-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MshERppLTI1NxhZwbq/JAcnBy/eGmhtukvFWkMma+0GGFA8yFusnNbGf24nxNYaq y+vcPpwIsSCN0MpcNYz8Yg== 0000950129-01-001592.txt : 20010326 0000950129-01-001592.hdr.sgml : 20010326 ACCESSION NUMBER: 0000950129-01-001592 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APACHE CORP CENTRAL INDEX KEY: 0000006769 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 410747868 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04300 FILM NUMBER: 1576997 BUSINESS ADDRESS: STREET 1: 2000 POST OAK BLVD STREET 2: ONE POST OAK CENTER STE 100 CITY: HOUSTON STATE: TX ZIP: 77056-4400 BUSINESS PHONE: 7132966000 MAIL ADDRESS: STREET 1: 2000 POST OAK BLVD STREET 2: STE 100 CITY: HOUSTON STATE: TX ZIP: 77056-4400 FORMER COMPANY: FORMER CONFORMED NAME: APACHE OIL CORP DATE OF NAME CHANGE: 19660830 10-K 1 h84997e10-k.txt APACHE CORPORATION - 12/31/2000 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000, OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-4300 APACHE CORPORATION A DELAWARE CORPORATION IRS EMPLOYER NO. 41-0747868
ONE POST OAK CENTRAL 2000 POST OAK BOULEVARD, SUITE 100 HOUSTON, TEXAS 77056-4400 TELEPHONE NUMBER (713) 296-6000 Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $1.25 par Value New York Stock Exchange Chicago Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Chicago Stock Exchange Automatically Convertible Equity Securities New York Stock Exchange Conversion Preferred Stock, Series C Chicago Stock Exchange 9.25% Notes due 2002 New York Stock Exchange Apache Finance Canada Corporation New York Stock Exchange 7.75% Notes Due 2029 Irrevocably and Unconditionally Guaranteed by Apache Corporation
Securities Registered Pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of the voting stock held by non-affiliates of registrant as of February 28, 2001...... $7,262,751,772 Number of shares of registrant's common stock outstanding as of February 28, 2001...................................... 123,726,606
DOCUMENTS INCORPORATED BY REFERENCE: Portions of registrant's proxy statement relating to registrant's 2001 annual meeting of stockholders have been incorporated by reference into Part III hereof. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS DESCRIPTION
ITEM PAGE - ---- ---- PART I 1. BUSINESS.................................................... 1 2. PROPERTIES.................................................. 11 3. LEGAL PROCEEDINGS........................................... 15 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 15 PART II 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......................................... 15 6. SELECTED FINANCIAL DATA..................................... 17 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................... 18 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................................................ 27 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 29 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................... 29 PART III 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 29 11. EXECUTIVE COMPENSATION...................................... 29 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................................. 29 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 29 PART IV 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.................................................... 30
All defined terms under Rule 4-10(a) of Regulation S-X shall have their statutorily prescribed meanings when used in this report. Quantities of natural gas are expressed in this report in terms of thousand cubic feet (Mcf), million cubic feet (MMcf) or billion cubic feet (Bcf). Oil is quantified in terms of barrels (bbls); thousands of barrels (Mbbls) and millions of barrels (MMbbls). Natural gas is compared to oil in terms of barrels of oil equivalent (boe) or million barrels of oil equivalent (MMboe). Oil and natural gas liquids are compared with natural gas in terms of million cubic feet equivalent (MMcfe) and billion cubic feet equivalent (Bcfe). One barrel of oil is the energy equivalent of six Mcf of natural gas. Daily oil and gas production is expressed in terms of barrels of oil per day (b/d) and thousands or millions of cubic feet of gas per day (Mcf/d and MMcf/d, respectively) or millions of British thermal units per day (MMBtu/d). Gas sales volumes may be expressed in terms of one million British thermal units (MMBtu), which is approximately, equal to one Mcf. With respect to information relating to the Company's working interest in wells or acreage, "net" oil and gas wells or acreage is determined by multiplying gross wells or acreage by the Company's working interest therein. Unless otherwise specified, all references to wells and acres are gross. 3 PART I ITEM 1. BUSINESS GENERAL Apache Corporation (Apache or the Company), a Delaware corporation formed in 1954, is an independent energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids. In North America, Apache's exploration and production interests are focused on the Gulf of Mexico, the Anadarko Basin, the Permian Basin, the Gulf Coast and the Western Sedimentary Basin of Canada. Outside of North America, Apache has exploration and production interests offshore Western Australia and in Egypt, and exploration interests in Poland and offshore The People's Republic of China (China). Apache common stock, par value $1.25 per share, has been listed on the New York Stock Exchange since 1969, and on the Chicago Stock Exchange since 1960. Apache holds interests in many of its U.S., Canadian and international properties through operating subsidiaries, such as Apache Canada Ltd., DEK Energy Company (DEKALB, formerly known as DEKALB Energy Company), Apache Energy Limited (formerly known as Hadson Energy Limited), Apache International, Inc., and Apache Overseas, Inc. Properties referred to in this document may be held by those subsidiaries. Apache treats all operations as one line of business. 2000 RESULTS Apache had its best year ever in 2000 with record income attributable to common stock of $693.1 million, or $5.87 per share, on total revenues of $2.3 billion. Net cash provided by operating activities during 2000 was $1.5 billion, a 140 percent increase from 1999. Both historically high commodity prices and record production contributed to the outstanding results. Apache reported its 23rd consecutive year of production growth (up 27 percent) and 13th consecutive year of oil and gas reserves growth (up 35 percent) in 2000. Apache's average daily production was 121.8 Mbbls of oil and natural gas liquids and 831 MMcf of natural gas for the year. Giving effect to 2000 production, acquisitions, dispositions, revisions and drilling activity, the Company's estimated proved reserves increased by 279.2 MMboe in 2000 over the prior year to 1,086.4 MMboe, of which approximately 52 percent was natural gas. Based on 807.2 MMboe of proved reserves reported at year-end 1999, Apache's reserve additions (including revisions) during the year reflect replacement of 396 percent of the Company's 2000 production. Apache's drilling and production-enhancement program yielded 455 new producing wells out of 590 attempts and involved 950 major North American workover and recompletion projects during the year. At December 31, 2000, Apache held interests in approximately 6,371 net oil and gas wells and 3,101,812 net developed acres of oil and gas properties worldwide. In addition, the Company had 1,007,685 net undeveloped acres under North American leases and 17,203,835 net undeveloped acres under international exploration and production rights. APACHE'S GROWTH STRATEGY Apache's growth strategy is to increase oil and gas reserves, production, cash flow and earnings through a combination of exploratory drilling, development of its inventory of existing projects, and property acquisitions meeting defined financial parameters. Apache prefers to operate its properties so that it can best influence their development, as a result, we operate properties accounting for over 80 percent of our production. For our existing assets, Apache seeks to maximize value by increasing production and reserves while reducing operating costs. Achieving these objectives requires rigorous pursuit of production enhancement opportunities and moderate risk drilling, while divesting marginal and non-strategic properties and pursuing other activities to reduce costs. In acquiring new assets, Apache tries to obtain appropriate prices by generally avoiding auctions where the Company would have to compete against other buyers. Our aim is to follow each acquisition with a cycle of reserve enhancement, property consolidation and cash flow acceleration, facilitating asset growth and debt reduction. 1 4 Apache's international exploration activities are an emerging component of our long-term growth strategy. Apache seeks to concentrate our exploratory investments in a select number of international areas and to become the dominant operator in those regions. Apache believes that these investments, although higher-risk, offer potential for significant reserve additions, and complement our North American operations, which are more development oriented. 2000 ACQUISITIONS AND DISPOSITIONS On January 24, 2000, Apache completed the acquisition of producing properties in Western Oklahoma and the Texas Panhandle, formerly owned by a subsidiary of Repsol YPF (Repsol), for approximately $118.7 million, plus assumed liabilities of approximately $29.8 million. The acquisition included estimated proved reserves of approximately 28.7 MMboe as of the acquisition date. On June 30, 2000, Apache completed the acquisition of long-lived producing properties in the Permian Basin and South Texas from Collins & Ware, Inc. (Collins & Ware) for approximately $320.7 million. The acquisition included estimated proved reserves of approximately 83.7 MMboe as of the acquisition date. One-third of the reserves are liquid hydrocarbons. On August 17, 2000, Apache completed the acquisition of a Delaware limited liability company owned by subsidiaries of Occidental Petroleum Corporation (Occidental) and the related natural gas production for approximately $321.2 million, plus future payments of approximately $44.0 million over four years. The Occidental properties are located in 32 fields on 93 blocks on the Outer Continental Shelf of the Gulf of Mexico. The acquisition included estimated proved reserves of approximately 53.1 MMboe as of the acquisition date. On December 29, 2000, Apache completed the acquisition of Canadian properties from Canadian affiliates of Phillips Petroleum Company (Phillips) for approximately $490.3 million. The acquisition included estimated proved reserves of approximately 70.0 MMboe as of the acquisition date. The properties comprise approximately 212,000 net developed acres and 275,000 net undeveloped acres, 786 square miles of 3-D seismic and 4,155 miles of 2-D seismic located in the Zama area of Northwest Alberta. The assets also include three sour gas plants with total throughput capacity of 150 MMcf per day, 13 compressor stations and 150 miles of owned and operated gas gathering lines. In 2000, the Company also completed tactical regional acquisitions for cash consideration totaling $104.0 million. These acquisitions added approximately 18.3 MMboe to the Company's proved reserves. During 2000, Apache sold proprietary rights to certain Canadian seismic data and non-strategic oil and gas properties, collecting cash of $26.3 million. EXPLORATION AND PRODUCTION The Company's North American exploration and production activities are diversified among four operating regions: Offshore, Midcontinent, Southern and Canada. Approximately 80 percent of the Company's proved reserves are located in these North American regions. Egypt and Australia are the Company's most important international regions. The Company's Egyptian operations are headquartered in Cairo, and Apache conducts its Australian exploration and production operations from Perth. Information concerning the amount of revenue, operating income (loss) and total assets attributable to U.S., Canadian and international operations is set forth in Note 12 to the Company's consolidated financial statements under Item 8 below. Offshore. The Offshore region comprises the Company's interests in the Gulf of Mexico, offshore Louisiana and Texas. In 2000, the Offshore region was Apache's leading region for production and production revenues contributing approximately $771 million in revenues from production of 28.5 MMboe for the year. The Company performed 188 workover and recompletion operations during 2000 in the offshore region and participated in drilling 35 wells, 22 of which were completed as producers. As of December 31, 2000, the region encompassed 600,546 net acres, and accounted for 190.2 MMboe, or 18 percent, of the Company's year-end 2000 total estimated proved reserves. 2 5 Midcontinent. Apache's Midcontinent region operates in Oklahoma, eastern and northern Texas, Arkansas and northern Louisiana. The region has focused operations on its sizable position in the Anadarko Basin of western Oklahoma. Apache has drilled and operated in the Anadarko Basin for over four decades, developing an extensive database of geologic information and a substantial acreage position. In 2000, the Midcontinent region produced approximately 12.1 MMboe, generating $292 million in revenue for the Company. At December 31, 2000, Apache held an interest in 697,892 net acres in the region, which accounted for approximately 125.8 MMboe, or 12 percent, of Apache's total estimated proved reserves. Apache participated in drilling 210 wells in the Midcontinent region during the year, 164 of which were completed as producing wells. The Company performed 68 workover and recompletion operations in the region during 2000. Southern. The Southern region includes assets in the Permian Basin of western Texas and New Mexico, the San Juan Basin of New Mexico, central Texas, and the Texas and Louisiana coasts. In 2000, the Southern region produced approximately 15.5 MMboe and generated $409 million in production revenue. At December 31, 2000, the Company held 758,746 net acres in the region, which accounted for 320.1 MMboe, or 29 percent, of the Company's total estimated proved reserves. Apache participated in drilling 149 wells in the Southern region, 139 of which were productive wells. Apache performed 490 workovers and recompletions in the Southern region during the year. Canada. Exploration and development activity in the Canadian region is concentrated in the Provinces of Alberta and British Columbia. The region produced approximately 13.8 MMboe and generated $332 million in production revenue in 2000. Apache participated in drilling 114 wells in this region during the year, 87 of which were completed as producers. The Company performed 204 workovers and recompletions on operated wells during 2000. At December 31, 2000, the region encompassed approximately 1,113,031 net acres, and accounted for 228.7 MMboe, or 21 percent, of the Company's year-end 2000 total estimated proved reserves. In February 2001, certain subsidiaries of the Company and Murphy Oil Corporation (Murphy) filed a lawsuit in Canada charging Predator Corporation (Predator) and others with misappropriation and misuse of confidential well data to obtain acreage offsetting a significant natural gas discovery in northeast British Columbia. The lawsuit charges that a wireline service company working for Apache and Murphy compromised itself by passing on to Predator highly confidential information on a large natural gas discovery Apache and Murphy made last year in the Ladyfern area of British Columbia, and that Predator personnel and their agents trespassed on the discovery well site to obtain additional confidential well data. Predator has filed a counterclaim seeking more than CN$6 billion. Apache believes that the counterclaim is without merit and that the amount claimed by Predator is frivolous. Egypt. At year end, Apache held 11,222,914 net acres in Egypt with 68.2 MMboe of estimated proved reserves or six percent of Apache's total estimated proved reserves. In 2000, Apache had 13.0 MMboe of production in Egypt, which generated $361 million in production revenues. Apache owns a 75 percent interest in the Qarun Block and a 40 percent interest in the Khalda Block, both located in the Western Desert of Egypt. Production of gas from Khalda is delivered for sale to the Egyptian General Petroleum Corporation (EGPC) at a point west of Alexandria, Egypt, via a 34-inch gas pipeline. Additional gas will be delivered via a southern line expected to be completed by mid-year 2001. The costs of building the pipeline were borne by Apache, the other Khalda participants and the owners of a neighboring block, and are recoverable from oil and gas production from the Khalda Block. In addition to the Qarun and Khalda Blocks, Apache holds interests in the East Beni Suef and Asyout Blocks to the south of the Qarun Block, and three other blocks in the Western Desert of Egypt, the North East Abu Gharadig Block, the East Bahariya Block, and the West Mediterranean Block No. 1 (partly onshore and partly offshore). Apache is also acquiring interests in the Matruh Development lease from Shell, which is not currently producing. In late 1999, Apache acquired from Amoco Egypt 100 percent of the working interest in the WD-19 area in the Western Desert. Apache drilled additional wells and has tied them into adjoining Qarun facilities. 3 6 Both the Khalda and Qarun Concession Agreements provide that Apache and its partners in the concessions will pay all of the operating and capital costs for developing the concessions, while the production will be split between EGPC and the partners. Up to 40 percent of the oil and gas produced from each of the concessions is available to the Company and its partners to recover operating and capital costs for the applicable concession. To the extent eligible costs exceed 40 percent of the oil and gas produced and sold from a concession in any given quarter, such excess costs may be carried into future quarters without limit. The remaining 60 percent of all oil and gas produced from the concessions is divided between EGPC and Apache and its partners, with the percentage received by Apache and its partners being reduced as the gross daily average of oil and gas produced on a quarterly basis increases. Under the Khalda Agreement, capital costs are amortized over four years, while the Qarun agreement provides for five-year amortization. After year-end 2000, Apache agreed to acquire all of Repsol's interest in the Khalda Block (50 percent), the Ras Kanayes Block (32 percent), the Ras El Hekma Block (50 percent), the North East Abu Gharadig Block (24 percent) and the portion of the West Mediterranean Block onshore and offshore up to 100 meters water depth (33 percent). Included in the transaction is Repsol's 50 percent interest in the Umbarka Development lease, a mature producing area, and 100 percent interest in the South Umbarka Block which also produces oil and gas. Apache will become operator of all these areas except North East Abu Gharadig. The terms of the concessions are similar, except for Umbarka, which provides for payment of a tax and royalty totaling together 50 percent of Apache's net profits from that area, and does not involve the traditional "sharing" of production. Australia. Western Australia became an important region for Apache after the 1993 acquisition of Hadson Energy Resources Corporation. In 2000, natural gas production in the region increased by 42 percent from the prior year to approximately 108 MMcf/d. Apache acts as operator for most of its Western Australian properties through its wholly-owned subsidiary, Apache Energy Limited (AEL). During 2000, Apache had 12.3 MMboe of production generating $223.5 million of production revenue. Estimated proven reserves in Australia increased by two percent to 153.5 MMboe, or 14 percent of the Company's year-end total estimated proven reserves. The increase reflects additions to oil and gas reserves in the Harriet Joint Venture. As of December 31, 2000, Apache held 259,240 net developed acres and 1,765,630 net undeveloped acres offshore Western Australia. Through AEL and its subsidiaries, Apache also operates the Varanus Island gas hub, with a throughput capacity of 240 MMcf/d, and two 60-mile (12-inch and 16-inch) pipelines from Varanus Island to connections with the Dampier to Bunbury and Goldfields Gas Transmission pipelines. See "Oil and Natural Gas Marketing." Other International Operations. Outside of Canada, Egypt and Australia, Apache currently has exploration interests in Poland and offshore China. Apache obtained its first acreage position in Poland in 1997, when the Company assumed operatorship and a 50 percent interest in over 5.5 million gross acres in Poland from FX Energy, Inc. (FX Energy). The Company has 4,891,228 net undeveloped acres in Poland as of December 31, 2000. A 1999 well, known as the Wilga-2 well, tested at a combined rate of 16.9 MMcf of gas and 570 barrels of condensate per day, and a well drilling at yearend, the Tuchola 108-2 well of the Pomeranian Concession, has also tested at 9.5 MMcf per day. The Wilga-2 well is located on Block 255 of the Vistula Concession in the Lublin basin. Apache's operations in Poland are headquartered in Warsaw. Apache is also the operator, with a 24.5 percent interest, of the Zhao Dong Block in Bohai Bay, offshore China. In 1994 and 1995, discovery wells tested at rates between 1,300 and 4,000 b/d of oil. In early 1997, one well tested at rates up to 11,571 b/d of oil and another tested at rates up to 15,359 b/d. An overall development plan for the C and D Fields in the Zhao Dong Block was approved by Chinese authorities in December 2000, and work is expected to commence in 2001. In June 2000, our subsidiary, Apache China Corporation LDC (Apache China), filed a lawsuit against PetroChina Company Limited (PetroChina), China National Petroleum Corporation and China National Oil and Gas Exploration and Development Corporation in connection with certain of our Chinese operations in the Zhao Dong Block of the Bohai Bay in China. The Company filed seeking damages and injunctive relief to 4 7 prevent the Chinese parties from declaring that Apache and XCL-China had relinquished some of our Chinese exploratory acreage, and other claims. The lawsuit was filed in the U.S. Bankruptcy Court in Opelousas, Louisiana, in connection with bankruptcy proceedings of XCL-China, Ltd., a co-owner in the Zhao Dong Block. On June 30, 2000, Apache and PetroChina announced having reached agreement to resolve the outstanding issues associated with development of the Zhao Dong Block. The agreement called for PetroChina and the China National Petroleum Corporation to obtain various governmental approvals including approval of the overall development plan. By the middle of February 2001, all of the agreed actions had occurred, including all of the required governmental approvals, and Apache China's lawsuit was dismissed with prejudice. Apache and the other participants in the Zhao Dong Block are preparing to begin the construction of production facilities and development drilling in accordance with the approved overall development plan. OIL AND NATURAL GAS MARKETING On October 27, 1995, wholly owned affiliates of each of Apache, Oryx Energy Company and Parker & Parsley Petroleum Company (Parker & Parsley) formed Producers Energy Marketing LLC (ProEnergy), a Delaware limited liability company. ProEnergy became fully operational on April 1, 1996, and marketed substantially all of its members' domestic natural gas pursuant to member gas purchase agreements having an initial term of 10 years, subject to early termination following specified events. The price of gas purchased by ProEnergy from its members was based upon agreed to published indexes. Effective January 1, 1998, Parker & Parsley withdrew from ProEnergy. In June 1998, Apache sold its interest in ProEnergy to Cinergy Corp. (Cinergy) and formed a strategic alliance with Cinergy to market substantially all the Company's natural gas production from North America. ProEnergy, renamed Cinergy Marketing & Trading, LLC in June 1999, will continue to market Apache's North American natural gas production for 10 years, with an option to terminate after six years, under an amended and restated gas purchase agreement effective July 1, 1998. During this period, Apache is generally obligated to deliver most of its North American gas production to Cinergy and, under certain circumstances, may have to make payments to Cinergy if certain gas throughput thresholds are not met. Separate from its arrangements with Cinergy, Apache is also delivering natural gas under several long-term supply agreements with terms greater than one year. Apache assumed its own U.S. crude oil marketing operations in 1992. Most of Apache's U.S. crude oil production is sold through lease-level marketing to refiners, traders and transporters, generally less than 30 day contracts that renew automatically until canceled. Oil produced from Canadian properties is sold to crude oil purchasers or refiners at market prices, which depend on worldwide crude prices adjusted for transportation and crude quality. Natural gas produced from Canadian properties is sold to major aggregators of natural gas, gas marketers and direct users under long-term and short-term contracts. The oil and gas contracts provide for sales at specified prices, or at prices that are subject to change due to market conditions. The Company diversifies the markets for its Canadian gas production not presently committed to Cinergy by selling directly or indirectly to customers through aggregators and brokers in the United States and Canada. Apache transports natural