UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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. )
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Commission Only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Rule 14a-12
APACHE CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(APACHE LOGO)
ONE POST OAK CENTRAL
2000 POST OAK BOULEVARD, SUITE 100
HOUSTON, TEXAS 77056-4400
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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To THE STOCKHOLDERS OF APACHE CORPORATION:
The 2004 annual meeting of stockholders of Apache Corporation, a Delaware
corporation, will be held on Thursday, May 6, 2004, at 10:00 a.m. (Houston
time), at the Doubletree Hotel Houston -- Post Oak, 2001 Post Oak Boulevard,
Houston, Texas, for the following purposes:
1. To elect four directors to serve until the Company's annual meeting in
2007;
2. To consider and act upon the stockholder proposal set forth in the
accompanying proxy statement; and
3. To transact any other business that may properly come before the meeting
or any adjournment thereof.
Holders of record of the Company's common stock as of the close of business on
March 17, 2004 are entitled to notice of, and to vote at, the annual meeting.
The Company's stock transfer books will not be closed. A complete list of
stockholders entitled to vote at the annual meeting will be available for
examination by any Apache stockholder at 2000 Post Oak Boulevard, Suite 100,
Houston, Texas, for purposes relating to the annual meeting, during normal
business hours for a period of ten days before the meeting.
It is important that your shares are represented at the meeting. We encourage
you to designate the proxies named on the enclosed proxy card to vote your
shares on your behalf and per your instructions. This action does not limit your
right to vote in person or to attend the meeting.
By order of the Board of Directors
APACHE CORPORATION
/s/ C. L. PEPER
C. L. PEPER
Corporate Secretary
Houston, Texas
March 26, 2004
PROXY STATEMENT TABLE OF CONTENTS
PAGE
----
General..................................................... 1
Purpose of the Annual Meeting............................... 1
Who Can Vote................................................ 1
How to Vote................................................. 1
Voting 401(k) Plan Shares................................... 2
Revoking a Proxy............................................ 2
Quorum and Votes Needed..................................... 2
How the Votes are Counted................................... 2
Election of Directors (Proposal No. 1)...................... 3
Nominees for Election as Directors.................... 4
Continuing Directors.................................. 5
Standing Committees and Meetings of the Board of
Directors............................................ 7
Report of the Audit Committee......................... 10
Director Compensation................................. 10
Securities Ownership and Principal Holders............ 12
Section 16(a) Beneficial Ownership Reporting
Compliance........................................... 13
Equity Compensation Plan Information.................. 14
Executive Officers of the Company..................... 15
Summary Compensation Table............................ 18
Option/SAR Exercises and Year-End Value Table......... 20
The Management Development and Compensation Committee
Report on Executive Compensation..................... 21
Performance Graph..................................... 26
Employment Contracts and Termination of Employment and
Change-in-Control Arrangements....................... 27
Compensation Committee Interlocks and Insider
Participation........................................ 28
Certain Business Relationships and Transactions....... 28
Stockholder Proposal (Proposal No. 2)....................... 30
Independent Public Auditors................................. 33
Future Stockholder Proposals................................ 34
Solicitation of Proxies..................................... 34
Appendix -- Audit Committee Charter......................... A-1
Note: Throughout this proxy statement, references to the "stock split" relate to
the two-for-one stock split of Apache common stock distributed in shares
of common stock on January 14, 2004, to stockholders of record on December
31, 2003, and references to the "stock dividends" relate to the
five-percent stock dividend on Apache common stock distributed in shares
of common stock on April 2, 2003, to stockholders of record on March 12,
2003, and to the ten-percent stock dividend on Apache common stock
distributed in shares of common stock on January 21, 2002, to stockholders
of record on December 31, 2001.
APACHE CORPORATION
ONE POST OAK CENTRAL
2000 POST OAK BOULEVARD, SUITE 100
HOUSTON, TEXAS 77056-4400
March 26, 2004
PROXY STATEMENT
GENERAL
This proxy statement contains information about the 2004 annual meeting of
stockholders of Apache Corporation. In this proxy statement "Apache" and "the
Company" both refer to Apache Corporation. This proxy statement and the enclosed
proxy card are being mailed to you by the Company's board of directors starting
on or about March 26, 2004.
PURPOSE OF THE ANNUAL MEETING
At the Company's annual meeting, stockholders will vote on the election of
directors and a stockholder proposal as outlined in the accompanying notice of
meeting, and on any other business that properly comes before the meeting. As of
the date of this proxy statement, the Company is not aware of any other business
to come before the meeting. There are no rights of appraisal or similar rights
of dissenters arising from matters to be acted on at the meeting.
WHO CAN VOTE
Only stockholders of record holding shares of Apache common stock at the close
of business on the record date, March 17, 2004, are entitled to receive notice
of the annual meeting and to vote the shares of Apache common stock they held on
that date. As of March 17, 2004, there were 325,153,372 shares of Apache common
stock issued and outstanding. Holders of Apache common stock are entitled to one
vote per share and are not allowed to cumulate votes in the election of
directors. The enclosed proxy card shows the number of shares that you are
entitled to vote.
Apache currently has outstanding one series of preferred stock -- the 5.68%
Cumulative Preferred Stock, Series B (the "Series B Preferred Stock"). The
holders of the depositary shares, each representing 1/10th of a share of Series
B Preferred Stock, are not entitled to any voting rights, except under certain
circumstances relating to non-payment of dividends on the Series B Preferred
Stock. As of the date of this proxy statement, all dividend payments on the
Series B Preferred Stock were current.
HOW TO VOTE
If your shares of Apache common stock are held by a broker, bank or other
nominee (in "street name"), you will receive instructions from them on how to
vote your shares.
If you hold shares of Apache common stock in your own name (as a "stockholder of
record"), you may give instructions on how your shares are to be voted by:
- using the toll-free telephone number or internet voting site listed on
the enclosed proxy card. Specific directions for using the telephone and
internet voting systems are shown on the proxy card.
- marking, signing, dating and returning the enclosed proxy card in the
postage-paid envelope provided.
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When using telephone or internet voting, the systems verify that you are a
stockholder through the use of a company number for Apache and a unique control
number for you. IF YOU VOTE BY TELEPHONE OR INTERNET, PLEASE DO NOT MAIL THE
ENCLOSED PROXY CARD.
Whichever of these methods you use to transmit your instructions, your shares of
Apache common stock will be voted as you direct. If you sign and return the
enclosed proxy card or otherwise designate the proxies named on the proxy card
to vote on your behalf, but do not specify how to vote, your shares will be
voted FOR the election of the nominees for director and AGAINST the stockholder
proposal. If other matters of business not presently known are properly raised
at the meeting, the proxies will vote on the matters in accordance with their
best judgment.
VOTING 401(K) PLAN SHARES
If you are an employee or former employee participating in the Apache 401(k)
Savings Plan and have shares of Apache common stock credited to your plan
account as of the record date, such shares are shown on the enclosed proxy card
and you have the right to direct the plan trustee regarding how to vote those
shares. The trustee for the 401(k) plan is Fidelity Management Trust Company.
The trustee will vote the shares in your plan account in accordance with your
instructions. If you do not send instructions (by voting your shares as provided
above under "How to Vote") or if your proxy card is not received by May 3, 2004,
the shares credited to your account will be voted by the trustee in the same
proportion as it votes shares for which it did receive timely instructions.
REVOKING A PROXY
You may revoke a proxy before it is voted by submitting a new proxy with a later
date (by mail, telephone or Internet), by voting at the meeting, or by filing a
written revocation with Apache's corporate secretary. Your attendance at the
annual meeting will not automatically revoke your proxy.
QUORUM AND VOTES NEEDED
The presence at the annual meeting, in person or by proxy, of the holders of a
majority of the shares of Apache common stock outstanding on the record date
will constitute a quorum, permitting the business of the meeting to be
conducted. The affirmative vote of a plurality of the votes cast at the annual
meeting is required for the election of directors. For the stockholder proposal,
the affirmative vote of the holders of a majority of the shares represented in
person or by proxy and entitled to vote on the matter will be required for
approval.
HOW THE VOTES ARE COUNTED
Representatives of Wells Fargo Bank, N.A. will tabulate the votes and act as
inspectors of election. A properly signed proxy marked to "withhold" authority
for the election of one or more directors will be counted for quorum purposes
but not for voting purposes. A properly signed proxy marked "abstain" with
respect to the stockholder proposal will be counted for quorum purposes but not
for voting purposes. Accordingly, an abstention will have the effect of a vote
against the stockholder proposal.
If you hold your shares in "street name" through a broker or other nominee, your
broker or nominee may not have discretionary authority to vote certain shares of
Apache common stock on a matter. Thus, if you do not give your broker or nominee
specific instructions, your shares may
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not be voted on a matter to be acted upon and will not be counted in determining
the number of shares necessary for approval. However, the shares of Apache
common stock represented by such "broker non-votes" will be counted for quorum
purposes.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1 ON PROXY CARD)
The Company's certificate of incorporation provides that, as near as numerically
possible, one-third of the directors shall be elected at each annual meeting of
stockholders. Unless directors earlier resign or are removed, their terms are
for three years, and continue thereafter until their successors are elected and
qualify as directors.
The present terms of directors Eugene C. Fiedorek, Patricia Albjerg Graham, F.
H. Merelli, and Raymond Plank will expire at the 2004 annual meeting. Mr.
Fiedorek, Dr. Graham, Mr. Merelli, and Mr. Plank have been recommended by the
Company's corporate governance and nominating committee and nominated by the
board of directors for election by the stockholders to an additional three-year
term. If elected, Mr. Fiedorek, Dr. Graham, Mr. Merelli, and Mr. Plank will
serve beginning upon election until the annual meeting of stockholders in 2007.
Unless otherwise instructed, all proxies will be voted in favor of these
nominees. If one or more of the nominees is unwilling or unable to serve, the
proxies will be voted only for the remaining named nominees. Proxies cannot be
voted for more than four nominees. The board of directors knows of no nominee
for director who is unwilling or unable to serve.
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NOMINEES FOR ELECTION AS DIRECTORS
Biographical information, including principal occupation and business experience
during the last five years, of each nominee for director is set forth below.
Unless otherwise stated, the principal occupation of each nominee has been the
same for the past five years.
DIRECTOR
SINCE
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EUGENE C. FIEDOREK, 72, is a private investor. Formerly, he 1988
was managing director of EnCap Investments L.C., a Dallas,
Texas energy investment banking firm, from 1988 until March
1999, when EnCap was acquired by El Paso Energy. Mr.
Fiedorek was the managing director of the Energy Banking
Group of First RepublicBank Corp. in Dallas, Texas from 1978
to 1988. At Apache, he is a member of the audit committee.
PATRICIA ALBJERG GRAHAM, 68, joined the Company's board of 2002
directors in September 2002. She is the Charles Warren
Research Professor of the History of American Education at
Harvard University. Dr. Graham joined the faculty of Harvard
Graduate School of Education in 1974, and was its dean from
1982 to 1991. From 1991 to 2000, she served as president of
the Spencer Foundation, which supports research into
educational improvement. Dr. Graham is also a director of
Northwestern Mutual Life Insurance Company, as well as a
director of the Annenberg Institute for School Reform, the
Hitachi Foundation, the Center for Advanced Study in the
Behavioral Sciences, Central European University, the Higher
Education Support Sub-Board of the Open Society Institute,
and the Josiah Macy, Jr. Foundation. At Apache, she is a
member of the corporate governance and nominating committee.
F. H. MERELLI, 67, became chairman of the board, chief 1997
executive officer, president, and a director of Cimarex
Energy Co., a Denver, Colorado independent oil and gas
exploration and production company, on September 30, 2002,
upon the acquisition by Cimarex of Key Production Company,
Inc. and the exploration and production division of
Helmerich & Payne, Inc. He was chairman of the board and
chief executive officer of Key from 1992 until October 2002,
and served as Key's president from 1992 to September 1999
and from March 2002 to October 2002. Formerly, Mr. Merelli
served as Apache's president and chief operating officer
from 1988 to 1991. Prior to that, he was president of Terra
Resources, Inc., a Tulsa, Oklahoma oil and gas company, from
1979 to 1988. At Apache, Mr. Merelli is a member of the
audit committee and the executive committee.
RAYMOND PLANK, 81, has been chairman of the Company's board 1954
of directors since 1979, having served as the company's
chief executive officer from 1966 until May 2002, and
president from 1954 to 1979. Mr. Plank founded the Company
and is a member of the executive committee.
4
CONTINUING DIRECTORS
Biographical information, including principal occupation and business experience
during the last five years, for each continuing member of the board of directors
whose term is not expiring at the 2004 annual meeting is set forth below. Unless
otherwise stated, the principal occupation of each director has been the same
for the past five years.
DIRECTOR TERM
SINCE EXPIRES
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FREDERICK M. BOHEN, 66, returned to serve as executive vice 1981 2006
president and chief operating officer of The Rockefeller
University in February 2002, having previously served in
those capacities from 1990 through September 1999. He was
senior vice president of Brown University from 1983 to 1990,
and served as vice president of finance and operations at
the University of Minnesota from 1981 to 1983. Mr. Bohen was
with the U.S. Department of Health and Human Services as
assistant secretary for management and budget from 1977 to
1981. He is a director of American Council of Learned
Societies, a member of its executive committee and chairman
of its finance committee. Mr. Bohen is also a director of
the Polish American Freedom Foundation and chairman of its
investment committee, as well as a director of the Teak
Fellowship, a not-for-profit organization that mentors and
assists gifted adolescent children from disadvantaged
circumstances. At Apache, he is chairman of the management
development and compensation committee and chairman of the
stock option plan committee.
