuss with the independent auditors any
relationships or services disclosed in the Auditors
Statement that may impact the quality of audit services or the
objectivity and independence of the independent auditors;
(vi) to require the independent auditors to submit to the
Company annually a formal written statement of the fees billed
for each of the following categories of services rendered by the
independent auditors: (i) the audit of the Companys
annual financial statements for the most recent fiscal year and
the reviews of the financial statements included in the
Companys Quarterly Reports on Form l0-Q for that fiscal
year; (ii) audited related services for the most recent
fiscal year; (iii) tax and tax-related services for the
most recent fiscal year; and (iv) all other services
rendered by the independent auditors for the most recent fiscal
year, in the aggregate and by each service;
(vii) if applicable, to consider whether the independent
auditors provision of (a) tax-related services and
(b) other non-audit services to the Company is compatible
with maintaining the independence of the independent auditors;
(viii) to review and evaluate the experience,
qualifications, performance and independence of the senior
members of the independent auditors;
(ix) to discuss with management the timing and process for
implementing the rotation of the lead audit partner and the
reviewing partner when and as required by applicable law and SEC
rules;
39
(x) to take into account the opinions of management and the
Companys internal auditors in assessing the independent
auditors experience, qualifications, performance and
independence; and
(xi) to instruct the independent auditors that the
independent auditors are ultimately accountable to the Board and
the Committee, as representatives of the shareholders.
2. With respect to the internal auditing department,
(i) to review the appointment and replacement of the
director of the internal auditing department;
(ii) to review with the director of the internal audit
department the qualifications and staffing of the internal audit
department and the scope of the audit; and
(iii) to receive from the director of the internal auditing
department summaries of and, as appropriate, the significant
reports to management prepared by the internal auditing
department and managements responses thereto;
3. With respect to financial reporting principles and
policies and internal controls and procedures,
(i) to advise management, the internal auditing department
and the independent auditors that they are expected to provide
to the Committee a timely analysis of significant financial
reporting issues and practices;
(ii) to consider any reports or communications (and
managements and or the internal audit departments
responses thereto) submitted to the Committee by the independent
auditors required by or referred to in Statement of Auditing
Standards No. 61, as may be modified or supplemented,
including reports and communications related to deficiencies in
the design or operation of internal controls, fraud, illegal
acts, audit adjustments and the independent auditors
judgments about the quality of the entitys accounting
principles;
(iii) to meet with management, the independent auditors
and, if appropriate, the director of the internal auditing
department:
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to discuss, as appropriate: (a) any major issues regarding
accounting principles and financial statement presentations,
including any significant changes in the Companys
selection or application of accounting principles, and major
issues as to the adequacy of the Companys internal
controls and any special audit steps adopted in light of
material control deficiencies; (b) analyses prepared by
management and/or the independent auditors setting forth
significant financial reporting issues and judgments made in
connection with the preparation of the financial statements,
including analyses of the effects of alternative GAAP methods on
the financial statements; (c) the effect of regulatory and
accounting initiatives, as well as off-balance sheet structures,
on the financial statements of the Company; and
(d) earnings press releases (paying particular attention to
any use of pro forma, or adjusted
non-GAAP, information);
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to review the adequacy of internal controls and disclosure
controls, including controls over quarterly financial reporting,
computerized information systems and security;
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to discuss the scope of the annual audit;
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to discuss the annual audited financial statements and quarterly
financial statements prior to their release, including the
Companys disclosures under Managements
Discussion and Analysis of Financial Condition and Results of
Operations;
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to discuss any significant matters arising from any audit,
including any audit problems or difficulties, whether raised by
management, the internal auditing department or the independent
auditors, relating to the Companys financial statements;
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to discuss any difficulties the independent auditors encountered
in the course of the audit, including any restrictions on their
activities or access to requested information and any
significant disagreements with management;
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to discuss any accounting adjustments that were proposed by the
independent auditors but were passed (as immaterial
or otherwise), any communications between the audit team and
their national office with respect to significant auditing or
accounting issues presented by the engagement and any
management or internal control letter
issued, or proposed to be issued, by the independent auditors to
the Company;
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to review the form of opinion the independent auditors propose
to render to the Board of Directors and shareholders;
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to discuss significant changes to the Companys auditing
and accounting principles, policies, controls, procedures and
practices proposed or contemplated by the independent auditors,
the internal auditing department or management; and
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to discuss policies with respect to risk assessment and risk
management.
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(iv) to discuss guidelines and policies governing the
process by which senior management of the Company and the
relevant departments of the Company assess and manage the
Companys exposure to risk, and to discuss the
Companys major financial risk exposures and the steps
management has taken to monitor and control such exposures;
(v) to obtain from the independent auditors assurance that
the audit was conducted in a manner consistent with Section 10A
of the Securities Exchange Act of 1934, as amended, which sets
forth certain procedures to be followed in any audit of
financial statements required under the Securities Exchange Act
of 1934;
(vi) to discuss with the Companys General Counsel any
significant legal, compliance or regulatory matters that may
have a material effect on the financial statements or the
Companys business, financial statements or compliance
policies, including material notices to or inquiries received
from governmental agencies;
(vii) to review and discuss earnings press releases prior
to their release;
41
(viii) to discuss the types of financial information and
earnings guidance provided, and the types of presentations made,
to analysts and rating agencies;
(ix) to establish clear hiring policies for employees or
former employees of the independent auditors;
(x) when and as required by applicable law and SEC rules,
to establish procedures for (i) the receipt, retention, and
treatment of complaints received by the Company regarding
accounting, internal accounting controls, or auditing matters;
and (ii) the confidential, anonymous submission by
employees of the Company of concerns regarding questionable
accounting or auditing matters; and
(xi) review compliance with the Companys business
practice guide and reports to the Companys internal
hotline.