gas via the Company's firm transportation contracts to California (12 MMcf/d) and to the Province of Ontario, Canada (four MMcf/d) through end-users' firm transportation contracts. Pursuant to an agreement entered into in 1994, the Company is also selling five MMcf/d of natural gas to the Hermiston Cogeneration Project, located in the Pacific Northwest of the United States. In 1996, the Company entered into an agreement with Westcoast Gas Services, Inc. for the sale of 5,000 MMBtu/d for delivery in the United States for a 10-year term. In Australia, the Company entered into two gas sales contracts during 2000, bringing its total to 20 contracts. Spot sales continued to two buyers and short-term additional quantities were agreed with another buyer. In total, AEL committed a further 21.4 Bcf for delivery over the next six to eight years. Apache's total Australian delivery rates are expected to average 116 MMcf/d in 2001, excluding spot sales. In Egypt, oil from the Qarun Block is delivered by pipeline to tanks at the Dashour pumping station northeast of the Qarun Block or by truck to the Tebbin refinery south of Alexandria, Egypt. At the discretion 5 8 of the operator of the pipelines, oil from the Qarun Block is put into the two 42-inch diameter SUMED pipelines, which transport significant quantities of Egyptian and other crude oil from the Gulf of Suez to Sidi Kherir, west of Alexandria, Egypt, on the Mediterranean Coast. All Qarun and Khalda crude oil is currently sold to EGPC. In 1996, the Company and its partners in the Khalda Block entered into a take or pay contract with EGPC, which obligates EGPC to pay for 75 percent of 200 MMcf/d of future production of gas from the Khalda Block. Sales of gas under the contract began in 1999 upon completion of a gas pipeline from the Khalda Block. In late 1997, the same sellers entered into a supplement to the contract with EGPC to sell an additional 50 MMcf/d through a southern gas line being constructed by the Company and its partners in the Khalda Block to a point near the Qarun Block to tie into an existing gas pipeline. This southern line is expected to complete tie-in by mid-year 2001. The Repsol transaction referred to above will transfer operatorship of the Khalda gas processing plants and the Southern gas line to Apache. OIL AND NATURAL GAS PRICES Natural gas prices during 2000 experienced a strong upward trend with Apache's realized prices ranging from $2.37 per Mcf in January to $5.60 per Mcf in December. Fluctuations are largely due to market perceptions about natural gas supply and demand. Apache's average realized gas price of $3.59 per Mcf for 2000 was up 66 percent from the prior-year average of $2.16 per Mcf, and its 1999 average realized natural gas price was 12 percent higher than the 1998 average price of $1.93 per Mcf. As a result of minimum price contracts which escalate at an average of 80 percent of the Australian consumer price index, AEL's natural gas production in Western Australia is not subject to price volatility as is Apache's U.S. and Canadian gas production; however, natural gas sales under such Australian minimum price contracts represented less than five percent of the Company's total natural gas sales for 2000. Total Australian gas sales in 2000, including long-term contracts and spot sales, averaged $1.34 per Mcf, 11 percent lower than the 1999 average of $1.51. The decline from 1999 was primarily due to a lower currency exchange rate. In Egypt, all oil production from the East Beni Suef, Khalda, West Mediterranean, WD-19 and Qarun Blocks is currently sold to EGPC on a spot basis at a "Western Desert" price, which is applied to virtually all production from the area and is announced periodically by EGPC. In 2000, the average price was $27.81 per barrel. Gas sales from the Khalda Block commenced in 1999 based on a contract price that is equivalent to 85 percent of the price of Suez Blend crude oil, FOB Mediterranean. The price for certain quantities of gas sold and produced in Egypt was reduced in 2000 to a price based on crude oil with a maximum of $2.65 per Mcf, following discussions and agreements between EGPC and certain other producers. These latest agreements do not impact any of Apache's existing gas sales contracts; however, any new gas sales contracts may be impacted. Oil prices remained subject to unpredictable political and economic forces during 2000 and experienced fluctuations similar to those seen in natural gas prices for the year, and also showed a significant upward trend. Apache believes that oil prices will continue to fluctuate in response to changes in the policies of the Organization of Petroleum Exporting Countries (OPEC), worldwide demand, events in the Middle East and other factors associated with the world political and economic environment. As a result of the many uncertainties associated with levels of production maintained by OPEC and other oil producing countries, the availability of worldwide energy supplies, and the competitive relationships and consumer perceptions of various energy sources, the Company is unable to predict what changes will occur in crude oil and natural gas prices. In 2000, Apache's realized worldwide crude oil price ranged from $22.56 per barrel in April to $32.54 per barrel in September. The average crude oil price of $27.37 per barrel in 2000 was up 48 percent from the average price of $18.45 per barrel in 1999, and was 116 percent higher than the average price of $12.70 per barrel in 1998. The Company's average crude oil price for its Australian production was $29.99 per barrel in 2000, 52 percent more than the average price in 1999. 6 9 From time to time, Apache buys or sells contracts to hedge a limited portion of its future oil and gas production against exposure to spot market price changes. See Note 9 to the Company's consolidated financial statements under Item 8 below. The Company's business has been and will continue to be affected by future worldwide changes in oil and gas prices and the relationship between the prices of oil and gas. No assurance can be given as to the trend in, or level of, future oil and gas prices. WRITE-DOWNS UNDER THE FULL COST CEILING TEST RULES Under the full cost accounting rules of the Securities and Exchange Commission (SEC), the Company reviews the carrying value of its proved oil and gas properties each quarter on a country-by-country basis. Under these rules, capitalized costs of proved oil and gas properties, net of accumulated depreciation, depletion and amortization, and deferred income taxes, may not exceed the present value of estimated future net cash flows from proved oil and gas reserves, discounted at 10 percent, plus the lower of cost or fair value of unproved properties included in the costs being amortized, net of related tax effects. These rules generally require pricing future oil and gas production at the unescalated oil and gas prices in effect at the end of each fiscal quarter and require a write-down if the "ceiling" is exceeded, even if prices declined for only a short period of time. The Company had no write-downs due to ceiling test limitations in 2000. Given the volatility of oil and gas prices, it is reasonably possible that the Company's estimate of discounted future net cash flows from proved oil and gas reserves could change in the near term. If oil and gas prices decline significantly in the future, even if only for a short period of time, it is possible that write-downs of oil and gas properties could occur. Write-downs required by these rules do not impact cash flow from operating activities. VOLATILE PRICES CAN MATERIALLY AFFECT THE COMPANY The Company continually analyzes forecasts and updates its estimates of energy prices for its internal use in planning, budgeting, and estimating and valuing reserves. The Company's future financial condition and results of operations will depend upon the prices received for the Company's oil and natural gas production and the costs of acquiring, finding, developing and producing reserves. Prices for oil and natural gas are subject to fluctuations in response to relatively minor changes in supply, market uncertainty and a variety of additional factors that are beyond the control of the Company. These factors include worldwide political instability (especially in the Middle East and other oil-producing regions), the foreign supply of oil and gas, the price of foreign imports, the level of drilling activity, the level of consumer product demand, government regulations and taxes, the price and availability of alternative fuels and the overall economic environment. A substantial or extended decline in oil and gas prices would have a material adverse effect on the Company's financial position, results of operations, quantities of oil and gas that may be economically produced, and access to capital. Oil and natural gas prices have historically been and are likely to continue to be volatile. This volatility makes it difficult to estimate with precision the value of producing properties in acquisitions and to budget and project the return on exploration and development projects involving the Company's oil and gas properties. In addition, unusually volatile prices often disrupt the market for oil and gas properties, as buyers and sellers have more difficulty agreeing on the purchase price of properties. UNCERTAINTY IN CALCULATING RESERVES; RATES OF PRODUCTION; DEVELOPMENT EXPENDITURES; CASH FLOWS There are numerous uncertainties inherent in estimating quantities of oil and natural gas reserves of any category and in projecting future rates of production and timing of development expenditures, which underlie the reserve estimates, including many factors beyond the Company's control. Reserve data represent only estimates. In addition, the estimates of future net cash flows from the Company's proved reserves and their present value are based upon various assumptions about future production levels, prices and costs that may prove to be incorrect over time. Any significant variance from the assumptions could result in the actual quantity of the Company's reserves and future net cash flows from them being materially different from the estimates. In addition, the Company's estimated reserves may be subject to downward or upward revision based upon production history, results of future exploration and development, prevailing oil and gas prices, operating and development costs and other factors. 7 10 ACQUISITION OR DISCOVERIES OF ADDITIONAL RESERVES IS NEEDED TO AVOID A MATERIAL DECLINE IN RESERVES AND PRODUCTION The rate of production from oil and gas properties generally declines as reserves are depleted. Except to the extent that the Company acquires additional properties containing proved reserves, conducts successful exploration and development activities or, through engineering studies, identifies additional behind-pipe zones or secondary recovery reserves, the Company's proved reserves will decline materially as reserves are produced. Future oil and gas production is, therefore, highly dependent upon the Company's level of success in acquiring or finding additional reserves. SUBSTANTIAL COSTS INCURRED TO CONFORM TO GOVERNMENT REGULATION OF THE OIL AND GAS INDUSTRY The Company's exploration, production and marketing operations are regulated extensively at the federal, state and local levels, as well as by other countries in which the Company does business. The Company has made and will continue to make large expenditures in its efforts to comply with the requirements of environmental and other regulations. Further, the oil and gas regulatory environment could change in ways that might substantially increase these costs. Hydrocarbon-producing states regulate conservation practices and the protection of correlative rights. These regulations affect the Company's operations and limit the quantity of hydrocarbons the Company may produce and sell. In addition, at the U.S. federal level, the Federal Energy Regulatory Commission regulates interstate transportation of natural gas under the Natural Gas Act. Other regulated matters include marketing, pricing, transportation and valuation of royalty payments. SUBSTANTIAL COSTS INCURRED RELATED TO ENVIRONMENTAL MATTERS The Company, as an owner or lessee and operator of oil and gas properties, is subject to various federal, provincial, state, local and foreign country laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the lessee under an oil and gas lease for the cost of pollution clean-up resulting from operations, subject the lessee to liability for pollution damages, and require suspension or cessation of operations in affected areas. The Company maintains insurance coverage, which it believes is customary in the industry, although it is not fully insured against all environmental risks. The Company is not aware of any environmental claims existing as of December 31, 2000, which would have a material impact upon the Company's financial position or results of operations. The Company has made and will continue to make expenditures in its efforts to comply with these requirements, which it believes are necessary business costs in the oil and gas industry. The Company has established policies for continuing compliance with environmental laws and regulations, including regulations applicable to its operations in Canada, Australia and other countries. Apache also has established operational procedures and training programs designed to minimize the environmental impact of its field facilities. The costs incurred by these policies and procedures are inextricably connected to normal operating expenses such that the Company is unable to separate the expenses related to environmental matters; however, the Company does not believe any such additional expenses are material to its financial position or results of operations. Although environmental requirements have a substantial impact upon the energy industry, generally these requirements do not appear to affect Apache any differently, or to any greater or lesser extent, than other companies in the industry. The Company does not believe that compliance with federal, state, local or foreign country provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, will have a material adverse effect upon the capital expenditures, earnings or competitive position of the Company or its subsidiaries; however, there is no assurance that changes in or additions to laws or regulations regarding the protection of the environment will not have such an impact. 8 11 COMPETITION WITH OTHER COMPANIES COULD HARM THE COMPANY The oil and gas industry is highly competitive. The Company's business could be harmed by competition with other companies. Because oil and gas are fungible commodities, the Company's principal form of competition is price competition. The Company strives to maintain the lowest finding and production costs possible to maximize profits. In addition, as an independent oil and gas company, Apache frequently competes for reserve acquisitions, exploration leases, licenses, concessions and marketing agreements against companies with financial and other resources substantially larger than the Company possesses. Many of the Company's competitors have established strategic long-term positions and maintain strong governmental relationships in countries in which the Company may seek new entry. INSURANCE DOES NOT COVER ALL RISKS Exploration for and production of oil and natural gas can be hazardous, involving unforeseen occurrences such as blowouts, cratering, fires and loss of well control, which can result in damage to or destruction of wells or production facilities, injury to persons, loss of life, or damage to property or the environment. The Company maintains insurance against certain losses or liabilities arising from its operations in accordance with customary industry practices and in amounts that management believes to be prudent; however, insurance is not available to the Company against all operational risks. HEDGING MAY PREVENT THE COMPANY FROM FULLY BENEFITING FROM PRICE INCREASES To the extent that the Company engages in hedging activities, that protect against price deterioration, it may be prevented from realizing the benefits of price increases above the levels of the hedges. In addition, the Company is subject to basis risk when it engages in hedging transactions, particularly where transportation constraints restrict the Company's ability to deliver oil and gas volumes at the delivery point to which the hedging transaction is indexed. RISKS ARISING FROM THE FAILURE TO FULLY IDENTIFY POTENTIAL PROBLEMS RELATED TO ACQUIRED RESERVES OR TO PROPERLY ESTIMATE THOSE RESERVES The Company from time to time acquires oil and gas properties. Although the Company performs a review of the acquired properties that it believes is consistent with industry practices, such reviews are inherently incomplete. It generally is not feasible to review in depth every individual property involved in each acquisition. Ordinarily the Company will focus its review efforts on the higher-value properties and will sample the remainder. However, even a detailed review of records and properties may not necessarily reveal existing or potential problems, nor will it permit a buyer to become sufficiently familiar with the properties to assess fully their deficiencies and potential. Inspections may not always be performed on every well, and environmental problems, such as ground water contamination, are not necessarily observable even when an inspection is undertaken. Even when problems are identified, the Company often assumes certain environmental and other risks and liabilities in connection with acquired properties. There are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves and actual future production rates and associated costs with respect to acquired properties, and actual results may vary substantially from those assumed in the estimates (see above). In addition, there can be no assurance that acquisitions will not have an adverse effect upon the Company's operating results, particularly during the periods in which the operations of acquired businesses are being integrated into the Company's ongoing operations. GENERAL ECONOMIC CONDITIONS Virtually all of the Company's operations are subject to the risks and uncertainties of adverse changes in general economic conditions (domestically, in specific regions of the United States and Canada, and internationally), the outcome of pending and/or potential legal or regulatory proceedings, changes in environmental, tax, labor and other laws and regulations to which the Company is subject, and the condition of the capital markets utilized by the Company to finance its operations. 9 12 RISKS OF NON-U.S. OPERATIONS The Company's non-U.S. oil and natural gas exploration, development and production activities are subject to political and economic uncertainties, including, among others, changes, sometimes frequent or marked, in governmental energy policies or the personnel administering them; expropriation of property; cancellation or modification of contract rights; foreign exchange restrictions; currency fluctuations; risks of loss due to civil strife, acts of war, guerrilla activities and insurrection; royalty and tax increases; and other risks arising out of foreign governmental sovereignty over the areas in which the Company's operations are conducted. These risks may be higher in the developing countries in which the Company conducts its exploration, development and production activities. Consequently, the Company's non-U.S. exploration, development and production activities may be substantially affected by factors beyond the Company's control, any of which could materially adversely affect the Company's financial position or results of operations. Furthermore, in the event of a dispute arising from non-U.S. operations, the Company may be subject to the exclusive jurisdiction of courts outside the United States or may not be successful in subjecting non-U.S. persons to the jurisdiction of the courts in the United States, which could adversely affect the outcome of the dispute. EFFECT OF CHANGES IN FOREIGN EXCHANGE RATES ON THE COMPANY'S CASH FLOW The Company's cash flow stream relating to certain international operations is based on the U.S. dollar equivalent of cash flows measured in foreign currencies. Australian gas production is sold under fixed-price Australian dollar contracts and over half the costs incurred are paid in Australian dollars. Revenue and disbursement transactions denominated in Australian dollars are converted to U.S. dollar equivalents based on the exchange rate as of the transaction date. Reported cash flow relating to Canadian operations is based on cash flows measured in Canadian dollars converted to the U.S. dollar equivalent based on the average of the Canadian and U.S. dollar exchange rates for the period reported. Substantially all of the Company's international transactions, outside of Canada and Australia, are denominated in U.S. dollars. The Company's Polish and Australian subsidiaries have net financial assets that are denominated in a currency other than the functional reporting currency of the subsidiaries. The Company considers its current risk exposure to exchange rate movements, based on net cash flows, to be immaterial. EMPLOYEES On December 31, 2000, Apache had 1,546 employees. OFFICES Apache's principal executive offices are located at One Post Oak Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400. At year-end 2000, the Company maintained regional exploration and/or production offices in Tulsa, Oklahoma; Houston, Texas; Calgary, Alberta; Cairo, Egypt; Perth, Western Australia; Beijing, China; and Warsaw, Poland. 10 13 ITEM 2. PROPERTIES OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES AND RESERVES Acreage The undeveloped and developed acreage including both domestic leases and international production and exploration rights that Apache held as of December 31, 2000, are as follows:
UNDEVELOPED ACREAGE DEVELOPED ACREAGE ------------------------ ----------------------- GROSS ACRES NET ACRES GROSS ACRES NET ACRES ----------- ---------- ----------- --------- OFFSHORE Alabama................................ -- -- 10,919 546 Louisiana.............................. 184,540 125,473 622,568 323,120 Texas.................................. 45,403 24,320 263,199 127,087 ---------- ---------- --------- --------- Total........................ 229,943 149,793 896,686 450,753 ---------- ---------- --------- --------- MIDCONTINENT Arkansas............................... 738 290 4,351 3,230 Kansas................................. 240 90 40 40 Louisiana.............................. 8,363 5,923 41,599 28,360 Michigan............................... 3,181 2,712 -- -- Oklahoma............................... 194,402 61,339 764,082 332,794 Pennsylvania........................... -- -- 796 38 Texas.................................. 85,658 41,915 614,908 221,161 ---------- ---------- --------- --------- Total........................ 292,582 112,269 1,425,776 585,623 ---------- ---------- --------- --------- SOUTHERN Alaska................................. 14,262 -- -- -- Colorado............................... 13,333 11,908 10,979 10,715 Illinois............................... 140 56 -- -- Louisiana.............................. 71,424 67,763 78,012 60,856 New Mexico............................. 86,392 48,337 118,087 56,969 Texas.................................. 171,560 84,889 670,114 398,708 Wyoming................................ 25,319 18,532 40 13 ---------- ---------- --------- --------- Total........................ 382,430 231,485 877,232 527,261 ---------- ---------- --------- --------- Total United States.......... 904,955 493,547 3,199,694 1,563,637 ---------- ---------- --------- --------- INTERNATIONAL Australia.............................. 3,219,730 1,765,630 445,050 259,240 Canada................................. 780,587 514,138 794,735 598,893 China.................................. 5,314 2,657 5,911 1,448 Egypt.................................. 20,835,291 10,544,320 1,011,055 678,594 Poland................................. 9,782,456 4,891,228 -- -- ---------- ---------- --------- --------- Total International.......... 34,623,378 17,717,973 2,256,751 1,538,175 ---------- ---------- --------- --------- Total Company................ 35,528,333 18,211,520 5,456,445 3,101,812 ========== ========== ========= =========
11 14 Productive Oil and Gas Wells The number of productive oil and gas wells, operated and non-operated, in which Apache had an interest as of December 31, 2000, is set forth below:
GAS OIL ------------- ------------- GROSS NET GROSS NET ----- ----- ----- ----- Offshore............................................... 354 184 490 314 Midcontinent........................................... 2,743 1,188 653 229 Southern............................................... 1,018 601 6,182 2,321 Canada................................................. 871 665 1,094 769 Australia.............................................. 6 4 19 10 Egypt.................................................. 21 8 160 78 ----- ----- ----- ----- Total........................................ 5,013 2,650 8,598 3,721 ===== ===== ===== =====
Gross Wells Drilled The following table sets forth the number of gross exploratory and gross development wells drilled in which the Company participated during the last three fiscal years. The number of wells drilled refers to the number of wells commenced at any time during the respective fiscal year. "Productive" wells are either producing wells or wells capable of commercial production. At December 31, 2000, the Company was participating in 75 wells in the U.S., 13 Canadian wells, four Egyptian wells, two Australian wells and two Polish wells in the process of drilling.