G. STEVEN FARRIS, 56, was appointed president, chief 1994 2005
executive officer and chief operating officer in May 2002,
having been president and chief operating officer of the
Company since May 1994. He was senior vice president of the
Company from 1991 to 1994, and vice president -- exploration
and production from 1988 to 1991. Prior to joining Apache,
Mr. Farris was vice president of finance and acquisitions
for Terra Resources, Inc., a Tulsa, Oklahoma oil and gas
company, from 1983 to 1988. He is a member of the executive
committee.
RANDOLPH M. FERLIC, 67, retired in December 1993 from his 1986 2005
practice as a thoracic and cardiovascular surgeon. He is the
founder of Surgical Services of the Great Plains, P.C., and
served as its president from 1974 to 1993. Dr. Ferlic was
elected as a Regent of the University of Nebraska in
November 2000. At Apache, he is chairman of the audit
committee and a member of the executive committee.
A. D. FRAZIER, JR., 59, became president and chief operating 1997 2005
officer of Caremark Rx, Inc., a publicly-traded pharmacy
benefit management company, in August 2002. From March 2001
until August 2002, Mr. Frazier was chairman and chief
executive officer of the Chicago Stock Exchange. He had been
a global partner of AMVESCAP PLC, a London-based independent
global investment management firm and the parent company of
INVESCO, Inc., from 1997 to March 2001, having served
INVESCO as president and chief executive officer of its U.S.
institutional business from 1997 to December 2000, and
executive vice president from 1996 to 1997. Mr. Frazier was
chief operating officer of the Atlanta Committee for the
Olympic Games from 1991 to 1996. He is also a director of
Caremark Rx, Inc. and R. J. Reynolds Tobacco Holdings, Inc.,
Winston-Salem, North Carolina. At Apache, Mr. Frazier is a
member of the management development and compensation
committee and the stock option plan committee.
5
DIRECTOR TERM
SINCE EXPIRES
-------- --------
JOHN A. KOCUR, 76, is engaged in the private practice of 1977 2005
law. He served as vice chairman of the Company's board of
directors from 1988 to 1991. Mr. Kocur was employed by the
Company from 1969 until his retirement in 1991, and served
as the Company's president from 1979 to 1988. He is chairman
of the executive committee and a member of the management
development and compensation committee.
GEORGE D. LAWRENCE, 53, is a private investor, and joined 1996 2006
the Company's board of directors in May 1996. Formerly, he
was president, chief executive officer and a director of The
Phoenix Resource Companies, Inc. from 1990 until May 1996,
when Phoenix became a wholly-owned subsidiary of Apache. Mr.
Lawrence is a member of the executive committee and the
management development and compensation committee.
RODMAN D. PATTON, 60, joined the Company's board of 1999 2006
directors in December 1999. Mr. Patton has nearly 30 years
experience in oil and gas investment banking and corporate
finance activity, most recently serving as managing director
of the Merrill Lynch Energy Group from 1993 until April
1999. Previously, he was with First Boston and Eastman
Dillon, Union Securities (later Blyth Eastman Dillon). Mr.
Patton is a director of Valero GP, LLC, San Antonio, Texas,
and is chairman of their audit committee. Valero GP, LLC is
the general partner of Valero LP, owner and operator of
crude oil and refined products pipeline, terminalling, and
storage assets. At Apache, Mr. Patton is a member of the
audit committee.
CHARLES J. PITMAN, 61, joined the Company's board of 2000 2006
directors in May 2000. He retired from BP Amoco plc in late
1999, having served as regional president -- Middle
East/Caspian/Egypt/India and business unit leader for new
business development -- Middle East/Caspian since December
1998. Prior to the merger of British Petroleum and Amoco
Corporation, Mr. Pitman served as chairman and president of
Amoco Eurasia Petroleum Company from 1997 to 1998, and was
president of Amoco Egypt Oil Company from 1992 to 1996. He
is the sole member of Shaker Mountain Energy Associates LLC,
a consulting company formed in September 1999, and is an
advisor to the supervisory board of Urals Energy, N.V. At
Apache, Mr. Pitman is chairman of the corporate governance
and nominating committee.
JAY A. PRECOURT, 66, rejoined the Company's board of 2003 2006
directors in February 2003, having been a member of the
Company's board from July 1992 to August 1995. He has been
since 2000, chairman of the board and chief executive
officer of Scissor Tail Energy, LLC, a Denver, Colorado
gatherer, transporter, and processor of natural gas and
natural gas liquids, and since 1999, chairman of the board
of Hermes Consolidated, Inc., a Denver, Colorado gatherer,
transporter, and refiner of crude oil and crude oil
products. Formerly, Mr. Precourt was vice chairman and chief
executive officer of Tejas Gas Corporation from 1986 to 1999
and president from 1996 to 1998, and was chairman of the
board of Coral Energy L.P. from 1996 to 1999. He is a
director of Halliburton Company and a member of its
compensation committee, a director of The Timken Company and
chairman of its audit committee, and a director of Founders
Funds, Inc. At Apache, Mr. Precourt is a member of the
corporate governance and nominating committee.
6
STANDING COMMITTEES AND MEETINGS
OF THE BOARD OF DIRECTORS
The board of directors has an audit committee, a management development and
compensation ("MD&C") committee, a stock option plan committee, an executive
committee, and a nominating committee (now known as the corporate governance and
nominating committee). Actions taken by these committees are reported to the
board of directors at the next board meeting. During 2003, each of the Company's
directors attended at least 89 percent of all meetings of the board of directors
and committees of which they were members, except A. D. Frazier, Jr., who
attended 69 percent of all such meetings.
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2003 MEMBERSHIP ROSTER
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NAME BOARD AUDIT MD&C STOCK OPTION EXECUTIVE NOMINATING
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Frederick M. Bohen X X* X*
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G. Steven Farris X X
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Randolph M. Ferlic X X* X X***
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Eugene C. Fiedorek X X
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A. D. Frazier, Jr. X X X
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Patricia Albjerg Graham X X***
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John A. Kocur X X X* X**
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George D. Lawrence X X X
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F. H. Merelli X X X
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Rodman D. Patton X X
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Charles J. Pitman X X**
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Raymond Plank X* X
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Jay A. Precourt X X***
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No. of Meetings in 2003 6 9 4 3 0 4
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* Chairman
** Mr. Kocur was chairman and a member of the nominating committee until
February 6, 2003. Mr. Pitman was appointed chairman of the nominating
committee on February 6, 2003, having been a member of the committee since
2000.
*** Dr. Ferlic was a member of the nominating committee until February 6, 2003.
Dr. Graham and Mr. Precourt were appointed to the nominating committee on
February 6, 2003.
The audit committee reviews with the independent accountants and internal
auditors of the Company their respective audit and review programs and
procedures, and the scope and results of their audits. It also examines
professional services provided by the Company's independent accountants and
evaluates their costs and related fees. Additionally, the audit committee
reviews the Company's financial statements and the adequacy of the Company's
system of internal accounting controls. The audit committee makes
recommendations to the board of directors concerning the Company's independent
accountants and their engagement or discharge.
During 2003 and the first two months of 2004, the board of directors reviewed
the composition of the audit committee pursuant to the rules of The New York
Stock Exchange, Inc. ("NYSE")
7
and The NASDAQ National Market ("NASDAQ") governing audit committees. Based on
this review, the board of directors confirmed that all members of the audit
committee are "independent" under the NYSE and NASDAQ rules. During 2000, the
audit committee adopted a charter, which was approved by the board of directors
on May 4, 2000, and which reflects the NYSE's rules and the regulations of the
Securities and Exchange Commission (the "SEC"). No changes were made to the
audit committee charter during 2003. However, on February 4, 2004, the audit
committee adopted an amended and restated charter, which was approved by the
board of directors on February 5, 2004. The audit committee charter is attached
to this proxy statement as Appendix A and is available on the Company's website
(www.apachecorp.com). The board of directors has determined that members of the
audit committee qualify as financial experts, as defined in Item 401 of
Regulation S-K under the Securities Act of 1933.
The MD&C committee reviews the Company's management resources and structure, and
administers the Company's compensation programs and retirement, stock purchase
and similar plans. The duties of the stock option plan committee include the
award and administration of option grants under the Company's stock option
plans, of grants under the executive restricted stock plan, of stock unit grants
under the deferred delivery plan, and of conditional grants under the 2000 Share
Appreciation Plan. During 2003 and the first two months of 2004, the board of
directors reviewed the composition of the MD&C committee pursuant to the rules
of the NYSE and NASDAQ governing compensation committees. Based on this review,
the board of directors confirmed that all members of the MD&C committee are
"independent" under the NYSE and NASDAQ rules. The MD&C committee charter is
available on the Company's website (www.apachecorp.com).
The duties of the corporate governance and nominating committee include
recommending to the board of directors the slate of director nominees submitted
to the stockholders for election at the annual meeting and proposing qualified
candidates to fill vacancies on the board of directors. The corporate governance
and nominating committee is also responsible for developing corporate governance
principles for the Company and overseeing the evaluation of the board of
directors. During 2003 and the first two months of 2004, the board of directors
reviewed the composition of the corporate governance and nominating committee
pursuant to the rules of the NYSE and NASDAQ governing governance committees.
Based on this review, the board of directors confirmed that all members of the
corporate governance and nominating committee are "independent" under the NYSE
and NASDAQ rules. The corporate governance and nominating committee charter is
available on the Company's website (www.apachecorp.com).
The corporate governance and nominating committee considers director nominee
recommendations from executive officers of the Company, independent members of
the board, and stockholders of the Company. The corporate governance and
nominating committee may also retain an outside search firm to assist it in
finding appropriate nominee candidates. Stockholder recommendations for director
nominees received by Apache's corporate secretary (at the address and by the
deadline for submitting stockholder proposals set forth under the heading
"Future Stockholder Proposals") are forwarded to the corporate governance and
nominating committee for consideration.
The executive committee is vested with the authority to exercise the full power
of the board of directors, within established policies, in the intervals between
meetings of the board of directors. In addition to the general authority vested
in it, the executive committee may be vested with specific power and authority
by resolution of the board of directors.
8
CRITERIA FOR RE-ELECTION OF EXISTING BOARD MEMBERS
The corporate governance and nominating committee considers the following
criteria in recommending the nomination of directors for re-election to the
Company's board of directors:
- Record of past attendance at board of directors and committee meetings.
- Ability to contribute to a positive, focused atmosphere in the board
room.
- Absence of any cause for removal from the board of directors.
- Past contributions in service on the board of directors.
In addition, all nominees for re-election shall evidence a desire and
willingness to attend future board of directors and committee meetings. All
decisions regarding whether to recommend the nomination of a director for
re-election shall be within the sole discretion of the corporate governance and
nominating committee.
CRITERIA FOR NEW BOARD MEMBERS
The corporate governance and nominating committee considers the following
criteria in recommending new nominees to the Company's board of directors and
its committees from time to time:
- Expertise and perspective needed to govern the business and strengthen
and support top management -- for example: strong financial expertise,
knowledge of international operations, or knowledge of the petroleum
industry and/or the electrical power industry.
- Sound business judgment and a sufficiently broad perspective to make
meaningful contributions, under pressure if necessary.
- Interest and enthusiasm in the Company and a commitment to become
involved in its future.
- The time and energy to meet board of directors commitments.
- Constructive participation in discussions, with the capacity to quickly
understand and evaluate complex and diverse issues.
- Dedication to the highest ethical standards.
- Supportive of management, but independent, objective, and willing to
question and challenge both openly and in private exchanges.
- An awareness of the dynamics of change and a willingness to anticipate
and explore opportunities.
All decisions regarding whether to recommend the nomination a new nominee for
election to the board of directors shall be within the sole discretion of the
corporate governance and nominating committee.
All new nominees and directors for re-election will be evaluated without regard
to race, sex, age, religion, or physical disability.
9
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the Company's financial reporting process on behalf
of the Board of Directors. Management has the primary responsibility for the
financial statements and the reporting process, including the system of internal
control. In fulfilling its oversight responsibilities, the Committee reviewed
the audited financial statements in the Annual Report with management, including
a discussion of the quality, not just the acceptability, of the accounting
principles; the reasonableness of significant judgments; and the clarity of
disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are responsible for
expressing an opinion on the conformity of those audited financial statements
with generally accepted accounting principles, their judgments as to the
quality, not just the acceptability, of the Company's accounting principles and
such other matters as are required to be discussed with the Committee by
Statement on Auditing Standards No. 61, as amended by Statement on Auditing
Standards No. 90 (Communication With Audit Committees). In addition, the
Committee has discussed with the independent auditors the auditors' independence
from management and the Company, including the matters in the written
disclosures required by Independence Standards Board Standard No. 1, and
considered the compatibility of nonaudit services with the auditors'
independence.
The Committee discussed with the Company's internal and independent auditors the
overall scope and plans for their respective audits. The Committee met with the
internal and independent auditors, with and without management present, to
discuss the results of their examinations, their evaluations of the Company's
internal control, and the overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended December 31, 2003, for filing with the Securities and Exchange
Commission.
The Committee's amended and restated charter adopted February 5, 2004, is
included as Appendix A. The Committee held nine meetings during fiscal year
2003. The members of the Committee are considered independent because they
satisfy the independence requirements for Board members prescribed by the New
York Stock Exchange and the NASDAQ National Market listing standards and Rule
10A-3 of the Securities Exchange Act of 1934, as amended.