4. With respect to reporting and recommendations,
(i) to prepare any report or other disclosures, including
any recommendation of the Committee, required by the rules of
the SEC to be included in the Companys annual proxy
statement;
(ii) to review this Charter at least annually and recommend
any changes to the full Board of Directors;
(iii) to report regularly to the Board of Directors as it
deems appropriate and, at a minimum, report to the Board of
Directors after each of its meetings either at the Board meeting
which immediately follows the meeting of the Committee or at the
next succeeding Board meeting and to make such recommendations
with respect to the above and other matters as the Committee may
deem necessary or appropriate; and
(iv) to prepare and review with the Board of Directors an
annual performance evaluation of the Committee, which evaluation
must compare the performance of the Committee with the
requirements of this Charter. The performance evaluation by the
Committee shall be conducted in such manner as the Committee
deems appropriate. The report to the Board of Directors may take
the form of an oral report by the Chairperson of the Committee
or any other member of the Committee designated by the Committee
to make the report.
F. RESOURCES
AND AUTHORITY OF THE AUDIT COMMITTEE
The Committee shall have the resources and authority appropriate
to discharge its duties and responsibilities, including the
authority to select, retain, terminate, and approve the fees and
other retention terms of special or independent counsel,
accountants or other experts, as it deems appropriate, without
seeking approval of the Board of Directors or management.
42
HESS CORPORATION
P R O X Y
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PROXY SOLICITED BY BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS, MAY 2, 2007 |
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The
undersigned hereby appoints JOHN B. HESS and JOHN J. OCONNOR,
or any of them, proxies, each with power of substitution, to vote all
shares the undersigned is entitled to vote at the Annual Meeting of
Stockholders of Hess Corporation to be held at its offices,
1 Hess Plaza, Route 9, Woodbridge, New Jersey, on
May 2, 2007, at 2:00 p.m., local time, and all adjournments
thereof, as directed on the reverse side of this card, and in their
discretion, upon any other matters which may properly come before the
Meeting or any adjournment thereof. |
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The
undersigned hereby revokes any proxy heretofore given to vote said
shares, and hereby ratifies all that said proxies may do at the
Meeting or any adjournment thereof. |
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Please
indicate on the reverse side of this card how your stock is to be
voted. |
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If
not otherwise specified, shares will be voted FOR all nominees in
Item 1 and FOR Proposal 2 and will not be voted on Proposal 3 on the reverse side of this card. |
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Receipt
of Notice of the Meeting and of
the Proxy Statement is hereby acknowledged. |
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HESS CORPORATION |
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(Continued
and to be signed on reverse side.) |
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P.O.
BOX 11441
NEW YORK, N.Y. 10203-0441 |
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HESS CORPORATION |
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YOUR VOTE IS
IMPORTANT
VOTE BY INTERNET / TELEPHONE
24 HOURS A DAY, 7 DAYS A WEEK |
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INTERNET |
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TELEPHONE |
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MAIL |
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https://www.proxypush.com/hes |
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1-866-362-0397 |
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Go
to the website address listed above. |
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Use
any touch-tone telephone. |
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OR |
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Mark,
sign and date your proxy card. |
Have
your proxy card ready. |
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Have
your proxy card ready. |
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Detach
your proxy card. |
Follow
the simple instructions that appear on your computer screen. |
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Follow
the simple recorded instructions. |
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Return
your proxy card in the postage-paid envelope provided. |
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1-866-362-0397 |
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CALL TOLL-FREE
TO VOTE |
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6 DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY
TELEPHONE OR INTERNET 6 |
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(Please sign, date and
return
this
proxy in the enclosed
postage prepaid envelope.) |
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x |
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Votes must be indicated
(X) in Black or Blue ink. |
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The Board of Directors recommends a vote FOR all
nominees and a vote FOR Proposal 2, but does not recommend a
vote FOR or AGAINST Proposal 3. |
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1. |
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Election of the following nominees as Directors for three-year
terms expiring in 2010. |
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FOR ALL |
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WITHHOLD FOR ALL |
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EXCEPTIONS |
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Nominees: 01 - N.F. Brady,
02 - J.B. Collins,
03 - T.H. Kean, 04 - F.A. Olson |
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(INSTRUCTIONS: To withhold authority to vote for
any individual nominee, mark the Exceptions box and write
that nominees name in the space provided below.) |
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*Exceptions |
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FOR |
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AGAINST |
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ABSTAIN |
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2. |
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Ratification of the selection of Ernst &
Young LLP as independent auditors for fiscal year ending
December 31, 2007. |
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3. |
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Stockholder proposal to recommend that the board of directors take action to declassify the board. |
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NOTE: Please sign as name appears
hereon. Joint owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title
as such.
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Indicate Address Change and/or Comments on the
back of the card and Mark Here |
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Date |
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Share Owner sign here |
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Co-Owner sign here |
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