EXPLORATORY DEVELOPMENTAL ------------------------ ------------------------ PRODUCTIVE DRY TOTAL PRODUCTIVE DRY TOTAL ---------- --- ----- ---------- --- ----- 2000 United States............................. 11 15 26 314 54 368 Canada.................................... 3 11 14 84 16 100 Australia................................. 10 10 20 21 3 24 Egypt..................................... 2 24 26 10 -- 10 Other International....................... -- 2 2 -- -- -- -- -- --- --- -- --- Total........................... 26 62 88 429 73 502 == == === === == === 1999 United States............................. 11 13 24 97 9 106 Canada.................................... 2 3 5 30 14 44 Australia................................. 2 12 14 5 1 6 Egypt..................................... 3 2 5 38 3 41 Other International....................... -- 5 5 2 -- 2 -- -- --- --- -- --- Total........................... 18 35 53 172 27 199 == == === === == === 1998 United States............................. 20 16 36 163 34 197 Canada.................................... 17 12 29 30 7 37 Australia................................. 7 8 15 -- -- -- Egypt..................................... 11 24 35 27 5 32 Other International....................... -- 1 1 1 -- 1 -- -- --- --- -- --- Total........................... 55 61 116 221 46 267 == == === === == ===
12 15 Net Wells Drilled The following table sets forth, for each of the last three fiscal years, the number of net exploratory and net developmental wells drilled by Apache:
EXPLORATORY DEVELOPMENTAL ------------------------- ------------------------- PRODUCTIVE DRY TOTAL PRODUCTIVE DRY TOTAL ---------- ---- ----- ---------- ---- ----- 2000 United States.......................... 5.8 9.1 14.9 201.0 41.6 242.6 Canada................................. 1.0 7.0 8.0 58.7 11.7 70.4 Australia.............................. 5.0 5.8 10.8 9.7 1.6 11.3 Egypt.................................. 1.4 13.7 15.1 4.3 -- 4.3 Other International.................... -- .9 .9 -- -- -- ---- ---- ---- ----- ---- ----- Total........................ 13.2 36.5 49.7 273.7 54.9 328.6 ==== ==== ==== ===== ==== ===== 1999 United States.......................... 4.1 8.2 12.3 59.1 4.8 63.9 Canada................................. 1.3 2.3 3.6 26.2 12.1 38.3 Australia.............................. 2.0 5.4 7.4 2.6 .2 2.8 Egypt.................................. 1.6 1.2 2.8 15.6 1.2 16.8 Other International.................... -- 1.6 1.6 .5 -- .5 ---- ---- ---- ----- ---- ----- Total........................ 9.0 18.7 27.7 104.0 18.3 122.3 ==== ==== ==== ===== ==== ===== 1998 United States.......................... 9.9 11.1 21.0 64.0 18.8 82.8 Canada................................. 16.2 11.0 27.2 28.3 6.1 34.4 Australia.............................. 3.5 3.4 6.9 -- -- -- Egypt.................................. 5.6 13.5 19.1 11.9 2.8 14.7 Other International.................... -- .2 .2 .2 -- .2 ---- ---- ---- ----- ---- ----- Total........................ 35.2 39.2 74.4 104.4 27.7 132.1 ==== ==== ==== ===== ==== =====
Production and Pricing Data The following table describes, for each of the last three fiscal years, oil, natural gas liquids (NGL) and gas production for the Company, average production costs (excluding severance taxes) and average sales prices.
PRODUCTION AVERAGE SALES PRICE --------------------------- AVERAGE --------------------------------- OIL NGL GAS PRODUCTION OIL NGL GAS YEAR ENDED DECEMBER 31, (MBBLS) (MBBLS) (MMCF) COST PER BOE (PER BBL) (PER BBL) (PER MCF) - ----------------------- ------- ------- ------- ------------ --------- --------- --------- 2000.................... 41,920 2,648 303,980 $2.68 $27.37 $19.19 $3.59 1999.................... 33,223 1,437 239,484 2.56 18.45 9.42 2.16 1998.................... 26,611 1,052 215,389 2.87 12.70 7.94 1.93
Estimated Reserves and Reserve Value Information The following information relating to estimated reserve quantities, reserve values and discounted future net revenues is derived from, and qualified in its entirety by reference to, the more complete reserve and revenue information and assumptions included in the Company's Supplemental Oil and Gas Disclosures under Item 8 below. The Company's estimates of proved reserve quantities of its U.S., Canadian and international properties have been subject to review by Ryder Scott Company, L.P., Petroleum Consultants. There are numerous uncertainties inherent in estimating quantities of proved reserves and projecting future rates of production and timing of development expenditures. The following reserve information represents estimates only and should not be construed as being exact. 13 16 The following table sets forth the Company's estimated proved developed and undeveloped reserves as of December 31, 2000, 1999 and 1998:
OIL, NGL NATURAL AND GAS CONDENSATE (BCF) (MMBBLS) ------- ---------- 2000 Developed................................................... 2,664.8 354.0 Undeveloped................................................. 718.9 168.5 ------- ----- Total............................................. 3,383.7 522.5 ======= ===== 1999 Developed................................................... 1,873.7 302.0 Undeveloped................................................. 477.9 113.2 ------- ----- Total............................................. 2,351.6 415.2 ======= ===== 1998 Developed................................................... 1,450.1 178.0 Undeveloped................................................. 722.1 73.0 ------- ----- Total............................................. 2,172.2 251.0 ======= =====
The following table sets forth the estimated future net cash flows of all the Company's proved reserves, and proved developed reserves, as of December 31, 2000, 1999 and 1998. Future cash inflows are based on year-end prices except in those instances where the sale of gas and oil is covered by physical contract terms providing for higher or lower amounts. Operating costs, production and ad valorem taxes, and future development costs are based on current costs with no escalations.
PRESENT VALUE OF ESTIMATED FUTURE NET CASH FLOWS ESTIMATED FUTURE BEFORE INCOME TAXES NET CASH FLOWS (DISCOUNTED AT 10 PERCENT) ------------------------- --------------------------- PROVED PROVED DECEMBER 31, PROVED DEVELOPED PROVED DEVELOPED - ------------ ----------- ----------- ------------ ------------ (IN THOUSANDS) 2000............................. $31,238,877 $24,740,047 $17,725,205 $14,285,437 1999............................. 10,392,116 8,638,015 6,068,013 4,890,340 1998............................. 3,994,612 2,793,698 2,395,888 1,764,887
At December 31, 2000, estimated future net cash flows related to the Company's proved reserves and proved developed reserves were as follows:
PROVED DECEMBER 31, PROVED DEVELOPED - ------------ ----------- ----------- (IN THOUSANDS) 2001....................................................... $ 3,330,103 $ 3,288,889 2002....................................................... 3,271,279 2,863,843 2003....................................................... 3,041,370 2,308,585 Thereafter................................................. 21,596,125 16,278,730 ----------- ----------- Total............................................ $31,238,877 $24,740,047 =========== ===========
The Company believes that no major discovery or other favorable or adverse event has occurred since December 31, 2000, which would cause a significant change in the estimated proved reserves reported herein. The estimates above are based on year-end pricing in accordance with the SEC guidelines and do not reflect current prices. Since January 1, 2001, no oil or gas reserve information has been filed with, or included in any report to, any U.S. authority or agency other than the SEC and the Energy Information Administration 14 17 (EIA). The basis of reporting reserves to the EIA for the Company's reserves is identical to that set forth in the foregoing table. Title to Interests The Company believes that its title to the various interests set forth above is satisfactory and consistent with the standards generally accepted in the oil and gas industry, subject only to immaterial exceptions which do not detract substantially from the value of the interests or materially interfere with their use in the Company's operations. The interests owned by the Company may be subject to one or more royalty, overriding royalty and other outstanding interests customary in the industry. The interests may additionally be subject to obligations or duties under applicable laws, ordinances, rules, regulations and orders of arbitral or governmental authorities. In addition, the interests may be subject to burdens such as net profits interests, liens incident to operating agreements and current taxes, development obligations under oil and gas leases and other encumbrances, easements and restrictions, none of which detract substantially from the value of the interests or materially interfere with their use in the Company's operations. ITEM 3. LEGAL PROCEEDINGS The information set forth under the caption "Litigation" in Note 10 to the Company's financial statements under Item 8 below is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted for a vote of security holders during the fourth quarter of 2000. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Apache's common stock, par value $1.25 per share, is traded on the New York Stock Exchange and the Chicago Stock Exchange under the symbol APA. The table below provides certain information regarding Apache common stock for 2000 and 1999. Prices shown are from the New York Stock Exchange Composite Transactions Reporting System.
2000 1999 ------------------------------------ ------------------------------------ DIVIDENDS PER DIVIDENDS PER PRICE RANGE SHARE(1) PRICE RANGE SHARE ---------------- ---------------- ---------------- ---------------- HIGH LOW DECLARED PAID HIGH LOW DECLARED PAID ------ ------ -------- ---- ------ ------ -------- ---- First Quarter............ $51 1/2 $32 1/8 $.07 $.07 $28 9/16 $17 5/8 $.07 $.07 Second Quarter........... 61 1/2 44 -- .07 39 7/8 25 1/16 .07 .07 Third Quarter............ 67 11/16 46 3/8 .14 -- 49 15/16 37 .07 .07 Fourth Quarter........... 74 3/16 51 1/2 -- .14 44 30 .07 .07
The closing price per share of Apache common stock, as reported on the New York Stock Exchange Composite Transactions Reporting System for February 28, 2001, was $58.70. At December 31, 2000, there were 123,634,748 shares of Apache common stock outstanding held by approximately 10,000 shareholders of record and 62,000 beneficial owners. - --------------- (1) The Company paid dividends of $.28 per share in 2000, of which $.21 was declared in 2000 and $.07 was declared in the fourth quarter of 1999, as a result of changing its dividend payment schedule from a quarterly basis to an annual basis. 15 18 The Company has paid cash dividends on its common stock for 34 consecutive years through December 31, 2000, and expects to continue the payment of dividends at current levels. During 2000, the Company implemented a change in the payment schedule for dividends on its common stock from a quarterly basis to an annual basis. When, and if, declared by the Company's board of directors, future dividend payments will depend upon the Company's level of earnings, financial requirements and other relevant factors. In December 1995, the Company declared a dividend of one right (a Right) for each share of Apache common stock outstanding on January 31, 1996. Each Right entitles the registered holder to purchase from the Company one ten-thousandth (1/10,000) of a share of Series A Preferred Stock at a price of $100 per one ten-thousandth of a share, subject to adjustment. The Rights are exercisable 10 calendar days following a public announcement that certain persons or groups have acquired 20 percent or more of the outstanding shares of Apache common stock or 10 business days following commencement of an offer for 30 percent or more of the outstanding shares of Apache common stock. In addition, if a person or group becomes the beneficial owner of 20 percent or more of Apache's outstanding common stock (flip in event), each Right will become exercisable for shares of Apache's common stock at 50 percent of the then market price of the common stock. If a 20 percent shareholder of Apache acquires Apache, by merger or otherwise, in a transaction where Apache does not survive or in which Apache's common stock is changed or exchanged (flip over event), the Rights become exercisable for shares of the common stock of the company acquiring Apache at 50 percent of the then market price for Apache common stock. Any Rights that are or were beneficially owned by a person who has acquired 20 percent or more of the outstanding shares of Apache common stock and who engages in certain transactions or realizes the benefits of certain transactions with the Company will become void. The Company may redeem the Rights at $.01 per Right at any time until 10 business days after public announcement of a flip in event. The Rights will expire on January 31, 2006, unless earlier redeemed by the Company. Unless the Rights have been previously redeemed, all shares of Apache common stock issued by the Company after January 31, 1996 will include Rights. Unless and until the Rights become exercisable, they will be transferred with and only with the shares of Apache common stock. In August 1998, the Company issued 100,000 shares of 5.68 percent Series B Cumulative Preferred Stock (the Series B Preferred Stock) in the form of one million depositary shares, each representing one-tenth (1/10) of a share of Series B Preferred Stock. Neither the shares of Series B Preferred Stock nor the depositary shares are traded on any stock exchange. The shares of Series B Preferred Stock are not convertible into common equity. Holders of the depositary shares are entitled to receive cumulative cash dividends at an annual rate of $5.68 per depositary share when, and if, declared by the Company's board of directors. In May 1999, the Company issued 140,000 shares of 6.5 percent Automatically Convertible Equity Securities, Conversion Preferred Stock, Series C (Series C Preferred Stock) in the form of seven million depositary shares each representing 1/50th of a share of Series C Preferred Stock. The depositary shares are traded on the New York Stock Exchange and the Chicago Stock Exchange. The Series C Preferred Stock is not subject to a sinking fund or mandatory redemption. On May 15, 2002, each depositary share will automatically convert, subject to adjustments, into not more than one share and not less than 0.8197 of a share of the Company's common stock, depending on the market price of the common stock at that time. In 2000, Apache bought back 75,900 depository shares at an average price of $34.42 per share. The excess of the purchase price to reacquire the depository shares over the original issuance price is reflected as a preferred stock dividend in the accompanying statement of consolidated operations. At any time prior to May 15, 2002, holders of the depositary shares may elect to convert each of their shares, subject to adjustments, into not less than 0.8197 of a share of the Company's common stock (5,675,685 common shares). Holders of the depositary shares are entitled to receive cumulative cash dividends at an annual rate of $2.015 per depositary share when, and if, declared by the Company's board of directors. On August 2, 2000, the Company completed the public offering of 9.2 million shares of Apache common stock, including 1.2 million shares for the underwriters' over-allotment option, for net proceeds of approximately $433.9 million. The proceeds were used to fund a portion of the acquisitions made during 2000 and repay indebtedness under Apache's commercial paper program. 16 19 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data of the Company and its consolidated subsidiaries for each of the years in the five-year period ended December 31, 2000, which information has been derived from the Company's audited financial statements. This information should be read in connection with, and is qualified in its entirety by, the more detailed information in the Company's financial statements under Item 8 below.
AS OF OR FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 2000(1) 1999(2) 1998(3) 1997(4) 1996(5) ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA Total revenues........................ $2,283,904 $1,146,553 $ 760,470 $ 980,979 $ 836,968 Net income (loss)..................... 713,056 200,855 (129,387) 154,896 121,427 Income (loss) attributable to common stock............................... 693,068 186,406 (131,391) 154,896 121,427 Net income (loss) per common share: Basic............................... 5.87 1.73 (1.34) 1.71 1.42 Diluted............................. 5.67 1.72 (1.34) 1.65 1.38 Cash dividends per common share(6).... .28 .28 .28 .28 .28 BALANCE SHEET DATA Working capital (deficit)............. $ 76,673 $ 6,290 $ (78,804) $ 4,546 $ (41,501) Total assets.......................... 7,481,950 5,502,543 3,996,062 4,138,633 3,432,430 Long-term debt........................ 2,193,258 1,879,650 1,343,258 1,501,380 1,235,706 Shareholders' equity.................. 3,754,640 2,669,427 1,801,833 1,729,177 1,518,516 Common shares outstanding at end of year................................ 123,635 113,996 97,769 93,305 90,059
For a discussion of significant acquisitions, reference is made to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and to Note 2 to the Company's consolidated financial statements under Item 8 below. - --------------- (1) Includes the results of the acquisitions of certain oil and gas properties from Repsol, Collins & Ware, Occidental and Phillips after January 24, 2000, June 30, 2000, August 17, 2000 and December 29, 2000, respectively. (2) Includes the results of the acquisitions of certain oil and gas properties from Petsec Energy Inc. (Petsec), Shell Offshore Inc. and affiliated Shell entities (Shell Offshore), British-Borneo Oil & Gas Plc (British-Borneo) and Shell Canada Limited (Shell Canada) after February 1, 1999, May 18, 1999, June 18, 1999 and November 30, 1999, respectively. (3) Includes the results of the acquisitions of certain subsidiaries and oil and gas properties from Novus Petroleum Limited (Novus) after December 18, 1998. Also includes a $243.2 million pre-tax ($158.1 million net of tax) non-cash write-down of the carrying value of the Company's U.S. proved oil and gas properties due to ceiling test limitations. (4) Includes financial data after November 20, 1997, relating to the acquisition from Mobil Exploration & Producing Australia Pty Ltd (Mobil) of three companies owning interests in certain oil and gas properties and production facilities offshore Western Australia (the Ampolex Group Transaction). (5) Includes financial data after May 20, 1996, for Apache PHN Company, Inc. (Phoenix, formerly known as The Phoenix Resource Companies, Inc.). (6) The Company paid dividends of $.28 per share in 2000, of which $.21 was declared in 2000 and $.07 was declared in the fourth quarter of 1999, as a result of changing its dividend payment schedule from a quarterly basis to an annual basis. 17 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Apache's 2000 results were unprecedented in its 46-year history. Record setting fourth quarter results capped an outstanding year. Driven by the 23rd consecutive year of production growth and historically high oil and gas commodity prices, income attributable to common stock of $693.1 million in 2000 exceeded Apache's cumulative retained earnings of the previous 45 years. Stockholders were rewarded with a year-end closing price of $70.0625 per share, yielding a market capitalization of approximately $8.7 billion and a shareholder return of 90 percent for 2000. Apache's financial position entering the new millennium is its strongest in history. In mid-December 2000, Moody's Investor Service, Inc. upgraded Apache's senior unsecured long-term debt rating to A3 from Baa1. In late January 2001, Standard & Poor's Corporate Ratings Group upgraded Apache's senior unsecured long-term debt rating to A- from BBB+. Debt as a percentage of total capitalization declined to 37 percent from 41 percent at the end of 1999, despite outlays for acquisitions and exploration and development activities exceeding $2 billion during 2000. Apache is one of only two independent oil and gas companies with a single-A rating from both Moody's and Standard & Poor's rating agencies. Following are several performance achievements for the year: - Driven by the Company's acquisition and exploitation strategy, oil and natural gas production averaged 115 Mbbls of oil per day and 831 MMcf of natural gas per day for the year, 26 percent and 27 percent higher, respectively, than 1999's record production rates. - The Company added 377 MMboe to its proved reserves through acquisitions, drilling and revisions at a worldwide finding cost of $5.65 per boe. The 35 percent increase in proved reserves enabled proved reserves to cross the one billion boe mark, transforming Apache into a larger, stronger and more profitable company. - Oil and gas production revenues more than doubled to $2.3 billion from $1.1 billion in 1999. Surging oil and natural gas prices contributed $296.5 million and $343.2 million, respectively, to the increase in revenues, with production growth accounting for the remainder. - Net cash provided by operating activities of $1.5 billion increased 140 percent from record levels in 1999. - Income attributable to common stock of $693.1 million, nearly quadrupled 1999's record. This equates to a 22 percent return on average shareholders' equity. Income attributable to common stock in 2000 alone exceeded the retained earnings accumulated over our first 45 years. - Basic net income per common share of $5.87 rose 239 percent over record 1999 levels. Apache's outlook for 2001 is favorable given the Company's rising production profile and current indications for strong product prices. On December 29, 2000, the Company completed its acquisition of Phillips' Zama assets located in Western Canada. During the first quarter of 2001, the Company plans to close acquisitions of Fletcher Challenge Energy subsidiaries with properties located in Western Canada and Argentina, and substantially all of Repsol's oil and gas concession interests in Egypt. These three transactions bring increased net production and are projected to be additive to per share earnings and net cash provided by operating activities beginning in 2001. Commodity Prices -- Apache's average realized oil price increased $8.92 per barrel from $18.45 per barrel in 1999 to $27.37 per barrel in 2000, increasing revenues by $296.5 million. The average realized price for natural gas increased $1.43 per Mcf from $2.16 per Mcf in 1999 to $3.59 per Mcf in 2000, positively impacting revenues by $343.2 million. Production -- Oil production increased 26 percent in 2000 compared to the prior year. The increase was primarily due to a full year of production from properties acquired from Shell Offshore and Shell Canada in 1999, properties acquired from Occidental in 2000 and production from the Stag field in Australia. The 18 21 increase in oil production positively impacted revenues by $238.1 million. Gas production increased due to the aforementioned acquisitions, the 1999 British-Borneo acquisition in Australia, production from the properties acquired from Repsol in 2000, a full year of production from the Khalda concession in Egypt and the commencement of sales through the Western Desert Gas Pipeline which became operational in August 1999. The increase in gas production positively impacted revenues by $231.8 million. Natural gas liquids production increased 84 percent in 2000 compared to the prior year, which increase was primarily due to U.S. and Canadian property acquisitions. The increase in natural gas liquids production positively impacted revenues by $23.2 million. RESULTS OF OPERATIONS Apache reported 2000 income attributable to common stock of $693.1 million, up from $186.4 million in 1999. A significant increase in oil and gas production revenues was partially offset by higher recurring depreciation, depletion and amortization (DD&A) expense, lease operating costs, administrative, selling and other (G&A) expense and interest expense. Basic net income per common share was $5.87 for 2000, as compared to $1.73 in 1999. Income attributable to common stock of $186.4 million was reported in 1999 as compared to a loss attributable to common stock of $131.4 million in 1998. The 1998 loss resulted from a non- cash, full-cost ceiling test write-down at year-end caused by sharp declines in oil and gas prices. Basic net income per common share was $1.73 for 1999, as compared to basic net loss per common share of $1.34 in 1998. Oil and gas production revenues doubled in 2000 to $2.3 billion as compared to $1.1 billion in 1999. The increase resulted from a 48 percent increase in the average realized oil price, a 66 percent increase in the average realized natural gas price, a 26 percent increase in oil production and a 27 percent increase in natural gas production. Crude oil, including natural gas liquids, contributed 52 percent and natural gas contributed 48 percent of oil and gas production revenues during 2000. Oil and gas production revenues increased 50 percent in 1999 to $1.1 billion as compared to $761.2 million in 1998. The increased revenues resulted from a 45 percent increase in the average realized oil price, a 12 percent increase in the average realized price for natural gas, a 25 percent increase in oil production and an 11 percent increase in natural gas production. Crude oil, including natural gas liquids, contributed 55 percent and natural gas contributed 45 percent of oil and gas production revenues during 1999. 19 22 Revenues The table below presents, for the years indicated, the oil and gas production revenues, production and average prices received from sales of natural gas, oil and natural gas liquids.