March 8, 2004 Members of the Audit Committee
Randolph M. Ferlic, Chairman
Eugene C. Fiedorek
F. H. Merelli
Rodman D. Patton
DIRECTOR COMPENSATION
Employee directors do not receive additional compensation for serving on the
board of directors or any committee of the board. During 2003, non-employee
directors received an annual retainer of $40,000, of which $10,000 in value was
paid in the form of shares of Apache common stock, plus $1,500 for each board of
directors or committee meeting attended in person or $1,000 for each
10
meeting attended by telephone. Non-employee directors are reimbursed for
expenses incurred in attending meetings. Non-employee directors receive an
annual retainer of $2,000 for each committee of which they are members. In
addition, the chairman of each committee receives $4,000 annually for chairing
their respective committees.
Under the terms of the Company's non-employee directors' compensation plan, as
amended in 2003, non-employee directors can elect to defer receipt of all or any
portion of their retainers or meeting attendance fees and, subject to certain
parameters, can defer those amounts in the form of cash or in the form of shares
of Apache common stock. Amounts deferred in the form of cash accrue interest
equal to the Company's rate of return on its short-term marketable securities;
amounts deferred in the form of Apache common stock accrue dividends as if the
stock were issued and outstanding when such dividends were payable. All deferred
amounts, as well as accrued interest and dividends, are maintained in a separate
memorandum account for each participating non-employee director. Amounts are
paid out in cash and/or shares of common stock, as applicable, upon the
non-employee director's retirement or other termination of his or her
directorship, or on a specific date, in a lump sum or in annual installments
over a ten-year (or shorter) period. Four non-employee directors deferred all or
a portion of their fees during 2003.
An unfunded retirement plan for non-employee directors was established in
December 1992. The plan is administered by the management development and
compensation committee and pays retired non-employee directors benefits equal to
two-thirds of the annual retainer for a period based on length of service.
Payments are made on an annual basis, for a maximum of ten years, and are paid
from the general assets of the Company. In the event of the director's death
prior to receipt of all benefits payable under the plan, the remaining benefits
are payable to the director's surviving spouse or designated beneficiary until
the earlier of the termination of the payment period or the death of the
surviving spouse or designated beneficiary. During 2003, benefits were paid
under this plan to, or on behalf of, five former directors who retired from the
Company's board of directors during 1997, 1998, 2000 and 2001.
The Company established an equity compensation plan for non-employee directors
in February 1994, which is administered by the management development and
compensation committee. Each non-employee director was awarded 1,000 restricted
shares of the Company's common stock every five years from July 1, 1994 through
July 1, 2000, with the shares vesting at a rate of 200 shares annually. On May
3, 2001, the plan was amended to provide that on July 1, 2001 and on July 1 of
each third year thereafter through July 1, 2003, each non-employee director will
be awarded 1,000 restricted shares of common stock, with one-third of the shares
vesting annually. Except as noted below, any unvested shares are forfeited at
the time the non-employee director ceases to be a member of the board. The
unvested portion of any award is automatically vested upon retirement or death
while still serving as a member of the board; provided that the non-employee
director (a) is at least 60 years old and has completed at least ten years of
service at the time of retirement, or (b) has completed at least ten years of
service at the time of death. Awards are made from shares of common stock held
in the Company's treasury, and are automatic and non-discretionary. An award of
1,000 shares was made to each of two non-employee directors during 2003.
On February 5, 2004, the plan was amended to adjust the awards to 2,310
restricted shares of common stock (1,000 shares adjusted for the stock dividends
and stock split) for any awards made during the period July 1, 2004 through July
1, 2009. New non-employee directors will receive awards of 2,310 shares of
common stock on the July 1 next succeeding their election to the board. All
shares of common stock awarded under the plan have full dividend and voting
11
rights. The plan expires on July 1, 2009, with a maximum of 50,000 shares of
common stock (115,500 shares after adjustment for the stock dividends and stock
split) that may be awarded during the term of the plan.
SECURITIES OWNERSHIP AND PRINCIPAL HOLDERS
The following tables set forth, as of February 29, 2004, the beneficial
ownership of each director or nominee for director of the Company, the chief
executive officer, the four other most highly compensated executive officers,
and all directors and executive officers of the Company as a group. All
ownership information is based upon filings made by those persons with the SEC
and upon information provided to the Company. (All share numbers in the table
and footnotes have been adjusted for the stock dividends.)
----------------------------------------------------------------------------------------------------------------
AMOUNT AND PERCENT OF
NATURE OF BENEFICIAL CLASS
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING
----------------------------------------------------------------------------------------------------------------
Common Stock, par value
$0.625 Frederick M. Bohen 20,166(2)(3) *
--------------------------------------------------------------------------------------
G. Steven Farris 934,571(4)(5)(6)(7) *
--------------------------------------------------------------------------------------
Randolph M. Ferlic 469,566(2)(8) *
--------------------------------------------------------------------------------------
Eugene C. Fiedorek 36,470(2) *
--------------------------------------------------------------------------------------
A. D. Frazier, Jr. 13,749(2) *
--------------------------------------------------------------------------------------
Patricia Albjerg Graham 4,197(2)(3) *
--------------------------------------------------------------------------------------
John A. Kocur 65,913(2) *
--------------------------------------------------------------------------------------
George D. Lawrence 29,888(2)(3) *
--------------------------------------------------------------------------------------
F. H. Merelli 24,042(2)(3)(6) *
--------------------------------------------------------------------------------------
Rodman D. Patton 17,704(2) *
--------------------------------------------------------------------------------------
Charles J. Pitman 10,491(2) *
--------------------------------------------------------------------------------------
Raymond Plank 948,865(4)(5)(6)(7) *
--------------------------------------------------------------------------------------
Jay A. Precourt 2,280(2) *
--------------------------------------------------------------------------------------
Roger B. Plank 558,510(4)(5)(6)(7) *
--------------------------------------------------------------------------------------
John A. Crum 149,025(4)(5)(6)(7) *
--------------------------------------------------------------------------------------
Floyd R. Price 253,232(4)(5)(6)(7) *
--------------------------------------------------------------------------------------
All directors, nominees, and executive
officers as a group (including the above named
persons) 4,559,414(4)(5)(6)(7) 1.4
----------------------------------------------------------------------------------------------------------------
* Represents less than one percent of outstanding shares of common stock.
(1) All ownership is sole and direct unless otherwise noted. Inclusion of any
common shares not owned directly shall not be construed as an admission of
beneficial ownership. Fractional shares have been rounded to the nearest
whole share.
(2) Includes restricted common shares awarded under the Company's Equity
Compensation Plan for Non-Employee Directors.
(footnotes continued on following page)
12
(3) Includes the following common share equivalents related to retainer fees
deferred under the Company's Non-Employee Directors' Compensation Plan: Mr.
Bohen -- 7,760; Dr. Graham -- 1,190; Mr. Lawrence -- 4,630; and Mr.
Merelli -- 646.
(4) Includes the following common stock equivalents held through the Company's
Deferred Delivery Plan: Mr. Farris -- 8,094; Mr. Raymond Plank -- 113,753;
Mr. Roger Plank -- 36,780; Mr. Crum -- 2,839; Mr. Price -- 5,650; and all
directors and executive officers as a group -- 227,644.
(5) Includes the following common shares issuable upon the exercise of
outstanding employee stock options which are exercisable within 60 days: Mr.
Farris -- 412,948; Mr. Raymond Plank -- 440,284; Mr. Roger Plank -- 319,123;
Mr. Crum -- 98,808; Mr. Price -- 213,556; and all directors and executive
officers as a group -- 2,232,797.
(6) Includes shares held by the trustee of the Company's 401(k) Savings Plan and
related Non-Qualified Retirement/Savings Plan: Mr. Farris -- 68,679; Mr.
Merelli -- 16,202; Mr. Raymond Plank -- 7,011; Mr. Roger Plank -- 51,957;
Mr. Crum -- 32,206; Mr. Price -- 22,452; and all directors and executive
officers as a group -- 273,656.
(7) Includes the following restricted stock units (each equivalent to one share
of common stock) granted under the Company's Executive Restricted Stock
Plan: Mr. Farris -- 35,920; Mr. Raymond Plank -- 35,920; Mr. Roger
Plank -- 17,754; Mr. Crum -- 13,234; Mr. Price -- 11,574; and all directors
and executive officers as a group -- 244,178.
(8) Includes 13,860 common shares owned directly by Ferlic Investments, Ltd. in
which Dr. Ferlic owns a 36-percent interest. Also includes a total of 21,090
common shares held by Dr. Ferlic's daughters, son and grandchildren, as to
which he has some power of disposition, but disclaims beneficial ownership.
The following table sets forth the only person known to the Company, as of
February 29, 2004, to be the owner of more than five percent of outstanding
shares of the Company's common stock, according to reports filed with the SEC:
---------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF CLASS
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING
---------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.625.... FMR Corp. 32,915,604* 10.1
82 Devonshire Street
Boston, Massachusetts 02109
---------------------------------------------------------------------------------------------------------------------
* Per Schedule 13G filed with the SEC, dated February 10, 2004. Does not include
1,875,243 shares held by Fidelity Management Trust Company ("FMTC") as trustee
of the Company's 401(k) Savings Plan. FMTC is a wholly-owned subsidiary of FMR
Corp.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers, as well as beneficial owners of ten percent or more of
the Company's common stock, to report their holdings and transactions in the
Company's securities. Based on information furnished to the Company and
contained in reports provided pursuant to Section 16(a), as well as written
representations that no other reports were required for 2003, Roger B. Plank, an
officer of the Company, filed a late report relating to the open market purchase
of 110 shares of Apache common stock (230 shares after adjustment for the stock
dividends and stock split) by a trust of which Mr. Plank is trustee.
13
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes information as of December 31, 2003, relating to
the Company's equity compensation plans, under which grants of stock options,
restricted stock units, and other rights to acquire shares of Apache common
stock may be granted from time to time. (All share numbers and per share prices
in the table and footnotes have been adjusted for the stock dividends and stock
split).
--------------------------------------------------------------------------------------------------------------
(A) (B) (C)
--------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES FUTURE ISSUANCE UNDER
TO BE ISSUED UPON WEIGHTED-AVERAGE EQUITY COMPENSATION
EXERCISE OF EXERCISE PRICE OF PLANS (EXCLUDING
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN (A),
--------------------------------------------------------------------------------------------------------------
Equity compensation plans approved by
security holders(1)................ 4,504,040 $ 19.425(4) 0
--------------------------------------------------------------------------------------------------------------
Equity compensation plans not approved
by security holders(2)............. 11,447,030 $ 21.743(4) 6,025,378
--------------------------------------------------------------------------------------------------------------
Total(3)........................ 15,951,070 $ 20.587(4) 6,025,378
--------------------------------------------------------------------------------------------------------------
(1) Includes the Company's 1990 Stock Incentive Plan, 1995 Stock Option Plan and
1998 Stock Option Plan.
(2) Includes the Company's 1996 Performance Stock Option Plan, 2000 Stock Option
Plan, 2000 Share Appreciation Plan, Executive Restricted Stock Plan,
Conditional Stock Grant to G. Steven Farris, Non-Employee Directors'
Compensation Plan, Equity Compensation Plan for Non-Employee Directors, and
Deferred Delivery Plan.
See Note 9 of the Notes to Consolidated Financial Statements, included in
the Company's Form 10-K for the year ended December 31, 2003, for the
material features of the 1996 Performance Stock Option Plan, 2000 Stock
Option Plan, 2000 Share Appreciation Plan, and Executive Restricted Stock
Plan.
The material features of the Conditional Grant to G. Steven Farris are
discussed in the footnotes to the Summary Compensation Table. The material
features of the Non-Employees Directors' Compensation Plan and Equity Plan
for Non-Employee Directors are discussed under "Director Compensation."
The Company's Deferred Delivery Plan (i) allows officers and certain key
employees to defer income from certain equity compensation plans (such as
the stock option and restricted stock plans) in the form of deferred units,
and (ii) provides for grants of deferred units. Each deferred unit is
equivalent to one share of Apache common stock. Distributions from the plan
are made, at the election of the participant, beginning five years from
deferral or upon termination of employment.
(3) Does not include stock options to purchase an aggregate of 110,273 shares of
Apache common stock, at a weighted average exercise price of $8.28 per
share, granted under a plan assumed in connection with an acquisition. No
additional stock options may be granted under the assumed plan.
(4) Weighted average exercise price of outstanding stock options; excludes
restricted stock units, performance-based stock units, and deferred stock
units.
14
EXECUTIVE OFFICERS OF THE COMPANY
Biographical information concerning the executive officers of the Company is set
forth below. Biographical information concerning Raymond Plank and G. Steven
Farris is set forth above under the captions "Nominees for Election as
Directors" and "Continuing Directors."
MICHAEL S. BAHORICH, 47, was appointed executive vice president -- exploration
and production technology in May 2000, having been the Company's vice
president -- exploration and production technology since January 1999, vice
president -- exploration technology since December 1997, and the Company's chief
geophysicist since 1996. From 1981 until joining the Company, he held positions
of increasing responsibility at Amoco Corporation in Denver, Colorado and Tulsa,
Oklahoma. Mr. Bahorich is past president of the Society of Exploration
Geophysicists and serves on an advisory board at Stanford University.