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------- 2000 1999 1998 ---------- ---------- -------- Revenues (in thousands): Natural gas............................................. $1,092,552 $ 517,582 $414,887 Oil..................................................... 1,147,386 612,829 337,946 Natural gas liquids..................................... 50,821 13,535 8,355 ---------- ---------- -------- Total........................................... $2,290,759 $1,143,946 $761,188 ========== ========== ======== Natural Gas Volume -- Mcf per day: United States........................................... 544,703 461,444 432,059 Canada.................................................. 130,485 99,791 105,871 Egypt................................................... 47,464 15,916 1,554 Australia............................................... 107,894 76,220 50,624 Ivory Coast............................................. -- 2,749 -- ---------- ---------- -------- Total........................................... 830,546 656,120 590,108 ========== ========== ======== Average Natural Gas Price -- Per Mcf: United States........................................... $ 3.98 $ 2.32 $ 2.11 Canada.................................................. 3.52 1.73 1.36 Egypt................................................... 4.51 3.45 1.91 Australia............................................... 1.34 1.51 1.51 Ivory Coast............................................. -- 1.72 -- Total........................................... 3.59 2.16 1.93 Oil Volume -- Barrels per day: United States........................................... 56,521 45,556 34,067 Canada.................................................. 14,720 3,053 2,090 Egypt................................................... 27,745 31,751 27,911 Australia............................................... 15,551 10,624 8,838 Ivory Coast............................................. -- 37 -- ---------- ---------- -------- Total........................................... 114,537 91,021 72,906 ========== ========== ======== Average Oil Price -- Per barrel: United States........................................... $ 27.77 $ 17.97 $ 12.72 Canada.................................................. 22.25 19.35 12.55 Egypt................................................... 27.81 18.63 12.57 Australia............................................... 29.99 19.70 13.07 Ivory Coast............................................. -- 15.68 -- Total........................................... 27.37 18.45 12.70 NGL Volume -- Barrels per day: United States........................................... 6,030 3,308 2,267 Canada.................................................. 1,204 630 616 ---------- ---------- -------- Total........................................... 7,234 3,938 2,883 ========== ========== ======== Average NGL Price -- Per barrel: United States........................................... $ 19.36 $ 9.37 $ 8.38 Canada.................................................. 18.36 9.64 6.32 Total........................................... 19.19 9.42 7.94
20 23 The Company's future financial condition and results of operations will depend upon prices received for its oil and natural gas production and the costs of finding, acquiring, developing and producing reserves. A substantial portion of the Company's production is sold under market-sensitive contracts. Prices for oil and natural gas are subject to fluctuations in response to changes in supply, market uncertainty and a variety of other factors beyond the Company's control. These factors include worldwide political instability (especially in the Middle East), the foreign supply of oil and natural gas, the price of foreign imports, the level of consumer demand, and the price and availability of alternative fuels. Natural gas revenues increased by 111 percent from 1999 to 2000 as a result of increased production volumes and realized prices. The average realized gas price increased 66 percent in 2000 positively affecting revenues by $343.2 million. U.S. natural gas production, which comprised 66 percent of the Company's worldwide gas production, sold at an average price of $3.98 per Mcf, 72 percent higher than in 1999, positively impacting natural gas sales by $279.6 million. The Company periodically engages in hedging activities, including fixed-price physical contracts and financial contracts. Losses under long-term fixed-price physical contracts decreased the gas price by $.16 per Mcf in 2000 while realized gains from hedging positions positively impacted the gas price by $.09 per Mcf in 2000. Natural gas production increased 174.4 MMcf/d, or 27 percent, on a worldwide basis, favorably impacting revenue by $231.8 million in 2000. In the United States, gas production increased 83.3 MMcf/d due to acquisition activities in 2000 and full-year production from acquisitions in 1999. Development activities and the impact of producing property acquisitions during 1999 increased natural gas production in Canada by 30.7 MMcf/d during 2000. Egyptian gas production nearly tripled in 2000 reflecting a full year of deliveries into the northern portion of the Western Desert Gas Pipeline in the Khalda concession. Natural gas production in Australia increased 31.7 MMcf/d, primarily due to completion of a second pipeline that increased deliverability plus additional sales from contracts and the spot market. Natural gas revenues increased by 25 percent from 1998 to 1999 as a result of increased production volumes and realized prices. The average realized gas price increased 12 percent in 1999, positively affecting revenues by $50.6 million. The Company periodically engages in hedging activities, including fixed-price physical contracts and financial contracts. Gains under long-term fixed-price physical contracts increased the gas price by $.02 per Mcf in 1999 while realized losses from hedging positions negatively impacted the gas price by $.01 per Mcf in 1999. Natural gas production increased 11 percent from 1998 to 1999, favorably impacting revenues by $52.1 million. In the United States, gas production increased 29.4 MMcf/d due to acquisition activities, primarily the Shell Offshore acquisition in 1999. Development activities and the impact of producing property acquisitions during late 1998 increased natural gas production in Australia by 25.6 MMcf/d. Egyptian gas production increased tenfold in 1999 as a result of the completion of the northern portion of the Western Desert Gas Pipeline in the Khalda concession, where first sales commenced in August 1999. Crude oil revenues totaled $1.1 billion in 2000, an 87 percent increase from 1999 due to higher average realized oil prices and production increases. On a worldwide basis, average oil prices increased 48 percent to $27.37 per barrel positively impacting oil sales by $296.5 million. Realized losses from hedging positions negatively impacted the oil price by $1.62 per barrel in 2000. Oil production increased 23,516 barrels per day, or 26 percent, in 2000. Domestic oil production increased 10,965 barrels per day, or 24 percent, primarily due to a full year of production from properties acquired from Shell Offshore in 1999 and production from the Collins & Ware and Occidental acquisitions in 2000. Canada's oil production increased 382 percent to 14,720 barrels per day, primarily due to a full year of production from properties acquired from Shell Canada in 1999. Australian oil production increased 4,927 barrels per day, or 46 percent, over 1999 due to strong performance from the Stag field. Egyptian oil production decreased 4,006 barrels per day, or 13 percent, as a result of the price-driven dynamics of certain production sharing contracts. Crude oil revenues totaled $612.8 million in 1999, an 81 percent increase from 1998 due to higher average realized oil prices and production increases. On a worldwide basis, average oil prices increased 45 percent to $18.45 per barrel positively impacting oil revenues by $152.9 million. Realized losses from hedging positions negatively impacted the oil price by $.16 per barrel in 1999. Oil production increased 18,115 barrels 21 24 per day or 25 percent, in 1999 primarily due to increases in the United States. Domestic oil production increased 11,489 barrels per day, or 34 percent, primarily due to the acquisition from Shell Offshore. Australian oil production increased 1,786 barrels per day, or 20 percent, over 1998 with additional full-year production from the Stag field. Egyptian oil production increased 3,840 barrels per day, or 14 percent, as a result of the price-driven dynamics of certain production sharing contracts and development activity. Natural gas liquids revenues in 2000 increased 275 percent from 1999. Natural gas liquids production increased 3,296 barrels per day, or 84 percent and natural gas liquids prices increased by $9.77 per barrel, or 104 percent, due to improved market conditions. Natural gas liquids revenues increased 62 percent in 1999 as compared to 1998. Natural gas liquids production increased 1,055 barrels per day, or 37 percent and natural gas liquids prices increased by $1.48 per barrel, or 19 percent, due to improved market conditions. Operating Expenses Recurring DD&A expense increased to $583.5 million in 2000 from $442.8 million in 1999. On an equivalent barrel basis, recurring full cost DD&A expense increased $.18 per boe, from $5.57 per boe in 1999 to $5.75 per boe in 2000. The increase in the overall DD&A rate was primarily the result of the $6.74 per boe paid to acquire Gulf of Mexico properties from Occidental. The Company's recurring DD&A expense increased to $442.8 million in 1999 from $382.8 million in 1998. On an equivalent barrel basis, recurring full cost DD&A expense decreased $.09 per boe, from $5.66 per boe in 1998 to $5.57 per boe in 1999. The decrease in the overall DD&A rate was the result of the ceiling test write-down in 1998, which lowered the carrying amount of those properties being depleted. Apache limits, on a country-by-country basis, the capitalized cost of oil and gas properties, net of accumulated DD&A and deferred income taxes, to estimated future net cash flows from proved oil and gas reserves discounted at 10 percent, net of related tax effects, plus the lower of cost or fair value of unproved properties included in the costs being amortized. As a result of low oil and gas prices in the United States at December 31, 1998, Apache's capitalized costs of oil and gas properties exceeded the ceiling limitation and the Company reported a $243.2 million pre-tax ($158.1 million net of tax) non-cash write-down as additional DD&A expense. No additional DD&A expense was recorded during 2000 or 1999. Lease operating expense (LOE) increased from $190.6 million in 1999 to $255.3 million in 2000. On an equivalent barrel basis, LOE for 2000 averaged $2.68 per boe, a $.12 increase from $2.56 per boe in 1999. Domestic and Canadian per unit costs increased, reflecting the addition of crude oil production from the Offshore and Canadian regions. These properties typically have higher operating costs. LOE increased from $182.1 million in 1998 to $190.6 million in 1999. On an equivalent barrel basis, LOE for 1999 averaged $2.56 per boe, a $.31 decline from $2.87 per boe in 1998. Domestic per unit costs were significantly reduced due to lower Southern region repairs, maintenance, power and fuel costs resulting from the sale of marginal properties, partially offset by increases in the Offshore region due to workover costs associated with acquired properties located in the Gulf of Mexico from Petsec and Shell Offshore. Severance and other taxes increased from 1998 to 1999 and from 1999 to 2000 primarily due to increased severance taxes, which generally are based on a percentage of oil and gas production revenues, resulting from higher oil and gas prices during those periods. G&A expense increased $21.7 million, or 40 percent, from 1999 to 2000. The Company's overall infrastructure was enlarged to properly handle increased responsibilities associated with 1999 and 2000 producing property acquisitions. On an equivalent barrel basis, G&A expense increased 10 percent to $.79 per boe in 2000 compared to $.72 per boe in 1999. Incentive compensation was higher in 2000 than 1999 based on the Company's performance. G&A expense increased $13.2 million, or 32 percent from 1998 to 1999. On an equivalent barrel basis, G&A expense increased 13 percent to $.72 per boe compared to $.64 per boe in 1998. The increase in G&A was primarily due to enlarging the Company's overall infrastructure to properly handle increased responsibilities associated with 1999 North American producing property acquisitions. Net financing costs for 2000 increased $24.4 million, or 30 percent, from 1999 primarily due to higher interest expense, partially offset by higher capitalized interest. Gross interest expense increased $35.1 million resulting from higher average outstanding debt (up $402 million) in 2000. The weighted average interest rate 22 25 on outstanding debt was 7.5 percent at December 31, 2000 and 1999. The increase in capitalized interest was due to additional unproved properties acquired from Shell Canada, Repsol, Collins & Ware and Occidental. Net financing costs for 1999 increased $11.7 million, or 17 percent, from 1998 primarily due to higher interest expense and lower interest income, partially offset by higher capitalized interest. Gross interest expense increased $13.3 million resulting from higher average outstanding debt in 1999. The weighted average interest rate on outstanding debt increased to 7.5 percent at December 31, 1999, from 7.2 percent at December 31, 1998. The increase in capitalized interest was associated with Egyptian pipeline projects under construction. The decrease in interest income was due to a lower average cash balance during 1999. CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES Capital Commitments Apache's primary needs for cash are for exploration, development and acquisition of oil and gas properties, repayment of principal and interest on outstanding debt, payment of dividends, and capital obligations for affiliated ventures. The Company funds its exploration and development activities primarily through internally generated cash flows. Apache budgets capital expenditures based upon projected cash flows. The Company routinely adjusts its capital expenditures in response to changes in oil and natural gas prices and cash flow. The Company cannot accurately predict future oil and gas prices. Capital Expenditures -- Apache's oil and gas capital expenditures over the last three years are summarized below:
YEAR ENDED DECEMBER 31, ---------------------------------- 2000 1999 1998 ---------- ---------- -------- (IN THOUSANDS) Exploration and Development: United States................................... $ 495,803 $ 217,476 $222,750 Canada.......................................... 135,627 45,691 69,757 Egypt........................................... 84,949 59,808 105,431 Australia....................................... 73,835 60,976 80,099 Ivory Coast..................................... -- 2,553 23,527 Other International............................. 18,077 18,835 39,856 ---------- ---------- -------- 808,291 405,339 541,420 Capitalized Interest............................ 62,000 45,722 49,279 ---------- ---------- -------- Total................................... $ 870,291 $ 451,061 $590,699 ========== ========== ======== Acquisitions of Oil and Gas Properties............ $1,324,427 $1,391,206 $ 58,402 ========== ========== ========
Expenditures for exploration and development totaled $808.3 million in 2000 compared to $405.3 million in 1999. Apache's drilling program in 2000 added 123.5 MMboe of proved reserves (including revisions) and replaced 130 percent of production. In the United States, Apache completed 325 gross wells as producers out of 394 gross wells drilled during the year, compared with 108 gross producers out of 130 gross wells drilled in 1999. In Canada, Apache completed 87 gross wells as producers out of 114 gross wells drilled during the year, compared with 32 gross producers out of 49 gross wells drilled in 1999. Internationally, the Company completed 43 gross producers out of 82 gross wells drilled in 2000, compared to 50 gross producers out of 73 gross wells in 1999. Successful international wells drilled in 2000 included 12 in Egypt and 31 in Australia. Total capital expenditures budgeted for 2001 is approximately $1 billion (excluding acquisitions), including $750.6 million for North America. Estimated North American exploration and development expenditures include $143.6 million in the Southern region, $111.7 million in the Midcontinent region, $250.2 million in the Offshore region and $245.1 million in Canada. The Company has estimated its other international exploration and development expenditures in 2001, exclusive of facilities, to total approximately 23 26 $295.7 million. Capital expenditures will be reviewed and possibly adjusted throughout the year in light of changing industry conditions. On January 24, 2000, Apache completed the acquisition of producing properties in Western Oklahoma and the Texas Panhandle, formerly owned by a subsidiary of Repsol, for approximately $118.7 million, plus assumed liabilities of approximately $29.8 million. The acquisition included estimated proved reserves of approximately 28.7 MMboe as of the acquisition date. On June 30, 2000, Apache completed the acquisition of long-lived producing properties in the Permian Basin and South Texas from Collins & Ware for approximately $320.7 million. The acquisition included estimated proved reserves of approximately 83.7 MMboe as of the acquisition date. One-third of the reserves are liquid hydrocarbons. On August 17, 2000, Apache completed the acquisition of a Delaware limited liability company owned by subsidiaries of Occidental and the related natural gas production for approximately $321.2 million, plus future payments of approximately $44.0 million over four years. The Occidental properties are located in 32 fields on 93 blocks on the Outer Continental Shelf of the Gulf of Mexico. The acquisition included estimated proved reserves of approximately 53.1 MMboe as of the acquisition date. On December 29, 2000, Apache completed the acquisition of Canadian properties from Canadian affiliates of Phillips for approximately $490.3 million. The acquisition included estimated proved reserves of approximately 70.0 MMboe as of the acquisition date. The properties comprise approximately 212,000 net developed acres and 275,000 net undeveloped acres, 786 square miles of 3-D seismic and 4,155 miles of 2-D seismic located in the Zama area of Northwest Alberta. The assets also include three sour gas plants with a total capacity of 150 MMcf per day, 13 compressor stations and 150 miles of owned and operated gas gathering lines. In 2000, the Company also completed tactical regional acquisitions for cash consideration totaling $104.0 million. These acquisitions added approximately 18.3 MMboe to the Company's proved reserves. In February 1999, the Company acquired oil and gas properties located in the Gulf of Mexico from Petsec for an adjusted purchase price of $67.7 million. The Petsec transaction included estimated proved reserves of approximately 10.2 MMboe as of the acquisition date. In May 1999, Apache acquired from Shell Offshore its interest in 22 producing fields and 16 undeveloped blocks located in the Gulf of Mexico. The Shell Offshore acquisition also included certain production-related assets and proprietary 2-D and 3-D seismic data covering approximately 1,000 blocks in the Gulf of Mexico. The purchase price was $687.7 million in cash and one million shares of Apache common stock (valued at $28.125 per share). The Shell Offshore acquisition included approximately 123.2 MMboe of proved reserves as of the acquisition date. In June 1999, the Company acquired a 10 percent interest in the East Spar Joint Venture and an 8.4 percent interest in the Harriet Joint Venture, both located in the Carnarvon Basin (offshore Western Australia), from British-Borneo in exchange for $83.6 million cash and working interests in 11 leases in the Gulf of Mexico. The British-Borneo transaction included approximately 16.8 MMboe of proved reserves as of the acquisition date. In November 1999, Apache acquired from Shell Canada producing properties and other assets for C$761 million (US$517.8 million). The producing properties consist of 150,400 net acres and comprise 20 fields with an average working interest of 55 percent and proved reserves of 87.2 MMboe as of the acquisition date. Apache also acquired 294,294 net acres of undeveloped leaseholdings, 100 percent interest in a gas processing plant with a potential throughput capacity of 160 MMcf/d, and 52,700 square miles of 2-D seismic and 884 square miles of 3-D seismic. In 1999, the Company also completed tactical regional acquisitions for cash consideration totaling $17.7 million. These acquisitions added approximately 8.8 MMboe to the Company's proved reserves. 24 27 In November 1998, the Company entered into agreements to acquire certain oil and gas interests and companies holding oil and gas interests in the Carnarvon Basin, offshore Western Australia, from subsidiaries of Novus for approximately $55 million. The interests have proved reserves of approximately 5.8 MMboe and daily production of 2,400 barrels of oil equivalent. They are within the Apache-operated Harriet Joint Venture (which includes production, processing and pipeline infrastructure associated with the Varanus Island hub), the Airlie Joint Venture (in which the Company held a prior interest and became operator) and three other exploration permit areas. The transaction closed in two stages, in December 1998 for approximately $49 million and in January 1999 for approximately $6 million. In 1998, the Company also completed tactical regional acquisitions for cash consideration totaling $19.4 million. These acquisitions added approximately 9.1 MMboe to the Company's reserves. Pending Acquisitions -- On October 9, 2000, Apache and Shell Overseas Holdings (Shell) signed a definitive agreement to acquire Fletcher Challenge Energy (Fletcher). Apache's share of the transaction includes Fletcher subsidiaries with properties in Canada's Western Sedimentary Basin and Argentina with proved reserves of 713 Bcfe for approximately $627 million. A portion of the acquired gas production has been hedged by Fletcher. The transaction is scheduled to close in the first quarter of 2001, with an effective date of July 1, 2000. In a related transaction, Shell will purchase 1.64 million restricted shares of Apache common stock for $100 million. Proceeds from this sale are intended to be used to fund the acquisition, with the remainder to be provided by debt. On January 23, 2001, Apache announced the acquisition of substantially all of Repsol's oil and gas concession interests in Egypt for approximately $410 million with an effective date of January 1, 2001. The properties include interests in seven Western Desert concessions. The Company already holds interests in six of the seven concessions. The transaction will be funded with debt and is expected to close in the first half of 2001. Debt and Interest Commitments -- At December 31, 2000, Apache had outstanding debt of $680.1 million under its credit and commercial paper facilities and an aggregate of $1.5 billion of other debt. This other debt included notes and debentures maturing in the years 2002 through 2096. Debt outstanding at December 31, 2000 of $2.2 billion was higher as compared to the $1.9 billion outstanding at December 31, 1999, due to the Company's significant acquisition activity during 2000. Even so, the Company's debt-to-capitalization ratio improved from 41.4 percent at December 31, 1999 to 37.1 percent at December 31, 2000. Interest payments on the Company's debt for 2001 are projected to be $179.5 million (using weighted average balances for floating rate obligations). Anticipated principal payments for 2001 total $25.0 million. Dividend Payments -- Apache paid a total of $19.7 million in dividends during 2000 on its Series B Preferred Stock issued in August 1998 and its Series C Preferred Stock issued in May 1999, up 56 percent from 1999, due to a full year of dividends on the Series C Preferred Stock. Common dividends paid during 2000 totaled $33.2 million, up 12 percent from 1999, due to the increased number of common shares outstanding. In 2000, the Company changed the dividend payment schedule for its common stock from a quarterly basis to an annual basis, with payment in mid-December to shareholders of record in mid-November. The Company has paid cash dividends on its common stock for 34 consecutive years through December 31, 2000. The Company expects to continue payment of dividends at current levels on an annual basis. Future dividend payments will depend on the Company's level of earnings, financial requirements and other relevant factors. Capital Resources and Liquidity The Company's primary capital resources are net cash provided by operating activities, proceeds from financing activities and sales of non-strategic assets. Net Cash Provided by Operating Activities -- Apache's net cash provided by operating activities during 2000 totaled $1.5 billion, an increase of 140 percent over the $638.2 million reported in 1999. This increase was due primarily to higher realized oil and gas prices as compared to 1999 and higher oil and gas production as a result of full-year production from 1999 property acquisitions and properties acquired in 2000. Net cash 25 28 provided by operating activities during 1999 increased $166.7 million from 1998 due primarily to higher oil and gas production and prices in 1999. Credit Facility -- On July 14, 2000, Apache entered into a new $500 million, 364-day revolving credit agreement with a group of banks. The terms of this new facility are substantially the same as those of Apache's global credit facility. The new facility will be used, along with the U.S. portion of the global credit facility, to support Apache's commercial paper program, which was increased from $700 million to $1.2 billion in late July 2000. Stock Transactions -- In the first quarter of 2000, the Company bought back 75,900 depository shares, each representing one-fiftieth ( 1/50) of a share of Series C Preferred Stock, at an average price of $34.42 per share. The excess of the purchase price to reacquire the depository shares over the original issuance price is reflected as a preferred stock dividend in the accompanying statement of consolidated operations. During 2000, the Company repurchased 478,100 shares of common stock to be held in treasury at an average price of $37.08 per share. On August 2, 2000, the Company completed the public offering of 9.2 million shares of Apache common stock, including 1.2 million shares for the underwriters' over-allotment option, for net proceeds of approximately $433.9 million. The proceeds were used to fund a portion of the acquisitions made during 2000 and repay indebtedness under Apache's commercial paper program. Asset Sales -- During 2000, Apache sold proprietary rights to certain Canadian seismic data and various non-strategic oil and gas properties, collecting cash of $26.3 million. Liquidity -- The Company had $37.2 million in cash and cash equivalents on hand at December 31, 2000, up from $13.2 million at December 31, 1999. Apache's ratio of current assets to current liabilities increased from 1.02:1 at December 31, 1999, to 1.14:1 at December 31, 2000. Management believes that cash on hand, net cash generated from operations and unused committed borrowing capacity under its credit facilities will be adequate to satisfy the Company's financial obligations to meet future liquidity needs for at least the next two fiscal years. As of December 31, 2000, Apache's available borrowing capacity under its global credit facility and 364-day revolving credit facility was $894.9 million. CHINA In June 2000, the Company's subsidiary, Apache China, filed a lawsuit against PetroChina, China National Petroleum Corporation and China National Oil and Gas Exploration and Development Corporation in connection with certain of the Company's Chinese operations in the Zhao Dong Block of the Bohai Bay in China. The Company filed seeking damages and injunctive relief to prevent the Chinese parties from declaring that Apache and XCL-China, Ltd. had relinquished some of the Company's Chinese exploratory acreage, and other claims. The lawsuit was filed in the U.S. Bankruptcy Court in Opelousas, Louisiana, in connection with bankruptcy proceedings of XCL-China, Ltd., a co-owner in the Zhao Dong Block. On June 30, 2000, Apache and PetroChina announced having reached agreement to resolve the outstanding issues associated with development of the Zhao Dong Block. The agreement called for PetroChina and the China National Petroleum Corporation to obtain various governmental approvals including approval of the overall development plan. By the middle of February 2001, all of the agreed actions had occurred, including all of the required governmental approvals, and Apache-China's lawsuit was dismissed with prejudice. Apache and the other participants in the Zhao Dong Block are preparing to begin the construction of production facilities and development drilling in accordance with the approved overall development plan. 26 29 FUTURE TRENDS Apache's strategy is to increase its oil and gas reserves, production, cash flow and earnings through a balanced growth program that involves: - exploiting our existing asset base; - acquiring properties to which we can add incremental value; and - investing in high-potential exploration prospects. Exploiting Existing Asset Base Apache seeks to maximize the value of our existing asset base by increasing production and reserves while reducing operating costs per unit. In order to achieve these objectives, we rigorously pursue production enhancement opportunities such as workovers, recompletions, and moderate risk drilling, while divesting marginal and non-strategic properties and other activities to reduce costs. Given the large number of transactions completed over the last two years, Apache's inventory of exploitation opportunities has never been larger as evidenced by our $1 billion capital plan for year 2001, which is largely directed at exploitation activity. Acquiring Properties to Which We Can Add Incremental Value Apache seeks to purchase reserves at appropriate prices by generally avoiding auction processes where we are competing against other buyers. Our aim is to follow each acquisition with a cycle of reserve enhancement, property consolidation and cash flow acceleration, facilitating asset growth and debt reduction. In general, recent high prices and Apache's reputation for getting deals done, have created more opportunities to negotiate for properties than was the case several years ago. Transactions made throughout 2000 coupled with those scheduled to close in the first half of 2001 assure that Apache will achieve its 24th consecutive year of production growth at a time that indicated product prices for the year are strong. Investing in High-Potential Exploration Prospects Apache seeks to concentrate our exploratory investments in a select number of international areas and to become the dominant operator in those regions. We believe that these investments, although higher-risk, offer potential for attractive investment returns and significant reserve additions. Our international investments and exploration activities are a significant component of our long-term growth strategy. They complement our North American operations, which are more development oriented. A critical component in implementing our three-pronged growth strategy is maintenance of significant financial flexibility. Apache's recent senior unsecured long-term debt upgrades by Moody's and Standard & Poor's illustrate our commitment to preserving a strong balance sheet and gives us a solid foundation and competitive advantage with which to pursue our growth initiatives. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK COMMODITY RISK The Company's major market risk exposure is in the pricing applicable to its oil and gas production. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot prices applicable to its United States and Canadian natural gas production. Historically, prices received for oil and gas production have been volatile and unpredictable and price volatility is expected to continue. Monthly oil price realizations ranged from a low of $22.56 per barrel to a high of $32.54 per barrel during 2000. Gas price realizations ranged from a monthly low of $2.37 per Mcf to a monthly high of $5.60 per Mcf during the same period. The Company periodically enters into hedging activities on a portion of its projected oil and natural gas production through a variety of financial and physical arrangements intended to support oil and natural gas 27 30 prices at targeted levels and to manage its exposure to oil and gas price fluctuations. Apache may use futures contracts, swaps, options and fixed-price physical contracts to hedge its commodity prices. Realized gains or losses from the Company's price risk management activities are recognized in oil and gas production revenues when the associated production occurs. Apache does not generally hold or issue derivative instruments for trading purposes. In 2000, Apache recognized a net loss of $90.9 million from hedging activities that decreased oil and gas production revenues. This includes losses of $42.1 million in derivatives and $48.8 million from fixed-price physical gas contracts. Gains or losses on derivative contracts are expected to continue to be offset by sales at the spot market price or to preserve the margin on existing physical gas contracts. At December 31, 2000, the Company had open natural gas price swap positions with a positive fair value of $117.5 million. A 10 percent increase in natural gas prices would increase the fair value by $28.0 million. A 10 percent decrease in prices would decrease the fair value by $28.0 million. The Company also had open oil price swap positions at December 31, 2000 with a fair value of $(26.9) million. A 10 percent increase in oil prices would change the fair value by $(11.2) million. A 10 percent decrease in oil prices would change the fair value by $11.2 million. Discount rates used in arriving at fair values range from 6.0 percent for 2001 to 5.9 percent for 2008. At December 31, 2000, the Company also had natural gas commodity collars with a fair value of $(94.3) million and oil commodity collars with a fair value of $9.0 million. A 10 percent increase in oil and gas prices would change the fair values of the gas collars and the oil collars by $(42.6) million and $(12.2) million, respectively. A 10 percent decrease in oil and gas prices would change the fair values of the gas collars and the oil collars by $39.2 million and $12.8 million, respectively. The model used to arrive at the fair values for the commodity collars is based on the Black commodity pricing model. Changes in fair value, assuming 10 percent price changes, assume non-constant volatility with volatility based on prevailing market parameters at December 29, 2000. Notional volumes associated with the Company's derivative contracts are shown in Note 9 to the Company's consolidated financial statements. INTEREST RATE RISK The Company considers its interest rate risk exposure to be minimal as a result of fixing interest rates on approximately 69 percent of the Company's debt. At December 31, 2000, total debt included $680.1 million of floating-rate debt. As a result, Apache's annual interest costs in 2001 will fluctuate based on short-term interest rates on approximately 31 percent of its total debt outstanding at December 31, 2000. The impact on annual cash flow of a 10 percent change in the floating rate (approximately 74 basis points) would be approximately $5.0 million. The Company did not have any open derivative contracts relating to interest rates at December 31, 2000. FOREIGN CURRENCY RISK The Company's cash flow stream relating to certain international operations is based on the U.S. dollar equivalent of cash flows measured in foreign currencies. Australian gas production is sold under fixed-price Australian dollar contracts and over half the costs incurred are paid in Australian dollars. Revenue and disbursement transactions denominated in Australian dollars are converted to U.S. dollar equivalents based on the exchange rate as of the transaction date. Reported cash flow relating to Canadian operations is based on cash flows measured in Canadian dollars converted to the U.S. dollar equivalent based on the average of the Canadian and U.S. dollar exchange rates for the period reported. Substantially all of the Company's international transactions, outside of Canada and Australia, are denominated in U.S. dollars. The Company's Polish and Australian subsidiaries have net financial assets that are denominated in a currency other than the functional reporting currency of the subsidiaries. A decrease in value of 10 percent in the Australian dollar and Polish zloty relative to the U.S. dollar from the year-end exchange rates would result in a foreign currency loss of approximately $11.3 million, based on December 31, 2000 amounts. The Company considers its current risk exposure to exchange rate movements, based on net cash flows, to be 28 31 immaterial. The Company did not have any open derivative contracts relating to foreign currencies at December 31, 2000. FORWARD-LOOKING STATEMENTS AND RISK Certain statements in this report, including statements of the future plans, objectives, and expected performance of the Company, are forward-looking statements that are dependent upon certain events, risks and uncertainties that may be outside the Company's control, and which could cause actual results to differ materially from those anticipated. Some of these include, but are not limited to, the market prices of oil and gas, economic and competitive conditions, inflation rates, legislative and regulatory changes, financial market conditions, political and economic uncertainties of foreign governments, future business decisions, and other uncertainties, all of which are difficult to predict. There are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves and in projecting future rates of production and the timing of development expenditures. The total amount or timing of actual future production may vary significantly from reserves and production estimates. The drilling of exploratory wells can involve significant risks, including those related to timing, success rates and cost overruns. Lease and rig availability, complex geology and other factors can affect these risks. Although Apache makes use of futures contracts, swaps, options and fixed-price physical contracts to mitigate risk, fluctuations in oil and gas prices, or a prolonged period of low prices, may substantially adversely affect the Company's financial position, results of operations and cash flows. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary financial information required to be filed under this item are presented on pages F-1 through F-38 of this Form 10-K, and are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the captions "Nominees for Election as Directors," "Continuing Directors," "Executive Officers of the Company," and "Securities Ownership and Principal Holders" in the proxy statement relating to the Company's 2001 annual meeting of stockholders (the Proxy Statement) is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information set forth under the captions "Summary Compensation Table," "Option/SAR Grants Table," "Option/SAR Exercises and Year-End Value Table," "Long-Term Incentive Plans -- Awards in Last Fiscal Year," "Employment Contracts and Termination of Employment and Change-in-Control Arrangements" and "Director Compensation" in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the caption "Securities Ownership and Principal Holders" in the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Certain Business Relationships and Transactions" in the Proxy Statement is incorporated herein by reference. 29 32 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents included in this report: 1. Financial Statements Report of management........................................ F-1 Report of independent public accountants.................... F-2 Statement of consolidated operations for each of the three years in the period ended December 31, 2000............... F-3 Statement of consolidated cash flows for each of the three years in the period ended December 31, 2000............... F-4 Consolidated balance sheet as of December 31, 2000 and 1999...................................................... F-5 Statement of consolidated shareholders' equity for each of the three years in the period ended December 31, 2000..... F-6 Notes to consolidated financial statements.................. F-7 Supplemental oil and gas disclosures........................ F-32 Supplemental quarterly financial data....................... F-38
2. Financial Statement Schedules Financial statement schedules have been omitted because they are either not required, not applicable or the information required to be presented is included in the Company's financial statements and related notes. 3. Exhibits
EXHIBIT NO. DESCRIPTION - ------- ----------- 2.1 -- Purchase and Sale Agreement by and between Texaco Exploration and Production Inc., as seller, and Registrant, as buyer, dated December 22, 1994 (incorporated by reference to Exhibit 99.3 to Registrant's Current Report on Form 8-K, dated November 29, 1994, SEC File No. 1- 4300). 2.2 -- Amended and Restated Agreement and Plan of Merger among Registrant, XPX Acquisitions, Inc and DEKALB Energy Company, dated December 21, 1994 (incorporated by reference to Exhibit 2.1 to Amendment No. 3 to Registrant's Registration Statement on Form S-4, Registration No. 33-57321, filed April 14, 1995). 2.3 -- Agreement and Plan of Merger among Registrant, YPY Acquisitions, Inc. and The Phoenix Resource Companies, Inc., dated March 27, 1996 (incorporated by reference to Exhibit 2.1 to Registrant's Registration Statement on Form S-4, Registration No. 333-02305, filed April 5, 1996). 3.1 -- Restated Certificate of Incorporation of Registrant, dated December 16, 1999, as filed with the Secretary of State of Delaware on December 17, 1999 (incorporated by reference to Exhibit 99.1 to Registrant's Current Report on Form 8-K, dated December 17, 1999, SEC File No. 1-4300). 3.2 -- Bylaws of Registrant, as amended May 4, 2000 (incorporated by reference to Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, SEC File No. 1-4300). 4.1 -- Form of Certificate for Registrant's Common Stock (incorporated by reference to Exhibit 4.1 to Registrant's Annual Report on Form 10-K for year ended December 31, 1995, SEC File No. 1-4300).
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EXHIBIT NO. DESCRIPTION - ------- ----------- 4.2 -- Form of Certificate for Registrant's 5.68% Cumulative Preferred Stock, Series B (incorporated by reference to Exhibit 4.2 to Amendment No. 2 on Form 8-K/A to Registrant's Current Report on Form 8-K, dated August 18, 1998, SEC File No. 1-4300). 4.3 -- Form of Certificate for Registrant's Automatically Convertible Equity Securities, Conversion Preferred Stock, Series C (incorporated by reference to Exhibit 99.8 to Amendment No. 1 on Form 8-K/A to Registrant's Current Report on Form 8-K, dated April 29, 1999, SEC File No. 1-4300). 4.4 -- Rights Agreement, dated January 31, 1996, between Registrant and Norwest Bank Minnesota, N.A., rights agent, relating to the declaration of a rights dividend to Registrant's common shareholders of record on January 31, 1996 (incorporated by reference to Exhibit (a) to Registrant's Registration Statement on Form 8-A, dated January 24, 1996, SEC File No. 1-4300). 10.1 -- Credit Agreement, dated June 12, 1997, among the Registrant, the lenders named therein, Morgan Guaranty Trust Company, as Global Documentation Agent and U.S. Syndication Agent, The First National Bank of Chicago, as U.S. Documentation Agent, NationsBank of Texas, N.A., as Co-Agent, Union Bank of Switzerland, Houston Agency, as Co-Agent, and The Chase Manhattan Bank, as Global Administrative Agent (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K, dated June 13, 1997, SEC File No. 1-4300). 10.2 -- Credit Agreement, dated June 12, 1997, among Apache Canada Ltd., a wholly-owned subsidiary of the Registrant, the lenders named therein, Morgan Guaranty Trust Company, as Global Documentation Agent, Royal Bank of Canada, as Canadian Documentation Agent, The Chase Manhattan Bank of Canada, as Canadian Syndication Agent, Bank of Montreal, as Canadian Administrative Agent, and The Chase Manhattan Bank, as Global Administrative Agent (incorporated by reference to Exhibit 10.2 to Registrant's Current Report on Form 8-K, dated June 13, 1997, SEC File No. 1-4300). 10.3 -- Credit Agreement, dated June 12, 1997, among Apache Energy Limited and Apache Oil Australia Pty Limited, wholly-owned subsidiaries of the Registrant, the lenders named therein, Morgan Guaranty Trust Company, as Global Documentation Agent, Bank of America National Trust and Savings Association, Sydney Branch, as Australian Documentation Agent, The Chase Manhattan Bank, as Australian Syndication Agent, Citisecurities Limited, as Australian Administrative Agent, and The Chase Manhattan Bank, as Global Administrative Agent (incorporated by reference to Exhibit 10.3 to Registrant's Current Report on Form 8-K, dated June 13, 1997, SEC File No. 1-4300). 10.4 -- Fiscal Agency Agreement, dated January 4, 1995, between Registrant and Chemical Bank, as fiscal agent, relating to Registrant's 6% Convertible Subordinated Debentures due 2002 (incorporated by reference to Exhibit 99.2 to Registrant's Current Report on Form 8-K, dated December 6, 1994, SEC File No. 1-4300). 10.5 -- Concession Agreement for Petroleum Exploration and Exploitation in the Khalda Area in Western Desert of Egypt by and among Arab Republic of Egypt, the Egyptian General Petroleum Corporation and Phoenix Resources Company of Egypt, dated April 6, 1981 (incorporated by reference to Exhibit 19(g) to Phoenix's Annual Report on Form 10-K for year ended December 31, 1984, SEC File No. 1-547).