JEFFREY M. BENDER, 52, was appointed vice president -- human resources in
September 2000. Prior to joining the Company, he served as vice president of
human resources for Vastar Resources, Inc., Houston, Texas, since June 1994,
having helped manage its transition from an operating division of Atlantic
Richfield Company (ARCO) to an independent organization following Vastar's
initial public offering in mid 1994. Previously, Mr. Bender held positions of
increasing responsibility with ARCO since 1975.
MICHAEL J. BENSON, 51, was appointed vice president-corporate security in
December 2002, having been director of corporate security since joining the
Company in 1996. From 1988 until 1996, he owned and operated an international
security consulting company advising large corporations and high profile
individuals. Previously, Mr. Benson was with Her Majesty's Police in the United
Kingdom for 14 years.
THOMAS P. CHAMBERS, 48, was appointed vice president -- corporate planning in
September 2001, having been director of planning since March 1995. Prior to
joining the Company, Mr. Chambers was in the international business development
group at Pennzoil Exploration and Production. Mr. Chambers is a member of the
Society of Petroleum Engineers.
JOHN J. CHRISTMANN, 37, was appointed vice president -- business development in
January 2004, having been production manager for the Gulf Coast region since
April 2003. Prior to that, Mr. Christmann held various positions of increasing
responsibility in the business development area since joining the Company in
1997. Previously, he was employed by Vastar Resources/ARCO Oil and Gas Company.
JOHN A. CRUM, 51, was appointed executive vice president -- Apache North Sea in
April 2003, having served as executive vice president -Eurasia and new ventures
since May 2000, and as the Company's regional vice president in Australia since
1995. Prior to joining the Company, he served in executive and management roles
with Aquila Energy Resources Corporation, Pacific Enterprises Oil Company and
Southland Royalty Company.
MATTHEW W. DUNDREA, 50, was appointed vice president and treasurer in July 1997,
having been the Company's treasurer since March 1996 and assistant treasurer
since 1994. Prior to joining the Company, he held positions of increasing
responsibility at Union Texas Petroleum Holding, Inc. from 1982 to 1994.
ROBERT J. DYE, 48, was appointed vice president -- investor relations in May
1997, having been director of investor relations since 1995. Prior to that, Mr.
Dye held positions of increasing responsibility in the corporate planning area
since joining the Company in 1992. Previously, he was planning manager for the
offshore division of BP Exploration, Houston, Texas, from 1988 to 1992.
RODNEY J. EICHLER, 54, was appointed executive vice president in February 2003,
having been the Company's regional vice president in Egypt since 1999, and vice
president of exploration and production in Egypt since 1997. Prior to that, Mr.
Eichler was regional vice president for the Western region in Houston since
1996, and regional exploration and development manager for the Rocky Mountain
region in Denver since 1993. Prior to joining the Company, Mr. Eichler was vice
president-exploration for Axem Resources, LLC in Denver, Colorado, since 1989.
15
ERIC L. HARRY, 45, was appointed vice president and associate general counsel in
February 2001, having been assistant general counsel since 1995. From 1985 until
joining the Company in 1994, he was an associate and partner in the corporate
and securities section of the law firm of Chamberlain, Hrdlicka, White, Williams
and Martin in Houston, Texas.
JANICE K. HARTRICK, 51, was appointed vice-president and associate general
counsel in July 2003, having been assistant general counsel since March 2003.
Previously, she was of counsel with the law firm of Thompson & Knight from
February 2002 and a solo practitioner from July 1, 2001. Prior to practicing law
as outside counsel, Ms. Hartrick was senior vice president and general counsel
of EEX Corporation from October 1997 until June 2001. She was chief counsel and
vice president, environmental affairs for Seagull Energy Corporation, since
1992, having held positions of increasing responsibility there from 1987. Ms.
Hartrick has been vice-chairman of the executive committee for the Center for
American and International Law (formerly Southwestern Legal Foundation) since
1998, and representative trustee for the Rocky Mountain Mineral Law Foundation
since 2000.
JON A. JEPPESEN, 56, was appointed senior vice president in February 2003,
having been the Company's regional vice president for the Gulf Coast region
since 2002 and the Offshore region since 1996. He served as the Company's vice
president of exploration and development for North America from 1994 to 1996,
and manager of the Company's offshore exploration and development from 1993 to
1994. Prior to joining the Company, Mr. Jeppesen was vice president of
exploration and development for Pacific Enterprises Oil Company, Dallas, Texas,
from 1989 to 1992.
P. ANTHONY LANNIE, 50, was appointed vice president and general counsel in March
2003. Prior to joining the Company, he was president of Kinder Morgan Power
Company, Houston, Texas, from 2000 through February 2003, and president of Coral
Energy Canada in 1999. Mr. Lannie was senior vice president and general counsel
of Coral Energy, an affiliate of Shell Oil Company and Tejas Gas Corporation,
from 1995 through 1999, and of Tejas Gas Corporation from 1994 until its
combination with Coral Energy in 1998.
ANTHONY R. LENTINI, JR., 54, has been vice president -- public and international
affairs since January 1995. Prior to joining the Company, he was vice president
of public affairs for Mitchell Energy & Development Corp., The Woodlands, Texas,
from 1988 through 1994.
JANINE J. MCARDLE, 43, was appointed vice president -- oil and gas marketing in
November 2002. Prior to joining the Company, she served as managing director for
Aquila Europe Ltd from November 2001 to October 2002, and held executive and
management positions with Aquila Energy Marketing since 1993, including vice
president -- trading and vice president -- mergers and acquisitions. Previously,
she was a partner in Hesse Gas from 1991 to 1993. Ms. McArdle was a member of
the board of directors of Intercontinental Exchange, the electronic trading
platform, from 2000 to October 2002.
THOMAS L. MITCHELL, 43, was appointed vice president and controller in July
1997, having been the Company's controller and chief accounting officer since
February 1996. He held various positions in the Company's natural gas marketing
operation from 1990 through 1995, and served as accounting manager for the
Company's Gulf Coast operations from 1989 to 1990. Prior to joining the Company,
Mr. Mitchell was a manager with Arthur Andersen & Co., an independent public
accounting firm, from 1982 through 1988.
W. KREGG OLSON, 50, was appointed vice president -- corporate reservoir
engineering in January 2004, having been director of technical services since
1995. Prior to that, Mr. Olson held positions of increasing responsibility
within corporate reservoir engineering since joining the Company in 1992.
Previously, he was associated with Grace Petroleum Corporation.
CHERI L. PEPER, 50, was appointed corporate secretary of the Company in May
1995, having been assistant secretary since 1992. Prior to joining the Company,
she was assistant secretary for Panhandle Eastern Corporation (subsequently
PanEnergy Corp.) since 1988. Ms. Peper is a director of MemberSource Credit
Union, formerly known as PT&T Federal Credit Union.
16
ROGER B. PLANK, 47, was appointed executive vice president and chief financial
officer in May 2000, having been vice president and chief financial officer
since July 1997. Previously, he was vice president -- planning and corporate
development since March 1996, and vice president -- corporate planning since
1994. Mr. Plank was the Company's vice president -- external affairs from 1993
to 1994, and vice president -- corporate communications from 1987 to 1993. In
June 2000, he was elected as president of Texas Independent Producers and
Royalty Owners Association (TIPRO), a large independent trade association. The
chairman of the Company's board of directors is Mr. Plank's father.
FLOYD R. PRICE, 54, was appointed executive vice president in February 2003. He
has been president of Apache Canada Ltd since 1999 and was president of the
Company's international exploration and production subsidiaries from 1995 to
1999. Mr. Price served as exploration manager from 1991 to 1994, and geologic
manager from 1990 to 1991, for the Company's Mid-continent region. Prior to
joining the Company, he was vice president of exploration and development from
1988 to 1989, and vice president of mid-continent exploration from 1989 to 1990,
for Pacific Enterprises Oil Company, Dallas, Texas.
JON W. SAUER, 43, was appointed vice president -- tax in May 2001, having been
director of tax since March 1997, and manager of tax from August 1992. Prior to
joining the Company, Mr. Sauer was tax manager with Swift Energy Company,
Houston, Texas, and a manager in the tax practice of Arthur Andersen & Co.
17
SUMMARY COMPENSATION TABLE
The table below summarizes the annual and long-term compensation paid to the
individuals listed below for all services rendered to the Company and its
subsidiaries during the last three fiscal years, in accordance with SEC rules
relating to disclosure of executive compensation. The persons included in this
table are the Company's chief executive officer and the four other most highly
compensated executive officers who were serving as executive officers of the
Company at year-end 2003.
---------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------- AWARDS
OTHER -----------------------------------
ANNUAL RESTRICTED SECURITIES
SALARY BONUS COMPEN- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) SATION($) AWARDS($) OPTIONS/SARS(#)* COMPENSATION($)
---------------------------------------------------------------------------------------------------------------------------------
Raymond Plank 2003 881,250 1,100,000 12,126(5) 448,890(7) 0 118,875(3)
Chairman of the Board 2002 750,000 900,000 177,408(5) 752,313(7) 0 96,000(3)
2001 750,000 650,000 0 0 115,500(2) 94,200(3)
---------------------------------------------------------------------------------------------------------------------------------
G. Steven Farris 2003 881,250 1,100,000 30,225(5) 448,890(6)(7) 0 246,120(3)(4)
President, Chief Executive
Officer 2002 750,000 900,000 95,760(5) 2,215,443(6)(7) 0 196,092(3)(4)
and Chief Operating Officer 2001 712,500 650,000 17,503(5) 1,401,250(6) 115,500(2) 189,267(3)(4)
---------------------------------------------------------------------------------------------------------------------------------
Roger B. Plank 2003 407,500 254,300 11,153(5) 207,180(7) 0 82,448(3)(4)
Executive Vice President and 2002 390,000 220,000 51,766(5) 390,703(7) 0 74,200(3)(4)
Chief Financial Officer 2001 337,292 200,000 2,951(5) 0 39,962(2) 70,020(3)(4)
---------------------------------------------------------------------------------------------------------------------------------
John A. Crum 2003 300,000 175,000 78,566(5)(8) 149,630(7) 145,917(3)(4)(9)
Executive Vice President -- 2002 300,000 170,000 3,008(5) 297,415(7) 0 58,958(3)(4)
Apache North Sea 2001 276,042 163,000 37,931(5) 0 32,802(2) 57,080(3)(4)
---------------------------------------------------------------------------------------------------------------------------------
Floyd R. Price 2003 271,875 210,000 5,206(5) 138,120(7) 0 105,728(3)(4)(10)
Executive Vice President and 2002 250,000 138,000 65,444(5) 250,771(7) 0 91,900(3)(4)(10)
President, Apache Canada Ltd 2001 248,125 135,000 100,498(5) 0 24,948(2) 99,988(3)(4)(10)
---------------------------------------------------------------------------------------------------------------------------------
* Share numbers have been adjusted for the stock dividends and stock split.
(1) Includes amounts awarded under the Company's incentive compensation plans
for performance in the year indicated.
(2) There were no stock options granted to any of the named executive officers
during 2003 or 2002. Shares of the Company's common stock subject to
options awarded during 2001. These stock options were granted on May 2,
2001 under the terms of the 2000 Stock Option Plan. There were no
adjustments or amendments during the last fiscal year to the exercise price
of stock options previously granted to any of the named executive officers,
except for the stock dividends and stock split.
(3) Includes Company contributions under the Company's 401(k) Savings Plan, the
Company's Money Purchase Retirement Plan, and related Non-Qualified
Retirement/Savings Plan for 2003, 2002, and 2001, respectively, in the
following amounts: Mr. Raymond Plank -- $118,875, $96,000, and $94,200; Mr.
Farris -- $213,750, $168,000, and $163,500; Mr. Roger Plank -- $75,300,
$70,800, and $65,675; Mr. Crum -- $56,400, $54,530, $52,925; and Mr. Price
-- $49,184, $46,200, and $55,025.
(4) Includes premium for executive life insurance benefits for 2003, 2002 and
2001, respectively, in the following amounts: Mr. Farris -- $32,370,
$28,092, and $25,767; Mr. Roger Plank -- $7,148, $3,400, and $4,345; Mr.
Crum -- $4,949, $4,428, and $4,155; and Mr. Price -- $9,077, $8,200, and
$7,744.
(5) For Mr. Farris, Mr. Roger Plank, Mr. Crum, and Mr. Price, includes amounts
reimbursed for the payment of taxes relating to executive life insurance
benefits. For Mr. Raymond Plank, Mr. Farris, and Mr. Roger Plank, includes
amounts reimbursed for the payment of taxes on income attributable to use
of Company property as approved by the board of directors. For Mr. Crum and
Mr. Price, includes amounts for foreign assignment tax equalization.