31 34
EXHIBIT NO. DESCRIPTION - ------- ----------- 10.6 -- Amendment, dated July 10, 1989, to Concession Agreement for Petroleum Exploration and Exploitation in the Khalda Area in Western Desert of Egypt by and among Arab Republic of Egypt, the Egyptian General Petroleum Corporation and Phoenix Resources Company of Egypt incorporated by reference to Exhibit 10(d)(4) to Phoenix's Quarterly Report on Form 10-Q for quarter ended June 30, 1989, SEC File No. 1-547). 10.7 -- Farmout Agreement, dated September 13, 1985 and relating to the Khalda Area Concession, by and between Phoenix Resources Company of Egypt and Conoco Khalda Inc(incorporated by reference to Exhibit 10.1 to Phoenix's Registration Statement on Form S-1, Registration No. 33-1069, filed October 23, 1985). 10.8 -- Amendment, dated March 30, 1989, to Farmout Agreement relating to the Khalda Area Concession, by and between Phoenix Resources Company of Egypt and Conoco Khalda Inc(incorporated by reference to Exhibit 10(d)(5) to Phoenix's Quarterly Report on Form 10-Q for quarter ended June 30, 1989, SEC File No. 1-547). 10.9 -- Amendment, dated May 21, 1995, to Concession Agreement for Petroleum Exploration and Exploitation in the Khalda Area in Western Desert of Egypt between Arab Republic of Egypt, the Egyptian General Petroleum Corporation, Repsol Exploracion Egipto S.A., Phoenix Resources Company of Egypt and Samsung Corporation (incorporated by reference to exhibit 10.12 to Registrant's Annual Report on Form 10-K for year ended December 31, 1997, SEC File No. 1-4300). 10.10 -- Concession Agreement for Petroleum Exploration and Exploitation in the Qarun Area in Western Desert of Egypt, between Arab Republic of Egypt, the Egyptian General Petroleum Corporation, Phoenix Resources Company of Qarun and Apache Oil Egypt, Inc., dated May 17, 1993 (incorporated by reference to Exhibit 10(b) to Phoenix's Annual Report on Form 10-K for year ended December 31, 1993, SEC File No. 1-547). 10.11 -- Agreement for Amending the Gas Pricing Provisions under the Concession Agreement for Petroleum Exploration and Exploitation in the Qarun Area, effective June 16, 1994 (incorporated by reference to Exhibit 10.18 to Registrant's Annual Report on Form 10-K for year ended December 31, 1996, SEC File No. 1-4300). +10.12 -- Apache Corporation Corporate Incentive Compensation Plan A (Senior Officers' Plan), dated July 16, 1998 (incorporated by reference to Exhibit 10.13 to Registrant's Annual Report on Form 10-K for year ended December 31, 1998, SEC File No. 1-4300). +10.13 -- Apache Corporation Corporate Incentive Compensation Plan B (Strategic Objectives Format), dated July 16, 1998 (incorporated by reference to Exhibit 10.14 to Registrant's Annual Report on Form 10-K for year ended December 31, 1998, SEC File No. 1-4300). +10.14 -- Apache Corporation 401(k) Savings Plan, dated August 1, 1997, effective January 1, 1997 (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K, dated August 8, 1997, SEC File No. 1-4300). +10.15 -- Amendments to Apache Corporation 401(k) Savings Plan, dated October 21, 1999, effective as of January 1, 1997 and 1999.
32 35
EXHIBIT NO. DESCRIPTION - ------- ----------- +10.16 -- Apache Corporation Money Purchase Retirement Plan, dated December 31, 1997, effective January 1, 1997 (incorporated by reference to Exhibit 10.19 to Registrant's Annual Report on Form 10-K for year ended December 31, 1997, SEC File No. 1-4300). +10.17 -- Amendments to Apache Corporation Money Purchase Retirement Plan, dated October 21, 1999, effective as of January 1, 1997 and 1998. +10.18 -- Non-Qualified Retirement/Savings Plan of Apache Corporation, restated as of January 1, 1997, and amendments effective as of January 1, 1997, January 1, 1998 and January 1, 1999 (incorporated by reference to Exhibit 10.17 to Registrant's Annual Report on Form 10-K for year ended December 31, 1998, SEC File No. 1-4300). +10.19 -- Amendment to Non-Qualified Retirement/Savings Plan of Apache Corporation, dated February 22, 2000, effective as of January 1, 1999 (incorporated by reference to Exhibit 4.7 to Registrant's Registration Statement on Form S-8, Registration No. 333-31092, filed February 25, 2000); and Amendment dated July 27, 2000 (incorporated by reference to Exhibit 4.8 to Amendment No. 1 to Registrant's Registration Statement on Form S-8, Registration No. 333-31092, filed August 18, 2000). +*10.20 -- Apache Corporation 1990 Stock Incentive Plan, as amended and restated December 14, 2000, effective March 1, 2001. +*10.21 -- Apache Corporation 1995 Stock Option Plan, as amended and restated December 14, 2000, effective March 1, 2001. +*10.22 -- Apache Corporation 2000 Share Appreciation Plan, dated December 19, 2000, effective October 12, 2000. +*10.23 -- Apache Corporation 1996 Performance Stock Option Plan, as amended and restated December 14, 2000, effective March 1, 2001. +*10.24 -- Apache Corporation 1998 Stock Option Plan, as amended and restated December 14, 2000, effective March 1, 2001. +*10.25 -- Apache Corporation 2000 Stock Option Plan, as amended and restated December 14, 2000, effective March 1, 2001. +10.26 -- 1990 Employee Stock Option Plan of The Phoenix Resource Companies, Inc., as amended through September 29, 1995, effective April 9, 1990 (incorporated by reference to Exhibit 10.33 to Registrant's Annual Report on Form 10-K for year ended December 31, 1996, SEC File No. 1-4300). +10.27 -- Apache Corporation Income Continuance Plan, as amended and restated February 24, 1988 (incorporated by reference to Exhibit 10.19 to Registrant's Annual Report on Form 10-K for year ended December 31, 1990, SEC File No. 1-4300). +*10.28 -- Apache Corporation Deferred Delivery Plan, as amended and restated December 14, 2000. +10.29 -- Apache Corporation Non-Employee Directors' Compensation Plan, as amended and restated December 17, 1998 (incorporated by reference to Exhibit 10.26 to Registrant's Annual Report on Form 10-K for year ended December 31, 1998, SEC File No. 1-4300). +*10.30 -- Apache Corporation Outside Directors' Retirement Plan, as amended and restated February 8, 2001.
33 36
EXHIBIT NO. DESCRIPTION - ------- ----------- +*10.31 -- Apache Corporation Equity Compensation Plan for Non-Employee Directors, as amended and restated September 14, 2000. +10.32 -- Amended and Restated Employment Agreement, dated December 5, 1990, between Registrant and Raymond Plank (incorporated by reference to Exhibit 10.39 to Registrant's Annual Report on Form 10-K for year ended December 31, 1996, SEC File No. 1-4300). +10.33 -- First Amendment, dated April 4, 1996, to Restated Employment Agreement between Registrant and Raymond Plank (incorporated by reference to Exhibit 10.40 to Registrant's Annual Report on Form 10-K for year ended December 31,1996, SEC File No. 1-4300). +10.34 -- Amended and Restated Employment Agreement, dated December 20, 1990, between Registrant and John A. Kocur (incorporated by reference to Exhibit 10.10 to Registrant's Annual Report on Form 10-K for year ended December 31, 1990, SEC File No. 1-4300). +10.35 -- Employment Agreement, dated June 6, 1988, between Registrant and G. Steven Farris (incorporated by reference to Exhibit 10.6 to Registrant's Annual Report on Form 10-K for year ended December 31, 1989, SEC File No. 1-4300). +10.36 -- Conditional Stock Grant Agreement, dated December 17, 1998, between Registrant and G. Steven Farris (incorporated by reference to Exhibit 10.33 to Registrant's Annual Report on Form 10-K for year ended December 31, 1998, SEC File No. 1-4300). 10.37 -- Amended and Restated Gas Purchase Agreement, effective July 1, 1998, by and among Registrant and MW Petroleum Corporation, as Seller, and Producers Energy Marketing, LLC, as Buyer (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K, dated June 18, 1998, SEC File No. 1-4300). *12.1 -- Statement of Computation of Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividends *21.1 -- Subsidiaries of Registrant *23.1 -- Consent of Arthur Andersen LLP *23.2 -- Consent of Ryder Scott Company L.P., Petroleum Consultants *24.1 -- Power of Attorney (included as a part of the signature pages to this report)
- --------------- * Filed herewith. + Management contracts or compensatory plans or arrangements required to be filed herewith pursuant to Item 14 hereof. NOTE: Debt instruments of the Registrant defining the rights of long-term debt holders in principal amounts not exceeding 10 percent of the Registrant's consolidated assets have been omitted and will be provided to the Commission upon request. (b) Reports on Form 8-K There were no current reports on Form 8-K filed by Apache during the fiscal quarter ended December 31, 2000. 34 37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. APACHE CORPORATION /s/ RAYMOND PLANK ------------------------------------ Raymond Plank Chairman and Chief Executive Officer Dated: March 22, 2001 POWER OF ATTORNEY The officers and directors of Apache Corporation, whose signatures appear below, hereby constitute and appoint Raymond Plank, G. Steven Farris, Z. S. Kobiashvili and Roger B. Plank, and each of them (with full power to each of them to act alone), the true and lawful attorney-in-fact to sign and execute, on behalf of the undersigned, any amendment(s) to this report and each of the undersigned does hereby ratify and confirm all that said attorneys shall do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ RAYMOND PLANK Chairman and Chief Executive March 22, 2001 - ----------------------------------------------------- Officer (Principal Executive Raymond Plank Officer) /s/ ROGER PLANK Executive Vice President and March 22, 2001 - ----------------------------------------------------- Chief Financial Officer Roger Plank (Principal Financial Officer) /s/ THOMAS L. MITCHELL Vice President and Controller March 22, 2001 - ----------------------------------------------------- (Principal Accounting Officer) Thomas L. Mitchell
38
NAME TITLE DATE ---- ----- ---- /s/ FREDERICK M. BOHEN Director March 22, 2001 - ----------------------------------------------------- Frederick M. Bohen /s/ G. STEVEN FARRIS Director March 22, 2001 - ----------------------------------------------------- G. Steven Farris /s/ RANDOLPH M. FERLIC Director March 22, 2001 - ----------------------------------------------------- Randolph M. Ferlic /s/ EUGENE C. FIEDOREK Director March 22, 2001 - ----------------------------------------------------- Eugene C. Fiedorek /s/ A. D. FRAZIER, JR. Director March 22, 2001 - ----------------------------------------------------- A. D. Frazier, Jr. /s/ JOHN A. KOCUR Director March 22, 2001 - ----------------------------------------------------- John A. Kocur /s/ GEORGE D. LAWRENCE, JR. Director March 22, 2001 - ----------------------------------------------------- George D. Lawrence, Jr. /s/ MARY RALPH LOWE Director March 22, 2001 - ----------------------------------------------------- Mary Ralph Lowe /s/ F. H. MERELLI Director March 22, 2001 - ----------------------------------------------------- F. H. Merelli /s/ RODMAN D. PATTON Director March 22, 2001 - ----------------------------------------------------- Rodman D. Patton /s/ CHARLES J. PITMAN Director March 22, 2001 - ----------------------------------------------------- Charles J. Pitman
39 REPORT OF MANAGEMENT The financial statements and related financial information of Apache Corporation and subsidiaries were prepared by and are the responsibility of management. The statements have been prepared in conformity with accounting principles generally accepted in the United States and include amounts that are based on management's best estimates and judgments. Management maintains and places reliance on systems of internal control designed to provide reasonable assurance, weighing the costs with the benefits sought, that all transactions are properly recorded in the Company's books and records, that policies and procedures are adhered to, and that assets are safeguarded. The systems of internal controls are supported by written policies and guidelines, internal audits and the selection and training of qualified personnel. The consolidated financial statements of Apache Corporation and subsidiaries have been audited by Arthur Andersen LLP, independent public accountants. Their audits included developing an overall understanding of the Company's accounting systems, procedures and internal controls and conducting tests and other auditing procedures sufficient to support their opinion on the fairness of the consolidated financial statements. The Apache Corporation Board of Directors exercises its oversight responsibility for the financial statements through its Audit Committee, composed solely of directors who are not current or former employees of Apache. The Audit Committee meets periodically with management, internal auditors and the independent public accountants to ensure that they are successfully completing designated responsibilities. The internal auditors and independent public accountants have open access to the Audit Committee to discuss auditing and financial reporting issues. Raymond Plank Chairman of the Board and Chief Executive Officer Roger B. Plank Executive Vice President and Chief Financial Officer Thomas L. Mitchell Vice President and Controller (Chief Accounting Officer) Houston, Texas March 12, 2001 F-1 40 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Apache Corporation: We have audited the accompanying consolidated balance sheet of Apache Corporation (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Apache Corporation and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. As explained in Note 1 to the consolidated financial statements, effective January 1, 2000 the Company changed its method of accounting for crude oil inventories. ARTHUR ANDERSEN LLP Houston, Texas March 12, 2001 F-2 41 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------- 2000 1999 1998 ------------- ------------- ------------ (IN THOUSANDS, EXCEPT PER COMMON SHARE DATA) REVENUES: Oil and gas production revenues........................ $2,290,759 $1,143,946 $ 761,188 Equity in income (loss) of affiliates.................. 862 153 (1,558) Other revenues......................................... (7,717) 2,454 840 ---------- ---------- --------- 2,283,904 1,146,553 760,470 ---------- ---------- --------- OPERATING EXPENSES: Depreciation, depletion and amortization: Recurring........................................... 583,546 442,844 382,807 Additional.......................................... -- -- 243,178 Lease operating costs.................................. 255,251 190,576 182,138 Severance and other taxes.............................. 59,173 32,400 28,642 Administrative, selling and other...................... 75,615 53,894 40,731 Financing costs: Interest expense.................................... 168,121 132,986 119,703 Amortization of deferred loan costs................. 2,726 4,854 4,496 Capitalized interest................................ (62,000) (53,231) (49,279) Interest income..................................... (2,209) (2,343) (4,383) ---------- ---------- --------- 1,080,223 801,980 948,033 ---------- ---------- --------- INCOME (LOSS) BEFORE INCOME TAXES........................ 1,203,681 344,573 (187,563) Provision (benefit) for income taxes................... 483,086 143,718 (58,176) ---------- ---------- --------- INCOME (LOSS) BEFORE CHANGE IN ACCOUNTING PRINCIPLE...... 720,595 200,855 (129,387) Cumulative effect of change in accounting principle, net of income tax................................... (7,539) -- -- ---------- ---------- --------- NET INCOME (LOSS)........................................ 713,056 200,855 (129,387) Preferred stock dividends.............................. 19,988 14,449 2,004 ---------- ---------- --------- INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK.................................................. $ 693,068 $ 186,406 $(131,391) ========== ========== ========= BASIC NET INCOME (LOSS) PER COMMON SHARE: Before change in accounting principle.................. $ 5.94 $ 1.73 $ (1.34) Cumulative effect of change in accounting principle.... (.07) -- -- ---------- ---------- --------- $ 5.87 $ 1.73 $ (1.34) ========== ========== ========= DILUTED NET INCOME (LOSS) PER COMMON SHARE: Before change in accounting principle.................. $ 5.73 $ 1.72 $ (1.34) Cumulative effect of change in accounting principle.... (.06) -- -- ---------- ---------- --------- $ 5.67 $ 1.72 $ (1.34) ========== ========== =========
The accompanying notes to consolidated financial statements are an integral part of this statement. F-3 42 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------- 2000 1999 1998 ----------- ----------- --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)......................................... $ 713,056 $ 200,855 $(129,387) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization.............. 583,546 442,844 625,985 Provision (benefit) for deferred income taxes......... 350,703 77,494 (81,856) Amortization of deferred loan costs................... 2,726 4,854 4,496 Cumulative effect of change in accounting principle... 7,539 -- -- Other................................................. 9,719 1,533 -- Other non-operating activities............................ 8,251 (387) 1,887 Changes in operating assets and liabilities, net of effects of acquisitions: (Increase) decrease in receivables...................... (253,721) (103,167) 65,487 (Increase) decrease in advances to oil and gas ventures and other............................................. (6,167) (15,330) 3,879 (Increase) decrease in deferred charges and other....... (1,562) (2,356) 13,238 Increase (decrease) in payables......................... 111,841 24,912 (65,851) Increase (decrease) in accrued expenses................. 45,281 26,233 (12,161) Increase (decrease) in advances from gas purchasers..... (27,850) (24,512) 50,922 Increase (decrease) in deferred credits and noncurrent liabilities........................................... (13,976) 5,201 (5,128) ----------- ----------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES.......... 1,529,386 638,174 471,511 ----------- ----------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment....................... (1,010,528) (591,316) (699,509) Non-cash portion of net oil and gas property additions.... 42,934 (19,884) 38,774 Acquisition of Phillips properties........................ (490,250) -- -- Acquisition of Occidental properties...................... (321,206) -- -- Acquisition of Collins & Ware properties.................. (320,682) -- -- Acquisition of Repsol properties.......................... (118,678) -- -- Acquisition of Shell Offshore properties.................. -- (687,677) -- Acquisition of Shell Canada properties.................... -- (517,815) -- Acquisition of British-Borneo interests, net of cash acquired................................................ -- (83,590) -- Acquisition of Novus subsidiaries, net of cash acquired... -- (5,758) (48,499) Proceeds from sales of oil and gas properties............. 26,271 155,226 194,147 Other, net................................................ (36,875) (18,937) 2,967 ----------- ----------- --------- NET CASH USED IN INVESTING ACTIVITIES.............. (2,229,014) (1,769,751) (512,120) ----------- ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Long-term borrowings...................................... 1,125,981 1,602,871 551,897 Payments on long-term debt................................ (793,531) (1,075,821) (556,141) Dividends paid............................................ (52,945) (42,264) (28,204) Issuance (repurchase) of preferred stock.................. (2,613) 210,490 98,630 Issuance of common stock.................................. 465,306 455,381 1,240 Payments to acquire treasury stock........................ (17,730) (15,603) (21,418) Cost of debt and equity transactions...................... (838) (4,843) (544) ----------- ----------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 723,630 1,130,211 45,460 ----------- ----------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 24,002 (1,366) 4,851 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 13,171 14,537 9,686 ----------- ----------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 37,173 $ 13,171 $ 14,537 =========== =========== =========
The accompanying notes to consolidated financial statements are an integral part of this statement. F-4 43 APACHE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
DECEMBER 31, ------------------------- 2000 1999 ----------- ----------- (IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 37,173 $ 13,171 Receivables............................................... 506,723 259,530 Inventories............................................... 54,764 45,113 Advances to oil and gas ventures and other................ 31,360 25,254 ----------- ----------- 630,020 343,068 ----------- ----------- PROPERTY AND EQUIPMENT: Oil and gas, on the basis of full cost accounting: Proved properties....................................... 9,423,922 7,409,787 Unproved properties and properties under development, not being amortized.................................... 977,491 869,108 Gas gathering, transmission and processing facilities..... 573,621 442,437 Other..................................................... 119,590 105,635 ----------- ----------- 11,094,624 8,826,967 Less: Accumulated depreciation, depletion and amortization............................................ (4,282,162) (3,711,109) ----------- ----------- 6,812,462 5,115,858 ----------- ----------- OTHER ASSETS: Deferred charges and other................................ 39,468 43,617 ----------- ----------- $ 7,481,950 $ 5,502,543 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt...................... $ 25,000 $ 6,158 Accounts payable.......................................... 259,120 148,309 Accrued operating expense................................. 23,893 18,226 Accrued exploration and development....................... 143,916 101,490 Accrued compensation and benefits......................... 34,695 22,631 Accrued interest.......................................... 25,947 28,118 Other accrued expenses.................................... 40,776 11,846 ----------- ----------- 553,347 336,778 ----------- ----------- LONG-TERM DEBT.............................................. 2,193,258 1,879,650 ----------- ----------- DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes.............................................. 699,833 360,324 Advances from gas purchasers.............................. 153,106 180,956 Other..................................................... 127,766 75,408 ----------- ----------- 980,705 616,688 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Note 10) SHAREHOLDERS' EQUITY: Preferred stock, no par value, 5,000,000 shares authorized -- Series B, 5.68% Cumulative Preferred Stock, 100,000 shares issued and outstanding................. 98,387 98,387 Series C, 6.5% Conversion Preferred Stock, 138,482 and 140,000 shares issued and outstanding, respectively... 208,207 210,490 Common stock, $1.25 par, 215,000,000 shares authorized 126,500,776 and 116,403,013 shares issued, respectively............................................ 158,126 145,504 Paid-in capital........................................... 2,173,183 1,717,027 Retained earnings......................................... 1,226,531 558,721 Treasury stock, at cost, 2,866,028 and 2,406,549 shares, respectively............................................ (69,562) (52,256) Accumulated other comprehensive loss...................... (40,232) (8,446) ----------- ----------- 3,754,640 2,669,427 ----------- ----------- $ 7,481,950 $ 5,502,543 =========== ===========
The accompanying notes to consolidated financial statements are an integral part of this statement. F-5 44 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