(footnotes continued on following page)
18
(6) On December 17, 1998, the Company's board of directors granted a
conditional stock award to Mr. Farris for a total of 100,000 shares of the
Company's common stock (230,992 shares after adjustment for the stock
dividends and stock split). The award is composed of five periodic
installments, commencing on January 1st of each of the next five years, and
vesting on the fifth anniversary following the applicable commencement date
(subject to acceleration under specific circumstances). To receive each
installment, which is payable 40 percent in cash and 60 percent in stock,
Mr. Farris must be employed by the Company on the applicable commencement
and vesting dates. For December 31, 2002, the last business day preceding
the January 1, 2003 commencement date, the per share closing price of the
Company's common stock was $56.99 ($28.4950 after adjustment); for December
31, 2001, the last business day preceding January 1, 2002, the per share
closing price was $49.88 ($23.7524 after adjustment); for December 29,
2000, the last business day preceding January 1, 2001, the per share
closing price was $70.0625 ($30.3301 after adjustment); for December 31,
1999, the last business day preceding January 1, 2000, the per share
closing price was $36.9375 ($15.9903 after adjustment); and for December
31, 1998, the last business day preceding January 1, 1999, the per share
closing price was $25.3125 ($10.9578 after adjustment). Mr. Farris has all
voting, dividend and liquidation rights for each installment of shares as
of the applicable commencement date listed below:
6,667 shares (15,398 shares after adjustment) commencing January 1,
1999, vesting January 1, 2004
13,333 shares (30,798 shares after adjustment) commencing January 1,
2000, vesting January 1, 2005
20,000 shares (46,200 shares after adjustment) commencing January 1,
2001, vesting January 1, 2006
26,667 shares (61,598 shares after adjustment) commencing January 1,
2002, vesting January 1, 2007
33,333 shares (76,998 shares after adjustment) commencing January 1,
2003, vesting January 1, 2008
At year-end 2003, the aggregate number of shares of conditional stock held
by Mr. Farris was 230,992 shares (after adjustment) with a value of
$9,366,726 based on the closing price of the Company's common stock as of
December 31, 2003.
(7) Dollar value of restricted stock units granted during 2003 and 2002 under
the terms of the Executive Restricted Stock Plan, based on the closing
price of the Company's common stock as of the date of grant. Such
restricted stock units vest ratably over four years and no dividends are
paid on such units until vested.
At year-end 2003, the aggregate number of restricted stock units and value,
based on the closing price of the Company's common stock as of December 31,
2003, was: Mr. Raymond Plank -- 35,920 units (after adjustment) and
$1,456,556; Mr. Farris -- 35,920 units (after adjustment) and $1,456,556;
Mr. Roger Plank -- 17,754 units (after adjustment) and $719,925; Mr.
Crum -- 13,234 units (after adjustment) and $536,639; and Mr.
Price -- 11,574 units (after adjustment) and $469,326.
(8) Includes foreign assignment housing allowance of $51,599.
(9) Includes foreign service premium of $30,000, relocation allowance of
$25,000, and foreign service cost of living allowance of $29,568.
(10) Includes foreign service premium of $40,781, $37,500, and $37,219 for 2003,
2002, and 2001, respectively, and foreign service cost of living allowance
for 2003 of $6,686.
19
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
The table below provides supplemental information relating to the value realized
upon the exercise of stock options during the last fiscal year by the executive
officers named in the Summary Compensation Table above and the number and
intrinsic value of stock options held at year end. Year-end values are based
arbitrarily on the closing price of the Company's common stock for December 31,
2003, do not reflect the actual amounts, if any, which may be realized upon the
future exercise of remaining stock options, and should not be considered
indicative of future stock performance. (All share numbers in the table and
footnotes have been adjusted for the stock dividends and stock split.)
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
VALUE OF
UNEXERCISED
SHARES NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY
ACQUIRED ON VALUE UNEXERCISED OPTIONS/SARS AT OPTIONS/SARS
EXERCISE REALIZED FY-END(#)(3) AT FY-END($)(3)(4)
NAME (#)(1) ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
Raymond Plank 71,400 1,268,792 543,772 0 12,301,938 0
G. Steven Farris 0 0 472,388 0 10,542,719 0
Roger B. Plank 52,436 1,197,815 319,123 12,243 7,579,294 236,090
John A. Crum 61,558 1,581,989 98,808 13,802 1,814,051 266,154
Floyd R. Price 25,410 678,449 213,556 0 5,303,178 0
(1) Number of shares with respect to which stock options were exercised during
2003.
(2) Fair market value on date of exercise minus the exercise price of stock
options.
(3) There were no SARs settled or outstanding at any time during the last fiscal
year for any of the named executive officers.
(4) Based on the closing price of $81.10 ($40.55 after adjustment) per share of
the Company's common stock as reported on The New York Stock Exchange, Inc.
Composite Transactions Reporting System for December 31, 2003, minus the
exercise price of the stock options.
20
THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
This report is issued by the Management Development and Compensation Committee
of the board of directors to set out the executive compensation policies and
programs of the Company.
The objective of the Company's executive compensation program is to attract and
retain executives capable of leading the Company in a complex, competitive, and
changing industry. A capable, highly-motivated senior management is an integral
part of the Company's continued success. The Company's financial performance is
in large part due to the talent and efforts of the Company's executive officers.
The program ties a significant portion of executive compensation to the
Company's success and is primarily comprised of a base salary, an incentive
bonus, and a long-term incentive component.
BASE SALARY
The Committee believes that the most effective way to compete in the executive
labor market is to offer executives a competitive base salary. To achieve this
balance, the Committee analyzes each executive's compensation using a four-step
process. First, the key executive positions within the Company are defined in
terms of scope and responsibility, job complexity, knowledge and experience
required, and other relevant factors. Second, the positions are ranked
internally on the basis of these definitions to establish a logical relationship
among them. Third, the Committee identifies the Company's direct competitors
which it believes share comparable operations, employee composition, and
capitalization, and obtains comparative compensation data about the identified
companies from independent compensation resources. Finally, easily-compared
positions are priced in terms of salary ranges by reviewing the comparative
industry data and other surveys to establish relative salary ranges for all key
executive positions in the Company. Base salaries are targeted to fall at or
above the median of executive salaries paid by comparable companies, and for
2003 they generally correspond to that practice. The Committee reviews the
salary of each of the Company's 20 executive officers, taking into account the
individual's contribution to the Company's success, how well the individual's
responsibilities are fulfilled, the individual's specific performance, growth in
qualifications for the individual's job, and other relevant aspects of
performance.
Base salaries of all executives are generally reviewed every 12 to 24 months.
Salary adjustments are made within updated, market-confirmed salary ranges
according to the Committee's assessment of the executive's individual
performance and the performance of the Company as a whole. However, changes in
the circumstances of a particular executive can prompt an interim compensation
adjustment. The Committee retained the services of an outside compensation
consultant, who was proposed by management and approved by the Committee, to
review the base salaries of the Company's executives and confirm that the
salaries are competitive with those of comparable companies. The review included
comparative data from part, but not all, of the companies comprising the
Secondary Oils Index reflected in the stock performance chart set forth below.
The exclusion from the review of some of the companies in the Index was due to
their integrated operations or operations in diversified industries.
Based on the factors discussed above, plus additional compensation data
available to the Company from other sources, 14 of the Company's officers
received increases in compensation during 2003 to reflect market changes and
increased responsibilities, including four of the executives named in the
Summary Compensation Table.
21
INCENTIVE BONUS
Executives, other than the Company's chairman of the board and the Company's
chief executive officer (separate plan described below), are eligible to receive
a cash incentive bonus tied directly to the Company's achievement of specified
financial, operational, and strategic objectives and the executive's personal
achievements. In the early months of the year, the Committee establishes a
listing of corporate objectives based on those submitted by senior management.
The objectives are approved by the Committee and, in 2003, 75 percent of each
executive's bonus depended upon the Company's achievement of these specified
objectives. The remaining 25 percent of the executive's eligible bonus depended
upon personal achievements related to financial strategies, operational
improvements, program or project enhancements, or other objectively determinable
criteria. This incentive compensation plan effectively correlates a large
portion of executive compensation to predetermined corporate objectives and
other objectively determinable goals, all designed to translate into value for
the Company's stockholders. Committee policy provides for bonuses to be targeted
at 50 percent of each executive's base salary and to exceed 50 percent if the
Company's performance warrants.
Executive bonuses for 2003 were based on management's achievement during the
year of specific corporate objectives established by the Committee based on
accepted measures of performance in the oil and gas industry including (a)
increases in cash flow and earnings, (b) growth in reserves and production while
maintaining an acceptable ratio of debt to capitalization, and (c) control of
costs throughout the Company. Additionally, the Committee approved seven
operational, financial and administrative strategic objectives considered
important to the Company's long-term success and to maximizing stockholder
value. The Company has elected not to detail the individual items within the
specified strategic corporate objectives as disclosure of such information could
provide a competitive advantage to one or more of the Company's peers; however,
the objectives were annualized for incentive purposes and were broad enough to
have potential impact beyond 2003. As a result of the Company's outstanding
overall performance in 2003, as well as substantial achievement of a majority of
the objectives approved for 2003, the Committee recommended and the full board
of directors unanimously approved an incentive bonus payment in excess of the
targets set for executive officers participating in the corporate plan.
The chairman and the chief executive officer are each eligible to receive a cash
incentive bonus under a separate incentive compensation plan, which functions
and is administered in the same way as the plan described above, except that
their performance goals are tied directly to the Company's annual financial and
operational results, including the performance of the Company's common stock,
all as compared to the results of a group of its peer companies. The goals
include earnings, production, cash flow, reserves and ratio of debt to
capitalization. The Committee determined to pay the chairman and the president
bonuses of 125 percent of their base salaries in recognition of their leadership
and for the Company's outstanding performance during 2003.
In addition to the Company's incentive compensation plans, the Committee may
elect to award a special achievement bonus to an executive officer who has
rendered services during the year that substantially exceed those normally
required. Special achievement bonuses (a) reflect the Committee's decision to
reward any executive whose extraordinary effort has substantially benefited the
Company and its stockholders during the year, (b) are awarded only in
exceptional circumstances, and (c) are in amounts relative to the benefit
provided to the Company. During 2003, a special achievement bonus was paid to
one of the executive officers named in the Summary Compensation Table.
22
LONG-TERM INCENTIVES
Long-term incentives in forms relating to the Company's common stock serve to
align the interests of executive officers with the Company's stockholders by
tying a significant portion of each executive's total long-term compensation to
the continued growth of the Company and appreciation of its common stock. No
stock options were granted to any of the executives named in the Summary
Compensation Table during 2003. In lieu of stock options, the Company's
executive officers received grants of restricted stock units under the Company's
Executive Restricted Stock Plan. Grants of stock units covering an aggregate of
54,900 shares of the Company's common stock (109,800 shares adjusted for the
stock split) were made in 2003 to the Company's executive officers as a group,
including grants of restricted stock units covering 24,200 shares (48,400 shares
adjusted for the stock split) made to the Company's officers named in the
Summary Compensation Table presented above. Grants of restricted stock units to
executives are proportionate to each officer's base salary. Individual grants of
restricted stock units are targeted up to one times base salary and vest ratably
over four years.
In October 2000, the Company established the 2000 Share Appreciation Plan, under
which conditional share-equivalent grants were made in December 2000 to
essentially all regular, full-time employees in the United States, Canada, and
Australia, including each of the executives named in the Summary Compensation
Table. The conditional grants under the 2000 Share Appreciation Plan are
intended to provide specific individual incentives toward achieving (i)
significant price appreciation for the Company's common stock based on
attainment of per share price goals of $100, $120 and $180 (after adjustment for
the Company's stock dividends and stock split, the price goals are $43.29,
$51.95, and $77.92, respectively) prior to January 1, 2005, and (ii) a separate
goal, not tied to share price, of doubling production per share from the 2000
level during any quarter ended prior to January 1, 2005. Benefits are payable
under the conditional grants only if one or more of the above-referenced share
price goals and/or production goal are achieved.
In recognition of his past contributions and expected future contributions to
the Company, Mr. Farris, the Company's chief executive officer, was granted a
conditional stock award in December 1998, for a total of 100,000 shares of the
Company's common stock (230,992 shares after adjustment for the stock dividends
and stock split). The award is composed of five periodic installments,
commencing on January 1, 1999 and on January 1st of each of the next four years
(2000 through 2003). Each installment vests on the fifth anniversary following
the applicable commencement date (subject to acceleration under specific
circumstances), and is payable 40 percent in cash and 60 percent in the form of
stock. To receive each installment, Mr. Farris must be employed by the Company
on the applicable commencement and vesting dates (see footnote 6 to the Summary
Compensation Table presented above). In the event Mr. Farris elects to terminate
his employment with the Company or his employment is terminated for cause, any
unvested installments will be forfeited.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Raymond Plank, the chairman of the Company's board of directors, was chief
executive officer from 1966 until May 2002. His activities include direction of
Apache's intensive, on-going programs to monitor, analyze and respond creatively
to the changes and new requirements in the oil and gas industry, and leadership
in maintenance of sound business relationships with the management of many of
the nation's large oil and gas companies. These relationships are important to
Apache's strategic alliances and to its acquisition approach, which emphasizes
23
privately negotiated transactions that develop and achieve mutual business
benefits. Mr. Plank actively participates in developing the Company's
strategies, and has been jointly responsible for the Company's ongoing interest
and successful exploration efforts in international areas such as Egypt,
Australia, and China.
G. Steven Farris, the Company's president, chief executive officer and chief
operating officer, assumed the responsibilities of chief executive officer in
May 2002. His activities include leadership in developing the Company's
strategies, implementing the Company's capital expenditure programs, and
maintenance of sound business relationships with the management of many of the
nation's large oil and gas companies and with the investment community. Mr.
Farris has been jointly responsible for the Company's developing interest and
successful exploration efforts going forward in international areas such as
Egypt, Australia, China, and the North Sea. As chief executive officer, he
oversees all of the Company's major business and staff units and guides and
develops Apache's senior management. Reporting directly to Mr. Farris are each
of the executive vice presidents, corporate and regional vice presidents,
including the chief financial officer and the general counsel.