SERIES B SERIES C COMPREHENSIVE PREFERRED PREFERRED COMMON PAID-IN RETAINED TREASURY INCOME STOCK STOCK STOCK CAPITAL EARNINGS STOCK ------------- --------- --------- -------- ---------- ---------- -------- (IN THOUSANDS) BALANCE, DECEMBER 31, 1997................... $ -- $ -- $118,098 $1,085,063 $ 561,981 $(15,506) Comprehensive income: Net loss................................. $(129,387) -- -- -- -- (129,387) -- Currency translation adjustments......... (12,745) -- -- -- -- -- -- --------- Comprehensive loss......................... $(142,132) ========= Dividends: Preferred................................ -- -- -- -- (2,004) -- Common ($.28 per share).................. -- -- -- -- (27,492) -- Preferred shares issued.................... 98,387 -- -- -- -- -- Common shares issued....................... -- -- 6,640 160,675 -- -- Treasury shares purchased, net............. -- -- -- -- -- (21,418) ------- -------- -------- ---------- ---------- -------- BALANCE, DECEMBER 31, 1998................... 98,387 -- 124,738 1,245,738 403,098 (36,924) Comprehensive income: Net income............................... $ 200,855 -- -- -- -- 200,855 -- Currency translation adjustments......... 24,543 -- -- -- -- -- -- Unrealized gain on marketable securities, net of applicable income tax of $129... 215 -- -- -- -- -- -- --------- Comprehensive income....................... $ 225,613 ========= Dividends: Preferred................................ -- -- -- -- (14,449) -- Common ($.28 per share).................. -- -- -- -- (30,783) -- Preferred shares issued.................... -- 210,490 -- -- -- -- Common shares issued....................... -- -- 20,766 471,289 -- -- Treasury shares purchased, net............. -- -- -- -- -- (15,332) ------- -------- -------- ---------- ---------- -------- BALANCE, DECEMBER 31, 1999................... 98,387 210,490 145,504 1,717,027 558,721 (52,256) Comprehensive income: Net income............................... $ 713,056 -- -- -- -- 713,056 -- Currency translation adjustments......... (31,389) -- -- -- -- -- -- Unrealized loss on marketable securities, net of applicable income tax benefit of $223................................... (397) -- -- -- -- -- -- --------- Comprehensive income....................... $ 681,270 ========= Dividends: Preferred................................ -- -- -- -- (19,658) -- Common ($.21 per share).................. -- -- -- -- (25,258) -- Preferred stock repurchased................ -- (2,283) -- -- (330) -- Common shares issued....................... -- -- 12,622 455,728 -- -- Treasury shares purchased, net............. -- -- -- 428 -- (17,306) ------- -------- -------- ---------- ---------- -------- BALANCE, DECEMBER 31, 2000................... $98,387 $208,207 $158,126 $2,173,183 $1,226,531 $(69,562) ======= ======== ======== ========== ========== ======== ACCUMULATED OTHER TOTAL COMPREHENSIVE SHAREHOLDERS' INCOME (LOSS) EQUITY ------------- -------------- (IN THOUSANDS) BALANCE, DECEMBER 31, 1997................... $(20,459) $1,729,177 Comprehensive income: Net loss................................. -- (129,387) Currency translation adjustments......... (12,745) (12,745) Comprehensive loss......................... Dividends: Preferred................................ -- (2,004) Common ($.28 per share).................. -- (27,492) Preferred shares issued.................... -- 98,387 Common shares issued....................... -- 167,315 Treasury shares purchased, net............. -- (21,418) -------- ---------- BALANCE, DECEMBER 31, 1998................... (33,204) 1,801,833 Comprehensive income: Net income............................... -- 200,855 Currency translation adjustments......... 24,543 24,543 Unrealized gain on marketable securities, net of applicable income tax of $129... 215 215 Comprehensive income....................... Dividends: Preferred................................ -- (14,449) Common ($.28 per share).................. -- (30,783) Preferred shares issued.................... -- 210,490 Common shares issued....................... -- 492,055 Treasury shares purchased, net............. -- (15,332) -------- ---------- BALANCE, DECEMBER 31, 1999................... (8,446) 2,669,427 Comprehensive income: Net income............................... -- 713,056 Currency translation adjustments......... (31,389) (31,389) Unrealized loss on marketable securities, net of applicable income tax benefit of $223................................... (397) (397) Comprehensive income....................... Dividends: Preferred................................ -- (19,658) Common ($.21 per share).................. -- (25,258) Preferred stock repurchased................ -- (2,613) Common shares issued....................... -- 468,350 Treasury shares purchased, net............. -- (16,878) -------- ---------- BALANCE, DECEMBER 31, 2000................... $(40,232) $3,754,640 ======== ==========
The accompanying notes to consolidated financial statements are an integral part of this statement. F-6 45 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations -- Apache Corporation (Apache or the Company) is an independent energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids. The Company's North American exploration and production activities are divided into three U.S. operating regions (Offshore, Southern and Midcontinent) and a Canadian region. Approximately 80 percent of the Company's proved reserves are located in North America. Internationally, Apache has exploration and production interests in Egypt and offshore Western Australia, and exploration interests in Poland and offshore The People's Republic of China (China). Apache holds interests in many of its U.S., Canadian and international properties through operating subsidiaries, such as Apache Canada Ltd., DEK Energy Company (DEKALB, formerly known as DEKALB Energy Company), Apache Energy Limited (formerly known as Hadson Energy Limited), Apache International, Inc., and Apache Overseas, Inc. The Company's future financial condition and results of operations will depend upon prices received for its oil and natural gas production and the costs of finding, acquiring, developing and producing reserves. A substantial portion of the Company's production is sold under market-sensitive contracts. Prices for oil and natural gas are subject to fluctuations in response to changes in supply, market uncertainty and a variety of other factors beyond the Company's control. These factors include worldwide political instability (especially in the Middle East), the foreign supply of oil and natural gas, the price of foreign imports, the level of consumer demand, and the price and availability of alternative fuels. With natural gas accounting for 53 percent of Apache's 2000 production on an energy equivalent basis, the Company is affected more by fluctuations in natural gas prices than in oil prices. Principles of Consolidation -- The accompanying consolidated financial statements include the accounts of Apache and its subsidiaries after elimination of intercompany balances and transactions. The Company's interests in oil and gas exploration and production ventures and partnerships are proportionately consolidated. Apache's investment in Producers Energy Marketing LLC (ProEnergy) and a pipeline partnership in Western Australia were accounted for using the equity method for the periods of ownership. Beginning in the first quarter 2000, the portion of gathering, processing and marketing margin related to oil and gas production revenues has been reported as a net addition to oil and gas production revenues and the portion related to gathering fee income has been reported as a reduction to operating costs in the accompanying statement of consolidated operations. Reclassifications have been made to reflect this change in the prior year statements of consolidated operations. Cash Equivalents -- The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. These investments are carried at cost, which approximates market. Inventories -- Inventories consist principally of tubular goods and production equipment, stated at the lower of weighted average cost or market, and oil produced but not sold, stated at the lower of cost (a combination of production costs and depreciation, depletion and amortization (DD&A) expense) or market. Property and Equipment -- The Company uses the full cost method of accounting for its investment in oil and gas properties. Under this method, the Company capitalizes all acquisition, exploration and development costs incurred for the purpose of finding oil and gas reserves, including salaries, benefits and other internal costs directly attributable to these activities. Exclusive of field-level costs, Apache capitalized $22.6 million, $14.2 million and $12.2 million of internal costs in 2000, 1999 and 1998, respectively. Costs associated with production and general corporate activities are expensed in the period incurred. Internal costs attributable to the management of the Company's producing properties, before recoveries from industry partners, totaled $29.4 million, $24.4 million and $23.1 million in 2000, 1999 and 1998, respectively, and are F-7 46 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) included in operating costs in the Company's statement of consolidated operations. Interest costs related to unproved properties and properties under development are also capitalized to oil and gas properties. Unless a significant portion of the Company's proved reserve quantities in a particular country are sold (greater than 25 percent), proceeds from the sale of oil and gas properties are accounted for as a reduction to capitalized costs, and gains and losses are not recognized. Apache computes the provision for recurring DD&A of oil and gas properties on a quarterly basis using the unit-of-production method based upon production and estimates of proved reserve quantities. Unevaluated costs and related capitalized interest costs are excluded from the amortization base until the properties associated with these costs are evaluated. The amortizable base includes estimated future development costs and dismantlement, restoration and abandonment costs, net of estimated salvage values. These future costs are generally estimated by engineers employed by Apache. Apache limits, on a country-by-country basis, the capitalized costs of proved oil and gas properties, net of accumulated DD&A and deferred income taxes, to the estimated future net cash flows from proved oil and gas reserves discounted at 10 percent, net of related tax effects, plus the lower of cost or fair value of unproved properties included in the costs being amortized. If capitalized costs exceed this limit, the excess is charged to additional DD&A expense. Included in the estimated future net cash flows are Canadian provincial tax credits expected to be realized beyond the date at which the legislation, under its provisions, could be repealed. To date, the Canadian provincial government has not indicated an intention to repeal this legislation. As a result of low oil and gas prices at December 31, 1998, Apache's capitalized costs of U.S. oil and gas properties exceeded the ceiling limitation and the Company recorded a $243.2 million pre-tax ($158.1 million net of tax) non-cash write-down in 1998. The write-down is reflected as additional DD&A expense in the accompanying statement of consolidated operations. Given the volatility of oil and gas prices, it is reasonably possible that the Company's estimate of discounted future net cash flows from proved oil and gas reserves could change in the near term. If oil and gas prices decline significantly, even if only for a short period of time, it is possible that additional write-downs of oil and gas properties could occur in the future. The costs of certain unevaluated leasehold acreage and wells being drilled are not being amortized. Costs not being amortized are periodically assessed for possible impairments or reductions in value. If a reduction in value has occurred, costs being amortized are increased or a charge is made against earnings for those international operations where a reserve base is not yet established. Buildings, equipment and gas gathering, transmission and processing facilities are depreciated on a straight-line basis over the estimated useful lives of the assets, which range from 3 to 20 years. Accumulated depreciation for these assets totaled $131.2 million and $97.4 million at December 31, 2000 and 1999, respectively. Accounts Payable -- Included in accounts payable at December 31, 2000 and 1999, are liabilities of approximately $55.5 million and $41.6 million, respectively, representing the amount by which checks issued, but not presented to the Company's banks for collection, exceeded balances in applicable bank accounts. Revenue Recognition -- Apache uses the sales method of accounting for natural gas revenues. Under this method, revenues are recognized based on actual volumes of gas sold to purchasers. The volumes of gas sold may differ from the volumes to which Apache is entitled based on its interests in the properties. Differences between volumes sold and entitled volumes create gas imbalances which are generally reflected as adjustments to reported proved gas reserves and future cash flows in the Company's supplemental oil and gas disclosures. Adjustments for gas imbalances totaled less than one percent of Apache's proved gas reserves at December 31, 2000. Revenue is deferred and a liability is recorded for those properties where the estimated remaining reserves will not be sufficient to enable the underproduced owner to recoup its entitled share through production. F-8 47 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Derivative Instruments and Hedging Activities -- Apache periodically enters into commodity derivatives contracts and fixed-price physical contracts to manage its exposure to oil and gas price volatility. Commodity derivatives contracts, which are usually placed with major financial institutions that the Company believes are minimal credit risks, may take the form of futures contracts, swaps or options. The oil and gas reference prices upon which these commodity derivatives contracts are based reflect various market indices that have a high degree of historical correlation with actual prices received by the Company. The Company accounts for its commodity derivatives contracts using the hedge (or deferral) method of accounting. Under this method, realized gains and losses from the Company's price risk management activities are recognized in oil and gas production revenues when the associated production occurs and the resulting cash flows are reported as cash flows from operating activities. Gains and losses on commodity derivatives contracts that are closed before the hedged production occurs are deferred until the production month originally hedged. In the event of a loss of correlation between changes in oil and gas reference prices under a commodity derivatives contract and actual oil and gas prices, a gain or loss is recognized currently to the extent the commodity derivatives contract has not offset changes in actual oil and gas prices. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards requiring that derivative instruments (including certain derivative instruments embedded in other contracts), as defined, be recorded in the balance sheet as either an asset or liability measured at fair value, and requires that changes in fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows unrealized gains and losses to be deferred in other comprehensive income (for the effective portion of the hedge) until such time as the hedged transaction occurs, and requires that a company formally document, designate, and assess the effectiveness of derivative instruments that receive hedge accounting treatment. Apache adopted SFAS No. 133 on January 1, 2001. The Company recognized a derivative asset of $121.5 million reflecting the fair value of gas price swaps entered into in connection with the advances from gas purchasers described in Note 6. A liability in the same amount was recorded to reflect the obligation to deliver gas at current forward market prices in excess of the contractual prices at the inception of the transactions. All other derivative instruments, as discussed in Note 9, were recorded at fair value representing a net liability of $116.2 million on the date of adoption. The offset to this liability is a charge of $71.3 million, net of income taxes, reported in other comprehensive income in the consolidated balance sheet. However, the FASB continues to deliberate the appropriate accounting for the portion of the transition adjustment associated with the time value component of option contracts (zero-cost collars) used by the Company to manage its exposure to oil and gas price volatility. If the FASB determines that the time value component of option contracts should be recorded in earnings at transition, the Company would be required to record a cumulative effect-type loss to earnings on January 1, 2001 of $21.2 million, net of income taxes. Income Taxes -- The Company follows the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the future tax consequences of (i) temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements and (ii) operating loss and tax credit carryforwards for tax purposes. Deferred tax assets are reduced by a valuation allowance when, based upon management's estimates, it is more likely than not that a portion of the deferred tax assets will not be realized in a future period. Foreign Currency Translation -- The U.S. dollar is considered the functional currency for each of the Company's international operations, except for its Canadian subsidiary whose functional currency is the Canadian dollar. Translation adjustments resulting from translating the Canadian subsidiary's foreign currency F-9 48 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) financial statements into U.S. dollar equivalents are reported separately and accumulated in other comprehensive income. For other international operations, transaction gains and losses are recognized in net income. Net Income (Loss) Per Common Share -- Basic and diluted net income (loss) per common share have been computed in accordance with SFAS No. 128, "Earnings per Share." Basic net income (loss) per common share is computed by dividing income (loss) attributable to common stock by the weighted average number of common shares outstanding for the period. Diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted net loss per common share does not reflect dilution from potential common shares, because to do so would be antidilutive. Calculations of basic and diluted net income (loss) per common share are illustrated in Note 7. Stock-Based Compensation -- The Company accounts for employee stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Nonemployee stock-based compensation is accounted for using the fair value method in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation." Use of Estimates -- The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates with regard to these financial statements include the estimate of proved oil and gas reserve quantities and the related present value of estimated future net cash flows therefrom (see Supplemental Oil and Gas Disclosures). Change in Accounting Principle -- In December 2000, the staff of the Securities and Exchange Commission (SEC) announced that commodity inventories should be carried at cost, not market value, despite longstanding industry practice. As a result, Apache changed its accounting for crude oil inventories in the fourth quarter of 2000, retroactive to the beginning of the year, and recognized a non-cash cumulative-effect charge to earnings effective January 1, 2000 of $7.5 million, net of income tax, to value crude oil inventory at cost. Quarterly results for 2000 also were restated to reflect this change in accounting (see Supplemental Quarterly Financial Data). 2. ACQUISITIONS AND DIVESTITURES Acquisitions On January 24, 2000, Apache completed the acquisition of producing properties in Western Oklahoma and the Texas Panhandle, formerly owned by a subsidiary of Repsol YPF (Repsol), for approximately $118.7 million, plus assumed liabilities of approximately $29.8 million. The acquisition included estimated proved reserves of approximately 28.7 million barrels of oil equivalent (MMboe) as of the acquisition date. On June 30, 2000, Apache completed the acquisition of long-lived producing properties in the Permian Basin and South Texas from Collins & Ware, Inc. (Collins & Ware) for approximately $320.7 million. The acquisition included estimated proved reserves of approximately 83.7 MMboe as of the acquisition date. One-third of the reserves are liquid hydrocarbons. On August 17, 2000, Apache completed the acquisition of a Delaware limited liability company (LLC) owned by subsidiaries of Occidental Petroleum Corporation (Occidental) and the related natural gas production for approximately $321.2 million, plus future payments of approximately $44.0 million over four years. The Occidental properties are located in 32 fields on 93 blocks on the Outer Continental Shelf of the F-10 49 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Gulf of Mexico. The acquisition included estimated proved reserves of approximately 53.1 MMboe as of the acquisition date. On December 29, 2000, Apache completed the acquisition of Canadian properties from Canadian affiliates of Phillips Petroleum Company (Phillips) for approximately $490.3 million. The acquisition included estimated proved reserves of approximately 70.0 MMboe as of the acquisition date. The properties comprise approximately 212,000 net developed acres and 275,000 net undeveloped acres, 786 square miles of 3-D seismic and 4,155 miles of 2-D seismic located in the Zama area of Northwest Alberta. The assets also include three sour gas plants with a total capacity of 150 million cubic feet (MMcf) per day, 13 compressor stations and 150 miles of owned and operated gas gathering lines. In 2000, the Company also completed tactical regional acquisitions for cash consideration totaling $104.0 million. These acquisitions added approximately 18.3 MMboe to the Company's proved reserves. On February 1, 1999, the Company acquired oil and gas properties located in the Gulf of Mexico from Petsec Energy Inc. (Petsec) for an adjusted purchase price of $67.7 million. The Petsec transaction included estimated proved reserves of approximately 10.2 MMboe as of the acquisition date. On May 18, 1999, Apache acquired from Shell Offshore Inc. and affiliated Shell entities (Shell Offshore) its interest in 22 producing fields and 16 undeveloped blocks located in the Gulf of Mexico. The Shell Offshore acquisition also included certain production-related assets and proprietary 2-D and 3-D seismic data covering approximately 1,000 blocks in the Gulf of Mexico. The purchase price was $687.7 million in cash and one million shares of Apache common stock (valued at $28.125 per share). The Shell Offshore acquisition included approximately 123.2 MMboe of proved reserves as of the acquisition date. On June 18, 1999, the Company acquired a 10 percent interest in the East Spar Joint Venture and an 8.4 percent interest in the Harriet Joint Venture, both located in the Carnarvon Basin (offshore Western Australia), from British-Borneo Oil and Gas Plc (British-Borneo) in exchange for $83.6 million cash and working interests in 11 leases in the Gulf of Mexico. The British-Borneo transaction included approximately 16.8 MMboe of proved reserves as of the acquisition date. The purchase price was allocated to the assets purchased and the liabilities assumed in the British-Borneo transaction based upon the fair values on the date of acquisition, as follows (in thousands): Value of properties acquired, including gathering and transportation facilities................................. $ 98,582 Value of Gulf of Mexico leases.............................. (3,209) Working capital acquired, net............................... 4,123 Deferred income tax liability............................... (15,906) -------- Cash paid, net of cash acquired............................. $ 83,590 ========
On November 30, 1999, Apache acquired from Shell Canada Limited (Shell Canada) producing properties and other assets for C$761 million (US$517.8 million). The producing properties consisted of 150,400 net acres and comprised 20 fields with an average working interest of 55 percent and proved reserves of 87.2 MMboe as of the acquisition date. Apache also acquired 294,294 net acres of undeveloped leaseholdings, a 100 percent interest in a gas processing plant with a potential throughput capacity of 160 MMcf per day, and 52,700 square miles of 2-D seismic and 884 square miles of 3-D seismic. The following unaudited pro forma information shows the effect on the Company's consolidated results of operations as if the Shell Offshore and Shell Canada acquisitions occurred on January 1, 1998, and the F-11 50 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Collins & Ware, Occidental and Phillips acquisitions occurred on January 1, 1999. The pro forma information is based on numerous assumptions and is not necessarily indicative of future results of operations.