Base salary, incentive bonus, and long-term incentives for each of Mr. Plank and
Mr. Farris are determined in the manner previously described and are reflected
in the Summary Compensation Table above. Mr. Plank's last base salary adjustment
was effective February 16, 2003, and Mr. Farris' last base salary adjustment was
effective February 16, 2003. Bonuses paid to Mr. Plank and Mr. Farris were based
on the Company's 2003 performance, as discussed above. Each of Mr. Plank and Mr.
Farris prepares personal goals in consultation with the Committee and,
throughout the year, each reports to the Committee on his progress toward
achievement of those goals. Mr. Plank's and Mr. Farris' employment agreements
are discussed under "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements."
Base salaries during 2003 for Mr. Plank and Mr. Farris' were within the
Committee's percentile targets and took into account the following: their active
roles in the Company's management and leadership of successful acquisitions; the
Company's financial performance during 2002; and the challenges and expectations
for the Company in 2003. As noted above, the bonuses paid to Mr. Plank and Mr.
Farris for 2003 performance represented 125 percent of their base salaries.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
The Omnibus Budget Reconciliation Act of 1993 ("OBRA") imposes a limit, with
certain exceptions, on the amount that a publicly held corporation may deduct in
any tax year commencing on or after January 1, 1994, for the compensation paid
or accrued with respect to its chief executive officer and its four most highly
compensated executive officers (other than the chief executive officer). In
December 1995, the Internal Revenue Service issued final regulations
implementing the legislation, with the regulations effective as of January 1,
1994. Certain performance-based compensation is specifically exempt from the
limit if it meets the requirements contained in these final regulations. The
Committee continues to review the Company's compensation plans based upon these
regulations and, from time to time, determines what further actions or changes
to the Company's compensation plans, if any, are appropriate.
Grants of stock options made under the Company's 1990 Stock Incentive Plan, 1995
Stock Option Plan and 1998 Stock Option Plan qualify as "performance-based"
under the regulations. The Company's existing incentive compensation plans,
special achievement bonuses, Executive Restricted Stock Plan, 2000 Stock Option
Plan, and 2000 Share Appreciation Plan do not
24
currently meet the requirements of the regulations, as the stockholder approvals
necessary for exemption have not been sought. However, these plans operate
similarly to prior plans and are designed to reward the contribution and
performance of employees and to provide a meaningful incentive for achieving the
Company's goals, which in turn enhances stockholder value. While the Committee
cannot predict with certainty how the Company's compensation policies may be
further impacted by OBRA, it is anticipated that executive compensation paid or
accrued pursuant to the Company's compensation plans that do not meet the
requirements of the regulations will not result in any significant loss of tax
deductions in the foreseeable future.
SUMMARY
According to information provided to the Committee by its independent
compensation consultant, the amount of the Company's cash compensation paid to
all of its executive officers during 2003 was competitive and above the median
for comparable companies. As shown on the Performance Graph following this
report, the cumulative total return on the Company's common stock has
outperformed that of the Dow Jones Secondary Oil Index and the Standard & Poor's
Composite 500 Stock Index over the last five years. In view of the Company's
competitive performance, the Committee believes that its current executive
compensation policy is successful in providing stockholders with talented,
dedicated executives at competitive compensation levels.
March 17, 2004 Management Development and Compensation
Committee
Frederick M. Bohen, Chairman
A. D. Frazier, Jr.
John A. Kocur
George D. Lawrence
25
PERFORMANCE GRAPH
The following stock price performance graph is included in accordance with the
SEC's executive compensation disclosure rules and is intended to allow
stockholders to review the Company's executive compensation policies in light of
corresponding stockholder returns, expressed in terms of the appreciation of the
Company's common stock relative to two broad-based stock performance indices.
The information is included for historical comparative purposes only and should
not be considered indicative of future stock performance. The graph compares the
yearly percentage change in the cumulative total stockholder return on the
Company's common stock with the cumulative total return of the Standard & Poor's
Composite 500 Stock Index and of the Dow Jones Secondary Oils Stock Index from
December 31, 1998 through December 31, 2003.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
FOR THE YEAR ENDED DECEMBER 31, 2003
(PERFORMANCE GRAPH)
-------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
-------------------------------------------------------------------------------------------------
Apache Corporation 100 147 280 221 254 382
-------------------------------------------------------------------------------------------------
S&P's Composite 500 Stock Index 100 121 110 97 75 97
-------------------------------------------------------------------------------------------------
DJ Secondary Oils Stock Index 100 115 184 169 173 227
-------------------------------------------------------------------------------------------------
26
EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
Mr. Raymond Plank serves the Company under an employment agreement entered into
in December 1975, amended and restated in December 1990 and amended in April
1996. The agreement has an undefined term and is terminable at will by the
Company's board of directors. Mr. Plank's annual compensation under the
agreement is determined by the board of directors, but may not be less than
$450,000. If his service as a director and an officer is terminated by the board
of directors, Mr. Plank will serve as advisor and consultant to the Company for
the remainder of his life at annual compensation equal to 50 percent of his
then-current annual compensation and will receive health, dental and vision
benefits for himself, his spouse and his eligible dependents during the
remainder of his life. Pursuant to the agreement and in exchange for
surrendering life insurance coverage, an annuity was purchased for Mr. Plank
that pays $31,500 annually until 2008. Mr. Plank has agreed not to render
service to any of the Company's competitors for the entire period covered by the
agreement. Upon Mr. Plank's death, a total of $900,000 shall be paid (a) to his
designee in equal monthly installments over ten years, or (b) if he has made no
designation, in a lump sum to his estate.
Mr. Farris serves the Company pursuant to an employment agreement, dated June 6,
1988, under which he received an annual salary of $881,250 during 2003. The
agreement has an undefined term and may be terminated by either the Company or
Mr. Farris on 30 days advance written notice. If Mr. Farris' employment is
terminated without cause, or if he terminates his employment within 30 days of a
reduction in his salary without a proportionate reduction in the salaries of all
other Company executives, Mr. Farris will receive, for 36 months thereafter, (a)
an amount equal to his base salary as it existed 60 days prior to termination
and (b) 50 percent of the maximum amount for which he qualified under the
Company's incentive compensation plan, calculated on his base compensation as it
existed 60 days prior to termination. In the event of Mr. Farris' death during
the 36-month period, the amounts described above shall be paid to his heirs or
estate. Mr. Farris has agreed not to render service to any of the Company's
competitors for the term of his employment or, unless he is terminated without
cause, for 36 months thereafter.
On December 17, 1998, Mr. Farris was granted a conditional stock award, the
basic provisions of which are discussed above in the footnotes to the Summary
Compensation Table and under the caption "Long-Term Incentives" in the report on
executive compensation. Under the terms of the agreement for this award, the
vesting of one or more of the five periodic installments is subject to
acceleration under specific circumstances. Those circumstances generally relate
to (a) termination of Mr. Farris' employment other than for cause, (b) his death
or total disability, (c) an individual other than Mr. Raymond Plank or Mr.
Farris becoming the Company's chief executive officer, and (d) merger,
acquisition or other "change-in-control" of the Company.
In addition to the foregoing, the Company has established an income continuance
plan. The plan provides that all officers of the Company, including the officers
named in the Summary Compensation Table, and all employees who have either
reached the age of 40, served the Company for more than ten years, or have been
designated for participation based upon special skills or experience, will
receive monthly payments approximating their monthly income and continued
medical and health benefits from the Company for up to two years, if their
employment is terminated as a result of a "change in control" of the Company, as
defined in the plan.
27
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Frederick M. Bohen, John A. Kocur, A. D. Frazier, Jr. and George D. Lawrence
served on the management development and compensation committee of the Company's
board of directors for all of 2003.
Mr. Kocur, a member of the committee since September 1991 and a director of the
Company since 1977, retired as an executive officer in June 1991. Pursuant to
the terms of an employment agreement in place at the time of his retirement, Mr.
Kocur receives health, dental and vision benefits throughout his life.
Mr. Lawrence, a member of the committee since May 1997 and a director of the
Company since May 1996, is the former president and chief executive officer of
The Phoenix Resource Companies, Inc. ("Phoenix"). See "Certain Business
Relationships and Transactions." Pursuant to the terms of his employment
agreement with Phoenix, Mr. Lawrence received medical and dental benefits
through December 1997. Since that time, he has purchased medical and dental
coverage through the Company.
CERTAIN BUSINESS RELATIONSHIPS AND TRANSACTIONS
George D. Lawrence, a member of the Company's board of directors and the former
president and chief executive officer of The Phoenix Resource Companies, Inc.
("Phoenix"), joined Apache's board in conjunction with the Company's acquisition
of Phoenix by a merger (the "Merger") on May 20, 1996, through which Phoenix
became a wholly-owned subsidiary of Apache. Merger consideration totaled $396.3
million, consisting of approximately 12,190,000 shares of Apache's common stock
(28,158,900 shares after adjustment for the stock dividends and stock split)
valued at $26.00 per share ($11.2554 after adjustment), $14.9 million of net
value associated with Phoenix stock options assumed by Apache, and $64.5 million
in cash.
Upon consummation of the Merger, Apache assumed Phoenix stock options that
remained outstanding on May 20, 1996, including those granted to Mr. Lawrence
pursuant to Phoenix's 1990 Employee Stock Option Plan. In March 2003, Mr.
Lawrence received 8,291 shares of Apache common stock (16,582 shares after
adjustment for the stock split) as a result of the exercise of all of his
remaining stock options from the Phoenix 1990 Employee Stock Option Plan. Such
exercise was for 21,656 shares of Apache common stock at an exercise price of
$21.50 per share (43,312 shares at $10.75 per share after adjustment for the
stock split), and Mr. Lawrence paid the net exercise price of $466,000 and
required taxes of $345,000 by surrendering 13,365 shares of Apache common stock
valued at $60.65 per share (26,730 shares at $30.33 per share after adjustment
for the stock split).
In the ordinary course of business, Cimarex Energy, Co. ("Cimarex"), formerly
Key Production Company, Inc., paid to Apache during 2003 approximately
$3,669,000 for Cimarex's proportionate share of drilling and workover costs,
mineral interests, and routine expenses relating to oil and gas wells in which
Cimarex owns interests and of which Apache is the operator. Cimarex was paid
approximately $5,742,000 directly by Apache or related entities for its
proportionate share of revenues from wells in which Cimarex marketed its
revenues with Apache as operator. Apache paid to Cimarex during 2003
approximately $1,268,000 for Apache's proportionate share of drilling and
workover costs, mineral interests, and routine expenses relating to oil and gas
wells in which Apache owns interests and of which Cimarex is the operator.
Apache was paid approximately
28
$2,079,000 directly by Cimarex for its proportionate share of revenues from
wells in which Apache marketed its revenues with Cimarex as operator. F. H.
Merelli, a member of Apache's board of directors, is chairman of the board,
chief executive officer, and president of Cimarex.
In the ordinary course of business, Matador Petroleum Corporation or related
entities ("Matador") paid to Apache during 2003 approximately $793,000 for
Matador's proportionate share of drilling and workover costs, mineral interests,
and routine expenses relating to oil and gas wells in which Matador owns
interests and of which Apache is the operator. Matador was paid approximately
$1,458,000 directly by Apache for its proportionate share of revenues from wells
in which Matador marketed its revenues with Apache as operator. Apache paid to
Matador during 2003 approximately $654,000 for Apache's proportionate share of
drilling and workover costs, mineral interests, and routine expenses relating to
oil and gas wells in which Apache owns interests and of which Matador is the
operator. Apache was paid approximately $915,000 directly by Matador for its
proportionate share of revenues from wells in which Apache marketed its revenues
with Matador as operator. Eugene C. Fiedorek, a member of Apache's board of
directors, was a member of the board of directors of Matador until its
acquisition by Tom Brown Inc in March 2003.
During 2003, Apache and it subsidiaries made donations of $201,000, in cash,
property, and services, to the Ucross Foundation. During 2003, Apache also paid
$40,000 to the Ucross Foundation for food, lodging, and other expenses incurred
in connection with executive retreats held by Apache at the Ucross Foundation
facilities. On February 5, 2004, Apache entered into an agreement to purchase
Clear Creek Hunting Preserve, Inc. from Ucross Foundation for a total purchase
price of $77,000. The Ucross Foundation was founded in 1981 as a non-profit
organization whose primary objectives include the restoration of the historic
Clear Fork headquarters of the Pratt and Ferris Cattle Company of Wyoming, the
promotion of the preservation of other historical sites in the area, and the
maintenance of an artists-in-residence program for writers and other artists. To
help ensure that the accomplishments of the Ucross Foundation are reasonably
secure, Apache's board of directors has approved a conditional charitable
contribution of $10,000,000 to be made to the Ucross Foundation upon a change of
control of the Company, as defined in the Company's income continuance plan.
Raymond Plank, chairman of Apache's board of directors, is chairman of the board
of trustees of Ucross Foundation, and G. Steven Farris, a director and officer
of Apache, and Roger B. Plank, an officer of Apache, are trustees of Ucross
Foundation.
During 2003, Apache and it subsidiaries made donations of $500,000, in cash,
property, and services to The Fund for Teachers: A Foundation to Recognize,
Stimulate and Enhance, which is a Texas non-profit corporation. In addition,
during 2003, Apache accrued a $4,650,000 donation to the Fund for Teachers that
was pledged in 2003 and will be paid in 2004. The Fund for Teachers seeks to
provide resources directly to teachers to support learning experiences of their
own design to increase their effectiveness with students, and is currently
focused on funding summer sabbaticals for selected applicants. The Company's
board of directors also authorized additional donations to The Fund for Teachers
of up to $5,000,000 in cash, property, and services to be made in each of 2004
and 2005. If a change of control of the Company occurs, as defined in the
Company's income continuance plan, any and all of the donations that have not
yet been made to the Fund for Teachers will become immediately due and payable
to the Fund for Teachers. Raymond Plank, chairman of Apache's board of
directors, is chairman of the board and president of The Fund for Teachers.
29
STOCKHOLDER PROPOSAL
(PROPOSAL NO. 2 ON PROXY CARD)
Proponents of the following stockholder proposal have stated that they intend to
present such proposal at the annual meeting. If one of the stockholder
proponents, or a qualified representative, is present and submits his or her
proposal for a vote, then the proposal will be voted on at the annual meeting.
In accordance with federal securities regulations, we have included the
stockholder proposal and supporting statement exactly as submitted by the
proponents. The Company is not responsible for the content of the stockholder
proposal or supporting statement. The board of directors has recommended a vote
against the proposal for the reasons set forth below. The address and number of
shares of Apache common stock held by each of the proponents will be provided
upon oral or written request to the Company's corporate secretary.
The following proposal has been co-sponsored by the Boston Common Asset
Management, LLC, Ethical Funds Inc., Walden Asset Management, General Board of
Pension and Health Benefits of the United Methodist Church, Domini Social
Investments LLC, Ethical Funds Inc., The Needmor Foundation, and Trillium Asset
Management Corporation:
"CLIMATE CHANGE RESOLUTION
"APACHE CORPORATION
"WHEREAS:
"In 2001, the Intergovernmental Panel on Climate Change concluded "there is
new and stronger evidence that most of the warming observed over the last
50 years is attributable to human activities." The National Academy of
Sciences stated that the "degree of confidence in the IPCC assessment is
higher today than it was 10, or even 5 years ago."
"The Environmental Protection Agency's "Climate Action Report -- 2002,"
concluded that climate change poses risks to coastal communities due to sea
level rise, water shortages, and increases in the heat index and frequency
of heat waves.
"100+ countries have ratified the Kyoto Protocol, spurring greenhouse gas
emissions (GHG) controls abroad that could disadvantage U.S. companies
against competitors already accustomed to operating in carbon-constrained
environments. At least half of U.S. states are addressing global warming,
through legislation, lawsuits against the Bush administration or programs
initiated by governors.
"According to recent polls by Zogby and Gallup, 75% of Americans favor
mandatory controls on GHG emissions.
"Recent reports by CERES, the Carbon Disclosure Project, Innovest Strategic
Value Advisors, and the Investor Responsibility Research Center demonstrate
the growing financial risks of climate change for U.S. corporations, and
that companies are not adequately disclosing these risks to investors.
"The reinsurer Swiss Re is asking companies applying for directors and
officers insurance to explain what they are doing to prepare for potential
regulation of GHG emissions.
"We believe our industry is highly exposed to risk from climate change;
according to the Energy Information Administration, over half of all GHG
emissions in the United States are from oil and gas combustion.
30
"Industry leaders such as Royal Dutch/Shell, BP, ConocoPhillips, Statoil,
Suncor and Amerada Hess are taking actions to reduce their exposure to
climate related risks, including assuming a cost for carbon in their
strategic planning, reporting on and reducing their GHG emissions, engaging
in emissions trading, and investing in renewable energy. BP reports that
its emissions reduction activities have generated savings with an NPV of
$650 million.
"According to Oil and Gas Investor, the industry's environmental record is
hurting its ability to attract strong employees. Companies like BP claim
that their proactive stance on climate change helps to recruit and retain
quality employees.
"Apache has committed to reporting publicly its GHG emissions for its
Canadian and Australian operations but produces no comparable report on its
U.S. operations.
"RESOLVED: The shareholders request that a committee of independent
directors of the Board assess how the company is responding to rising
regulatory, competitive, and public pressure to significantly reduce
greenhouse gas emissions and report to shareholders (at reasonable cost and
omitting proprietary information) by September 1, 2004.
"SUPPORTING STATEMENT:
"We believe management has a fiduciary duty to carefully assess and
disclose to shareholders all pertinent information on its response
associated with climate change. We believe taking early action to reduce
emissions and prepare for standards could provide competitive advantages,
and inaction and opposition to emissions control efforts could expose
companies to regulatory and litigation risk, and reputation damage."
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "AGAINST"
THIS PROPOSAL FOR THE FOLLOWING REASONS:
Apache recognizes that it is incumbent on a company that derives its benefits
from the Earth's resources to take our responsibilities to the environment
seriously. This necessarily encompasses our responsibilities relating to harmful
emissions. In countries with less stringent environmental protections, Apache
strives to ensure that its operations meet the higher U.S. standards. Apache
operates in a number of ecologically sensitive areas and has been recognized for
its care for the environment. For example:
- In Australia, Apache participates in the Greenhouse Gas Challenge
Program, which is managed by the Australia Petroleum Production and
Exploration Association.
- In the U.K., since we purchased our position in the North Sea last year,
Apache has independently developed an innovative plan to reduce
greenhouse gas emissions by as much as 350,000 tons of carbon dioxide
equivalents per year.
- In Canada, Apache participates in the voluntary reporting of greenhouse
gas emissions under the Stewardship Program managed by the Canadian
Association of Petroleum Producers.
- In the United States, Apache has committed to joining the Natural Gas
STAR Program, a voluntary greenhouse gas emission reduction program for
the upstream oil and gas industry, which is administered through the
Environmental Protection Agency on behalf of the President's Global
Climate Change Initiative.
Ensuring continued growth of stockholder value in a socially responsible manner
requires a balanced assessment of all risks and rewards that the Company faces.
While Apache's board of
31
directors and management value the input of stockholders on achieving this
balance, Apache is already obligated to discuss with our stockholders our costs
of compliance with and risks posed by environmental laws. We believe that our
public disclosures and reports already adequately discuss our response to the
numerous regulatory issues that we face, including environmental issues.
Given the relatively slow rate of adoption of the Kyoto Protocol by
industrialized countries, the U.S. federal government's refusal to ratify it,
recent objections expressed by Russia, and the exemption of huge developing
countries, such as China and India,(1) we believe that it is highly speculative
whether the Kyoto Protocol will have any present or foreseeable effects on our
business environment or stockholder value. Apache intends to continue to
participate in voluntary programs that address greenhouse gas emissions,
recognizing that, although "the extent and consequences of human-induced global
climate change remains uncertain" according to the Department of Energy in
October 2003,(2) the potential impacts of greenhouse gas emissions on society
and ecosystems may prove to be significant. If the Kyoto Protocol were passed,
Apache is fully prepared to comply with all laws and regulations in countries
where we operate.
Apache intends to continue to take responsibility for assuring that it is a good
steward of the environment and complying with the laws and regulations where it
does business. The Company believes that the proposal before you would add no
additional information or value to our current efforts. On the contrary, the
proposal would add unnecessary work, diverting us from our primary goal of
building stockholder value.
THE COMPANY'S BOARD OF DIRECTORS, THEREFORE, RECOMMENDS THAT YOU VOTE "AGAINST"
THE PROPONENTS' PROPOSAL.
---------------
1 Energy Information Administration, "Emissions of Greenhouse Gases in the
United States 2002," at 12; and "Russian Stance Leaves Fate of Global Warming
Pact in Doubt," The Washington Post, September 30, 2003, A19.
2 Energy Information Administration, at 2.
32
INDEPENDENT PUBLIC AUDITORS
Ernst & Young LLP was the Company's independent public accounting firm for the
fiscal year 2003. Representatives of Ernst & Young will be present at the annual
meeting and will have an opportunity to make a statement if they desire to do so
and to respond to appropriate questions regarding Apache business.
Ernst & Young's audit report on Apache's consolidated financial statements as of
and for the fiscal year ended December 31, 2003 did not contain any adverse
opinion or disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope, or accounting principles.
During Apache's most recent fiscal year ended December 31, 2003, and through the
filing date of this proxy statement, there were no disagreements with Ernst &
Young on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to Ernst & Young's satisfaction, would have caused Ernst & Young to make
reference to the subject matter of the disagreement in connection with their
report; and there were no reportable events, as described in Item 304(a)(1)(v)
of Regulation S-K.
During 2003 and 2002, Ernst & Young provided various services to Apache. In
2003, approximately $1,500,000 of the aggregate fees paid to Ernst & Young were
related to services performed in connection with current year acquisitions. The
aggregate fees for each of the following types of services are set forth below:
------------------------------------------------------------------------------------
DESCRIPTION AMOUNTS (IN THOUSANDS)
------------------------------------------------------------------------------------
2003 2002
------------------------------------------------------------------------------------
Audit Services(1) $2,176 $1,478
Audit-Related Services(2) $ 906 $ 351
Tax Services(3) $2,492 $ 433
All Other Services(4) $ 24 $1,844
(1) Audit Services include the annual financial statement audit (including
required quarterly reviews), subsidiary audits, and other procedures
required to be performed by the independent auditor to be able to form an
opinion on the Company's consolidated financial statements. These other
procedures include information systems and procedural reviews and testing
performed in order to understand and place reliance on the systems of
internal control, and consultations relating to the audit or quarterly
reviews.
(2) Audit-Related Services are assurance and related services that are
reasonably related to the performance of the audit or review of the
Company's financial statements or that are traditionally performed by the
independent auditor. Audit-related services include, among other things, due
diligence services pertaining to potential business
acquisitions/dispositions; accounting consultations related to accounting,
financial reporting or disclosure matters not classified as "Audit
Services"; assistance with understanding and implementing new accounting and
financial reporting guidance from rulemaking authorities; financial audits
of employee benefit plans; agreed upon or expanded audit procedures related
to accounting and/or billing records required to respond to or comply with
financial, accounting or regulatory reporting matters; and assistance with
internal control reporting requirements.
(3) Tax Services include, tax return preparation assistance, tax planning,
tax-related and structuring-related consultation, and tax-related
acquisition due diligence. In 2003, such Tax Services included $371,000 for
assistance with tax return preparation.
(4) All Other Services are fees for products and services other than those in
the three categories above. During 2002, the full amount shown relates to
certain litigation support work commenced prior to Ernst & Young's
appointment as the Company's auditors. These litigation support services
were completed in 2003 and Ernst & Young will no longer be allowed to
perform such services for the Company.
33
The audit committee of the Company's board of director's reviews summaries of
the services provided by Ernst & Young and the related fees, and has taken into
consideration whether the provision of non-audit services by Ernst & Young is
compatible with maintaining auditor independence.
FUTURE STOCKHOLDER PROPOSALS
Stockholders are entitled to submit proposals on matters appropriate for
stockholder action consistent with regulations of the SEC and the Company's
bylaws. Should a stockholder wish to have a proposal appear in the Company's
proxy statement for next year's annual meeting, under the regulations of the
SEC, it must be received by the Company's corporate secretary (at 2000 Post Oak
Boulevard, Suite 100, Houston, Texas 77056-4400) on or before November 30, 2004.
SOLICITATION OF PROXIES
Solicitation of proxies for use at the annual meeting may be made in person or
by mail, telephone or telegram, by directors, officers and regular employees of
the Company. These persons will receive no special compensation for any
solicitation activities. The Company has requested banking institutions,
brokerage firms, custodians, trustees, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of shares of the Company's
common stock for whom they are record holder, and the Company will, upon
request, reimburse reasonable forwarding expenses. The Company has retained
Georgeson Shareholder Communications Inc. to assist in soliciting proxies from
brokers, bank nominees and other institutional holders for a fee not to exceed
$7,500, plus expenses. All costs of the solicitation will be borne by the
Company.
By order of the Board of Directors
APACHE CORPORATION
/s/ C. L. PEPER
C. L. PEPER
Corporate Secretary
NOTE: STOCKHOLDERS ARE REQUESTED TO PROMPTLY VOTE THEIR SHARES USING ONE OF
THE METHODS EXPLAINED ON PAGES 1 AND 2 OF THIS PROXY STATEMENT.
34
APPENDIX A
AMENDED AND RESTATED CHARTER OF THE AUDIT COMMITTEE OF
APACHE CORPORATION
PURPOSES OF THE AUDIT COMMITTEE
The purposes of the Audit Committee (the "Committee") are to assist the board of
directors with the oversight of (i) the integrity of the Company's financial
statements, (ii) the Company's compliance with legal and regulatory
requirements, (iii) the independent auditors' qualifications and independence
(iv) the performance of the Company's internal audit function and independent
auditors and (v) the accounting and financial reporting processes of the Company
and audits of the Company's financial statements. The Committee shall also
prepare any and all reports required to be prepared and/or disclosed by the
Committee pursuant to the rules of the Securities and Exchange Commission (the
"SEC"), the listing standards of any exchange upon which the Company's
securities are listed for trading, or any other applicable laws or regulations.
The function of the Committee is oversight. The management of the Company is
responsible for the preparation, presentation, and integrity of the Company's
financial statements. Management is responsible for maintaining appropriate
accounting and financial reporting principles and policies and internal controls
and procedures that provide compliance with accounting standards and applicable
laws and regulations. The independent auditors for the Company are accountable
to the board of directors, as representatives of the stockholders; however, the
Committee has the sole authority and responsibility to retain and terminate the
Company's independent auditors. The independent auditors are responsible for
planning and carrying out a proper audit of the company's annual financial
statements, review of the company's 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. As such, it
is not the duty or responsibility of the Committee or its members to conduct
"field work" or other types of auditing or accounting reviews or procedures.
DUTIES AND RESPONSIBILITIES OF THE AUDIT COMMITTEE
The following are the duties and responsibilities of the Committee:
INDEPENDENT AUDITORS
1. The sole authority to appoint, compensate, retain, oversee and
terminate the independent auditors.
2. The sole authority to pre-approve all terms of and fees for audit
services, audit-related services, tax services, and other services to
be performed for the Company by the independent auditors, subject to de
minimus exceptions for non-audit services described in Section
10A(i)(1)(B) of the Exchange Act which are approved by the Committee
prior to the completion of the audit.
3. Ensure that the independent auditors prepare and deliver annually a
formal written statement (an "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
A-1
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 at least the matters set forth in Independence Standards Board No.
1. The Committee shall 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 Company's independent auditors;
4. Ensure that the independent auditors shall 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) audit services, including the annual financial statement audit
(including required quarterly reviews), subsidiary audits, equity
investment audits, and other procedures required to be performed by the
independent auditors to be able to form an opinion on the Company's
consolidated financial statements; (ii) audit related services, which
include assurance and related services that are reasonably related to
the performance of the audit or review of the Company's financial
statements or that are traditionally performed by the independent
auditors, but are not necessarily required by statutory or regulatory
audit mandates; (iii) tax services for the Company, such as tax
compliance, tax planning, and tax advice; and (iv) all other services
rendered by the independent auditors for the most recent fiscal year,
in the aggregate and by each category of service.
5. Review the independent auditors' audit plan prior to the commencement
of the audit and discuss audit scope, staffing, locations, reliance
upon management, and internal audit and general audit approach.
6. Review and evaluate the qualifications, performance, and independence
of the independent auditors, including an evaluation of the lead
partner of the independent auditors and an evaluation of whether the
independent auditors' quality controls are adequate and whether the
provision of permitted non-audit services is compatible with
maintaining the auditors' independence. The Committee's evaluation of
the independence of the independent auditors shall be made with respect
to applicable standards of independence set forth in any applicable
laws, regulations, or listing standards. The Committee shall consider
the opinions of management and the internal auditing department in its
evaluation.
7. Ensure the rotation of the lead (or coordinating) audit partner having
primary responsibility for the audit and the audit partner responsible
for reviewing the audit as required by law. Consider whether, in order
to assure continuing auditor independence, there should be a change of
the audit firm itself.
8. Receive and act upon any report from the independent auditors regarding
internal control deficiencies and any response from management thereto.
INTERNAL AUDITING DEPARTMENT
9. Review and approve the internal audit function of the Company,
including the proposed audit plans for the upcoming year.
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10. Review the budget, any changes in plan, activities, or organizational
structure, and qualifications of the internal audit department, as
needed.
11. Review the appointment and replacement of the head of the internal
auditing department.
12. Review significant reports prepared by the internal audit department,
together with management's response and follow-up to these reports.
FINANCIAL REPORTING PRINCIPLES AND POLICIES; INTERNAL AUDIT CONTROLS AND
PROCEDURES
13. 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.
14. Meet separately and on a periodic basis with management, the internal
audit department, and the independent auditors.
15. Review and discuss quarterly reports from the independent auditors on:
(i) all critical accounting policies and practices to be used; (ii) all
alternative treatments of financial information within generally
accepted accounting principles that have been discussed with
management, ramifications of the use of such alternative disclosures
and treatments, and the treatment preferred by the independent
auditors; and (iii) other material written communications between the
independent auditors and management, such as any management letter or
schedule of unadjusted differences.
16. Consider any reports or communications (and management's and/or the
internal audit department's responses thereto) submitted to the
Committee by the independent auditors required by or referred to in SAS
61 (as codified by AU Section 380), as may be modified or supplemented.
17. Meet with management, the independent auditors and, if appropriate, the
head of the internal auditing department to do the following:
(a) discuss the scope of the annual audit;
(b) discuss any significant matters arising from any audit, including
any audit problems or difficulties;
(c) discuss any audit problems or difficulties the independent auditors
encountered in the course of the audit, including any restriction on
their activities or access to requested information and any
significant disagreements with management, and management's
responses thereto;
(d) review and discuss the Company's Form 10-Q, including disclosures
made in the management's discussion and analysis, as well as the
results of the independent auditors' review of the quarterly
financial reports;
(e) review and discuss the Company's annual audited financial statements
and the independent auditors' report thereon, including disclosures
made in management's discussion and analysis, contained in the
Company's Form 10-K and annual report to stockholders prior to the
filing or distribution thereof, and recommend to the Board of
Directors whether the audited financial statements should be
included in the Company's Form 10-K;
A-3
(f) review the form of opinion the independent auditors propose to
render to the board of directors and stockholders;
(g) discuss, as appropriate: (i) any major issues regarding accounting
principles and financial statement presentations, including any
significant changes in the Company's selection or application of
accounting principles, and major issues as to the adequacy of the
Company's internal controls and any special audit steps adopted in
light of material control deficiencies; (ii) 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; and
(iii) the effect of regulatory and accounting initiatives, as well
as off-balance sheet structures, on the financial statements of the
Company;
(h) discuss with the Company's Chief Executive Officer and Chief
Financial Officer the conclusions and disclosures made by them as a
result of their certification process for the Form 10-K and Forms
10-Q; and
(i) discuss and consider the integrity of the Company's financial
reporting guidelines, policies, and controls governing the process
by which senior management of the Company and the relevant
departments of the Company assess and manage the Company's exposure
to risk, and discuss the Company's major financial risk exposures
and the steps management has taken to monitor, control, and report
such exposures. Review significant findings prepared by the
independent auditors and the internal audit department together with
management's responses thereto.
18. Discuss earnings press releases and financial information and earnings
guidance provided and the types of presentations made to analysts and
rating agencies.
19. Establish clear hiring policies for employees or former employees of
the independent auditors.
20. Establish, and update as necessary, a predetermined arrangement with
the independent auditors' providing that they will notify and advise
the Committee, prior to filing Forms 10-Q, of any matters identified
through procedures for interim quarterly financial statements pursuant
to SAS 71, as revised.
21. Review management's analysis of significant financial reporting issues
and practices.
COMPLIANCE OVERSIGHT
22. Assist the board of directors with oversight of the Company's
compliance with legal and regulatory requirements.
23. Establish procedures for the receipt, retention, and treatment of
complaints received by the Company regarding accounting, internal
accounting controls, or auditing matters, and the confidential,
anonymous submission by Company employees of concerns regarding
questionable accounting or auditing matters.
24. 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.
A-4
REPORTING AND RECOMMENDATIONS
25. Review and reassess the adequacy of the Committee's charter annually.
26. Prepare and report to the board of directors (i) following meetings of
the Committee, (ii) with respect to such other matters as are relevant
to the Committee's discharge of its responsibilities, and (iii) with
respect to such recommendations as the Committee may deem 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 this
Committee designated by the Committee to make this report.
MEMBER QUALIFICATIONS AND APPOINTMENT
The Committee shall be composed of at least three (3) directors who shall
satisfy the following criteria:
(a) Each member of the Committee shall be "independent" under the
criteria set by any applicable law, regulation, and/or listing
standard.
(b) Each Committee member shall be "financially literate," as defined by
applicable law, regulation, and/or listing standard.
(c) 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 company's annual proxy statement.
(d) No director shall have participated in the preparation of the
financial statements of the Company or any subsidiary of the Company
at any time during the previous three years.
The Company shall endeavor to ensure that at least one member of the Committee
shall be a "financial expert" as defined by the SEC. Each of the members of the
Committee shall be elected for a one-year term. The election of members of the
Committee shall be held each year at the first meeting of the Board of Directors
following the annual meeting of stockholders. Should a member of the Committee,
for any reason, be unable to serve for the term to which he or she was elected,
the vacancy may be filled by a majority vote of the Board of Directors at its
next meeting.
Any member of the Committee may be removed by the board of directors at any
time, with or without cause.
CHAIRMAN AND SECRETARY OF THE COMMITTEE
The chairman of the Committee shall be appointed by the board of directors for a
one-year term coinciding with the chairman's term as a member of the Committee.
The corporate secretary of the Company shall act as secretary of meetings of the
Committee, unless a different secretary shall be elected or appointed by the
Committee.
DELEGATION
The Committee may, in its discretion, if allowed by applicable laws or
regulations, delegate all or a portion of its duties and responsibilities to a
subcommittee of the Committee composed of at
A-5
least two members. The Committee also hereby delegates to the chairman of the
Committee the authority to pre-approve audit and non-audit services to be
performed by the Company's independent auditors as provided for in pre-approval
policies adopted from time to time by the Committee.
MEETINGS
The Committee shall meet once each fiscal quarter, or more frequently if
circumstances dictate, to discuss with management the annual audited financial
statements and quarterly financial statements, as applicable. The Committee
should meet separately periodically 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 Company's 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. The
Committee shall maintain minutes or other records of meetings of the Committee.
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. The
Committee may be vested with other specific powers and authority by resolution
of the board of directors. The Company shall provide for appropriate funding, as
determined by the Committee, for payment of (i) compensation to the independent
auditors for the purpose of rendering or issuing an audit report, (ii)
compensation to any advisors employed by the Committee, and (iii) ordinary
administrative expenses that are necessary or appropriate for carrying out the
duties of the Committee.
ANNUAL PERFORMANCE EVALUATION
The Committee shall perform a review and evaluation, at least annually, of the
performance of the Committee. The Committee shall conduct such evaluations and
review in such manner as it deems appropriate.
DISCLOSURE OF CHARTER
This Charter shall be made available on the Company's website at
www.apachecorp.com.
AMENDMENT
Any amendment or other modification of this charter shall be made and approved
by the board of directors.
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NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
MAY 6, 2004
AND PROXY STATEMENT
(APACHE LOGO)
ONE POST OAK CENTRAL
2000 POST OAK BOULEVARD, SUITE 100
HOUSTON, TEXAS 77056-4400
(LOGO)Printed on recycled paper
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
APACHE CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
THURSDAY, MAY 6, 2004
10:00 A.M.
DOUBLETREE HOTEL HOUSTON - POST OAK
2001 POST OAK BOULEVARD
HOUSTON, TEXAS
If you would like to access the proxy materials electronically next year go to
the following consent site address: http://www.econsent.com/apa/
--------------------------------------------------------------------------------
APACHE CORPORATION - 2004 PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR USE AT THE ANNUAL MEETING ON MAY 6, 2004.
By signing this proxy, you revoke all prior proxies and appoint G. Steven
Farris, Randolph M. Ferlic and George D. Lawrence as Proxies, with full power of
substitution, and authorize them to represent the undersigned at the annual
meeting of stockholders to be held May 6, 2004, or any adjournment thereof, and
to vote all the shares of common stock of Apache Corporation held of record by
the undersigned on March 17, 2004.
This Proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
"FOR" THE ELECTION OF DIRECTORS AND "AGAINST" THE STOCKHOLDER PROPOSAL.
For participants in the Apache 401(k) Savings Plan, this proxy, when properly
executed, will be voted in the manner directed by the undersigned. If no
direction is given, if the card is not signed, or if the card is not received by
May 3, 2004, the shares credited to your account will be voted in proportion to
directions received by Fidelity, the plan trustee.
--------------------
COMPANY #
--------------------
THERE ARE THREE WAYS TO VOTE YOUR PROXY
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
VOTE BY TELEPHONE - TOLL FREE - 1-800-560-1965 - QUICK *** EASY *** IMMEDIATE
o Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days
a week, until 12:00 noon (central time) on May 5, 2004.
o Please have available your proxy card and the last 4-digits of your
U.S. Social Security Number or the Tax Identification Number for this
account.
o Follow the simple instructions provided.
VOTE BY INTERNET - HTTP://WWW.EPROXY.COM/APA/ - QUICK *** EASY *** IMMEDIATE
o Use the internet to vote your proxy 24 hours a day, 7 days a week,
until 12:00 noon (central time) on May 5, 2004.
o Please have available your proxy card and the last 4-digits of your
U.S. Social Security Number or the Tax Identification Number for this
account.
o Follow the simple instructions to obtain your records and create an
electronic ballot.
VOTE BY MAIL
Mark, sign, and date your proxy card and return it in the postage-paid envelope
provided or return it to Apache Corporation, c/o Shareowner Services(SM), P.O.
Box 64873, St. Paul, MN 55164-0873.
IF YOU VOTE BY TELEPHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD
PLEASE DETACH HERE
THE BOARD OF DIRECTORS RECOMMEND A VOTE FOR ITEM 1 AND A VOTE AGAINST ITEM 2.
1. Election of directors -- director nominees:
01 Eugene C. Fiedorek 03 F. H. Merelli [ ] Vote FOR [ ] Vote WITHHELD
02 Patricia Albjerg Graham 04 Raymond Plank all nominees from all nominees
(except as marked)
(Instructions: To withhold authority to vote
for any individual nominee, write the number(s)
of the nominee(s) in the box provided to the right.) --------------------------
2. To approve stockholder proposal relating to climate change.
[ ] For [ ] Against [ ] Abstain
3. The Proxies are authorized to vote in their best judgment upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR ITEM 1 AND AGAINST ITEM 2.
Address Change? Mark Box [ ] Date
Indicate change below: ---------------------------------------
--------------------------------------------
Signature(s) In Box
Please sign exactly as your name(s) appear
on Proxy. If held in joint tenancy, all
persons must sign. Trustees, administrators,
etc. should include title and authority.
Corporations should provide full name of
corporation and title of authorized officer
signing the proxy.