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------ 2000 1999 1998 ------------------------ ------------------------ ------------------------ AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA ----------- ---------- ----------- ---------- ----------- ---------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER COMMON SHARE DATA) Revenues................... $2,283,904 $2,576,941 $1,146,553 $1,620,301 $ 760,470 $1,104,700 Net income (loss).......... 713,056 771,047 200,855 243,946 (129,387) (81,206) Preferred stock dividends................ 19,988 19,988 14,449 19,738 2,004 16,109 Income (loss) attributable to common stock.......... 693,068 751,059 186,406 224,208 (131,391) (97,315) Net income (loss) per common share: Basic.................... $ 5.87 $ 6.09 $ 1.73 $ 1.82 $ (1.34) $ (.85) Diluted.................. 5.67 5.88 1.72 1.81 (1.34) (.85) Average common shares outstanding.............. 117,979 123,358 107,936 123,123 98,066 114,016
In 1999, the Company also completed tactical regional acquisitions for cash consideration totaling $17.7 million. These acquisitions added approximately 8.8 MMboe to the Company's proved reserves. In November 1998, the Company entered into agreements to acquire certain oil and gas interests and companies holding oil and gas interests in the Carnarvon Basin, offshore Western Australia, from subsidiaries of Novus Petroleum Limited (Novus) for approximately $55 million. The interests have estimated proved reserves of approximately 5.8 MMboe and daily production of 2,400 barrels of oil equivalent. They are within the Apache-operated Harriet Joint Venture (which includes production, processing and pipeline infrastructure associated with the Varanus Island hub), the Airlie Joint Venture (in which the Company held a prior interest and became operator) and three other exploration permit areas. The transaction closed in two stages, in December 1998 (approximately $49 million) and in January 1999 (approximately $6 million). Under the terms of an agreement with Novus, the Company may be required to make additional payments to Novus based on proved and probable recoverable oil and condensate reserves, as determined by independent engineers, on a defined geological structure in the Gipsy-Rose-Lee area, offshore Western Australia. If required, such payments would be calculated using $2.50 for each barrel of proved and $1.25 for each barrel of probable oil and condensate reserves. A payment becomes due if and when a decision is made to construct facilities for the production of oil or condensate from the designated area. The total purchase price for the two stages of the Novus transaction was allocated to the assets purchased and the liabilities assumed based upon the fair values on the date of acquisition, as follows (in thousands): Value of properties acquired, including gathering and transportation facilities................................. $ 62,657 Working capital acquired, net............................... 2,658 Deferred income tax liability............................... (11,058) -------- Cash paid, net of cash acquired............................. $ 54,257 ========
In 1998, the Company also completed tactical regional acquisitions for cash consideration totaling $19.4 million. These acquisitions added approximately 9.1 MMboe to the Company's proved reserves. Each transaction described above has been accounted for using the purchase method of accounting and has been included in the financial statements of Apache since the date of acquisition. F-12 51 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Pending Acquisitions On October 9, 2000, Apache and Shell Overseas Holdings (Shell) signed a definitive agreement to acquire Fletcher Challenge Energy (Fletcher). Apache's share of the transaction includes Fletcher subsidiaries with properties in Canada's Western Sedimentary Basin and Argentina with proved reserves of 713 billion cubic feet of natural gas equivalent for approximately $627 million, subject to normal post closing adjustments. A portion of the acquired gas production has been hedged by Fletcher. The transaction is scheduled to close in the first quarter of 2001, with an effective date of July 1, 2000. In a related transaction, Shell will purchase 1.64 million restricted shares of Apache common stock for $100 million. Proceeds from this sale are intended to be used to fund the acquisition, with the remainder to be provided by debt. On January 23, 2001, Apache announced the acquisition of substantially all of Repsol's oil and gas concession interests in Egypt for approximately $410 million with an effective date of January 1, 2001. The properties include interests in seven Western Desert concessions. The Company already holds interests in six of the seven concessions. The transaction will be funded with debt and is expected to close in the first half of 2001. Divestitures During 2000, Apache sold proprietary rights to certain Canadian seismic data and various non-strategic oil and gas properties, collecting cash of $26.3 million. On September 3, 1999, Apache sold its holdings in the Ivory Coast by selling its wholly-owned subsidiary, Apache Cote d'Ivoire Petroleum LDC, for a total sales price of $46.1 million to a consortium consisting of Mondoil Cote d'Ivoire LLC and Saur Energie Cote d'Ivoire. The sale consisted of 13.7 MMboe of proved reserves and a gain was recorded to other revenues in the accompanying statement of consolidated operations. Additionally, during 1999, Apache sold 27.9 MMboe of proved reserves in several transactions from largely marginal North American properties for $110 million. In 1998, Apache sold marginal properties, primarily in North America, containing 29.6 MMboe of proved reserves, for $131.1 million. Apache used the sales proceeds to reduce bank debt. 3. INVESTMENTS IN EQUITY SECURITIES Apache has certain investments in equity securities which are classified as "available for sale" pursuant to SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The aggregate cost basis totaled $1.3 million and $2.3 million at December 31, 2000 and 1999, respectively. The aggregate fair value approximated $987,000 and the unrealized loss was approximately $276,000 at December 31, 2000. The aggregate fair value approximated $2.6 million and the unrealized gain was approximately $300,000 at December 31, 1999. At December 31, 1998, Apache had no investments in equity securities. The Company realized an aggregate gain from the sale of equity securities totaling $752,000 during 2000, gains totaling $234,000 during 1999 and losses of $364,000 during 1998. Apache utilizes the average cost method in computing realized gains or losses, which are included in other revenues in the accompanying statement of consolidated operations. F-13 52 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. DEBT Long-Term Debt
DECEMBER 31, ----------------------- 2000 1999 ---------- ---------- (IN THOUSANDS) Apache: Money market lines of credit.............................. $ 25,000 $ 6,158 Commercial paper, expected to be refinanced............... 510,100 -- 9.25-percent notes due 2002, net of discount.............. 99,926 99,882 7-percent notes due 2018, net of discount................. 148,339 148,291 7.625-percent notes due 2019, net of discount............. 149,085 149,063 7.7-percent notes due 2026, net of discount............... 99,650 99,646 7.95-percent notes due 2026, net of discount.............. 178,577 178,560 7.375-percent debentures due 2047, net of discount........ 147,998 147,993 7.625-percent debentures due 2096, net of discount........ 149,175 149,175 ---------- ---------- 1,507,850 978,768 ---------- ---------- Subsidiary and other obligations: Global credit facility -- Australia....................... 95,000 116,000 Revolving credit facility -- Egypt........................ 50,000 196,590 DEKALB 9.875-percent notes due 2000....................... -- 29,225 Apache Finance Australia 6.5-percent notes due 2007, net of discount............................................ 169,023 168,916 Apache Finance Australia 7-percent notes due 2009, net of discount............................................... 99,425 99,376 Apache Finance Canada 7.75-percent notes due 2029, net of discount............................................... 296,960 296,933 ---------- ---------- 710,408 907,040 ---------- ---------- Total debt.................................................. 2,218,258 1,885,808 Less: current maturities.................................... (25,000) (6,158) ---------- ---------- Long-term debt.............................................. $2,193,258 $1,879,650 ========== ==========
On July 14, 2000, Apache entered into a new $500 million, 364-day revolving credit facility with a group of banks. The terms of this new facility are substantially the same as those of Apache's global credit facility. The new facility will be used, along with the U.S. portion of the global credit facility, to support Apache's commercial paper program. In June 1997, Apache replaced its $1 billion global borrowing-base credit facility with a new $1 billion global corporate credit facility (global credit facility). The global credit facility consists of three separate bank facilities: a $700 million facility in the United States; a $175 million facility in Australia; and a $125 million facility in Canada. The global credit facility enables Apache to draw on the entire $1 billion facility without restrictions tied to periodic revaluation of the Company's oil and gas reserves. Under the financial covenants of the global credit facility, the Company must (i) maintain a consolidated tangible net worth, as defined, of at least $1.5 billion as of December 31, 2000, which is adjusted for subsequent earnings, and (ii) maintain a ratio of debt to capitalization of not greater than 60 percent at the end of any fiscal quarter. The Company was in compliance with all financial covenants at December 31, 2000. As of December 31, 2000, the global credit facility was scheduled to mature on June 12, 2002, in the amount of $30 million and the remaining $970 million on June 12, 2003. In February 2001, the $30 million of commitments scheduled to mature on June 12, 2002, were extended one year, resulting in the entire credit facility maturing on June 12, 2003. At the Company's option, the interest rate is based on (i) the greater of (a) The Chase Manhattan Bank's prime rate or (b) the federal funds rate plus one-half of one percent, F-14 53 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ii) the London Interbank Offered Rate (LIBOR) plus a margin determined by the Company's senior long-term debt rating, or (iii) a margin that is determined by competitive bids from the participating banks. At December 31, 2000, the margin over LIBOR for committed loans was .17 percent. The Company also pays a quarterly facility fee of .08 percent on the total amount of each of the three facilities, which fee varies based upon the Company's senior long-term debt rating. As of December 31, 2000, Apache's available borrowing capacity under its global credit facility and 364-day revolving credit facility was $894.9 million. At December 31, 2000, the Company also had certain uncommitted money market lines of credit which are used from time to time for working capital purposes. As of December 31, 2000, an aggregate of $25 million was outstanding under such credit lines. In January 1997, the Company established a $300 million commercial paper program which enables Apache to borrow funds for up to 270 days at competitive interest rates. In June 1997, Apache expanded its commercial paper program to $700 million from $300 million to provide access to additional low-cost, short- term funds. In July 2000, the Company further expanded its commercial paper program to $1.2 billion. The commercial paper balance at December 31, 2000, was classified as long-term debt in the accompanying consolidated balance sheet as the Company has the ability and intent to refinance such amounts on a long-term basis through either the rollover of commercial paper or available borrowing capacity under the U.S. portion of the global credit facility and 364-day revolving credit facility. The weighted average interest rate for commercial paper was 6.56 percent in 2000. In January 1998, approximately 90 percent, or $155.6 million, of the Company's 6-percent convertible subordinated debentures was converted into approximately 5.1 million shares of Apache common stock at a conversion price of $30.68 per share. The remaining $16.9 million of principal amount was redeemed for $17.4 million in cash, plus accrued and unpaid interest. The Company recorded a $.8 million loss on the early extinguishment of debt in January 1998. In May 1992, Apache issued $100 million of 9.25-percent notes which mature in June 2002. The Company does not have the right to redeem the notes prior to maturity. In February 1998, Apache issued $150 million principal amount, $148.2 million net of discount, of senior unsecured 7-percent notes maturing on February 1, 2018. The Company does not have the right to redeem the notes prior to maturity. In June 1999, the Company issued $150 million principal amount, $149.1 million net of discount, of senior unsecured 7.625-percent notes due July 1, 2019. The Company does not have the right to redeem the notes prior to maturity. In February 1996, Apache issued $100 million principal amount, $99.6 million net of discount, of senior unsecured 7.7-percent notes due March 15, 2026. In April 1996, the Company issued $180 million principal amount, $178.5 million net of discount, of senior unsecured 7.95-percent notes maturing on April 15, 2026. The notes are not redeemable prior to maturity; however, under certain conditions, Apache has the right to advance maturity of these notes. In August 1997, Apache issued $150 million principal amount, $148 million net of discount, of senior unsecured 7.375-percent debentures maturing on August 15, 2047. The debentures are not redeemable prior to maturity; however, Apache has the right to advance maturity, under certain conditions. In November 1996, Apache issued $150 million principal amount, $149.2 million net of discount, of senior unsecured 7.625-percent debentures maturing on November 1, 2096. The debentures are not redeemable prior to maturity; however, under certain conditions, Apache has the right to advance maturity of these debentures. F-15 54 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Upon certain changes in control, the debt instruments described in the preceding six paragraphs would be subject to mandatory repurchase. In October 1997, three of the Company's Egyptian subsidiaries entered into a secured, revolving credit facility with a group of banks. The facility originally provided for total commitments of $250 million, with availability determined by a borrowing base formula predicated upon those subsidiaries' oil and gas reserve quantities, forecast rates of production, and future oil and gas prices. The borrowing base is $151 million at December 31, 2000 and will be redetermined semi-annually. In May 2000, the commitments under the facility began a scheduled reduction by set increments every six months. The commitments at December 31, 2000, totaled $212.5 million. The facility is presently secured solely by assets associated with the Company's Qarun and Khalda concessions and shares of stock of the Company's subsidiaries holding those concessions, with provisions that will permit the inclusion of other of the Company's Egyptian subsidiaries as borrowers with security interests on such subsidiaries' assets and shares of stock. Interest is assessed at LIBOR plus a margin of .375 percent, which increased to .625 percent on January 3, 2001. A quarterly fee of .375 percent is payable on the available portion of the commitments, while a quarterly fee of .1875 percent is payable on the difference between the borrowing base and the total amount of commitments under the facility. The facility is scheduled to mature on January 3, 2003. In December 1997, Apache Finance Pty Ltd (Apache Finance Australia), the Company's Australian finance subsidiary, issued $170 million principal amount, $168.7 million net of discount, of senior unsecured 6.5-percent notes due December 15, 2007. In March 1999, Apache Finance Australia issued $100 million principal amount, $99.3 million net of discount, of senior unsecured 7-percent notes due March 15, 2009. In December 1999, Apache Finance Canada Corporation (Apache Finance Canada), the Company's Canadian finance subsidiary, issued $300 million principal amount, $296.9 million net of discount, of senior unsecured 7.75-percent notes due December 15, 2029. The Apache Finance Australia and Apache Finance Canada notes are irrevocably and unconditionally guaranteed by Apache. Under certain conditions related to changes in relevant tax laws, Apache Finance Australia and Apache Finance Canada have the right to redeem the notes prior to maturity. In the case of the 6.5-percent notes, Apache Finance Australia may also redeem the notes at its option subject to an adjustment to keep investors whole. Also, upon certain changes in control, these notes would be subject to mandatory repurchase. In December 2000, Moody's Investor Service, Inc. upgraded the Company's senior unsecured long-term debt rating from Baa1 to A3 and confirmed its commercial paper rating of Prime-2. In January 2001, Standard & Poor's Corporate Ratings Group upgraded the Company's senior unsecured long-term debt rating from BBB+ to A- and confirmed its commercial paper rating of A-2. The Fitch, Inc. senior unsecured long-term debt rating of A- and commercial paper rating of F-2 also were confirmed. As of December 31, 2000 and 1999, the Company had approximately $15.4 million and $16.8 million, respectively, of unamortized costs associated with its various debt obligations. These costs are reflected as deferred charges in the accompanying consolidated balance sheet and are being amortized over the life of the related debt. The indentures for the notes described above place certain restrictions on the Company, including limits on Apache's ability to incur debt secured by certain liens and its ability to enter into certain sale and leaseback transactions. F-16 55 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Aggregate Maturities of Debt
(IN THOUSANDS) 2001................................................... $ 25,000 2002................................................... 149,926 2003................................................... 605,100 2004................................................... -- 2005................................................... -- Thereafter............................................. 1,438,232 ---------- $2,218,258 ==========
5. INCOME TAXES Income (loss) before income taxes is composed of the following:
FOR THE YEAR ENDED DECEMBER 31, --------------------------------- 2000 1999 1998 ---------- -------- --------- (IN THOUSANDS) United States...................................... $ 654,136 $143,680 $(241,861) International...................................... 549,545 200,893 54,298 ---------- -------- --------- Total.................................... $1,203,681 $344,573 $(187,563) ========== ======== =========
The total provision (benefit) for income taxes consists of the following:
FOR THE YEAR ENDED DECEMBER 31, --------------------------------- 2000 1999 1998 --------- --------- --------- (IN THOUSANDS) Current taxes: Federal............................................ $ 12,000 $ -- $ -- Foreign............................................ 120,383 66,224 23,680 Deferred taxes....................................... 350,703 77,494 (81,856) -------- -------- -------- Total...................................... $483,086 $143,718 $(58,176) ======== ======== ========
The deferred income tax provision shown above includes amounts related to the compensation component of non-qualified stock options exercised in each year for which the benefit was credited directly to shareholders' equity. A reconciliation of the federal statutory income tax amounts to the effective amounts is shown below:
FOR THE YEAR ENDED DECEMBER 31, --------------------------------- 2000 1999 1998 --------- --------- --------- (IN THOUSANDS) Statutory income tax................................. $421,288 $120,601 $(65,647) State income tax, less federal benefit............... 9,650 8,482 38 Taxation of foreign operations....................... 52,354 24,519 8,710 Decrease in Australia corporate income tax rate...... -- (16,979) -- U.S. taxes on repatriation of Egyptian earnings...... -- 7,136 -- All other, net....................................... (206) (41) (1,277) -------- -------- -------- $483,086 $143,718 $(58,176) ======== ======== ========
F-17 56 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The net deferred tax liability is comprised of the following:
DECEMBER 31, -------------------- 2000 1999 -------- --------- (IN THOUSANDS) Deferred tax assets: Deferred income........................................... $ (1,799) $ (6,238) Federal net operating loss carryforwards.................. -- (81,047) State net operating loss carryforwards.................... (9,481) (8,989) Statutory depletion carryforwards......................... (4,075) (4,075) Alternative minimum tax credits........................... (13,118) (9,141) Accrued expenses and liabilities.......................... (8,413) (6,970) Other..................................................... (6,201) (13,332) -------- --------- Total deferred tax assets......................... (43,087) (129,792) Valuation allowance......................................... 1,649 1,704 -------- --------- Net deferred tax assets................................ (41,438) (128,088) -------- --------- Deferred tax liabilities: Depreciation, depletion and amortization.................. 738,132 485,428 Other..................................................... 3,139 2,984 -------- --------- Total deferred tax liabilities.................... 741,271 488,412 -------- --------- Net deferred income tax liability........................... $699,833 $ 360,324 ======== =========
U.S. deferred taxes have not been provided on foreign earnings totaling $904.3 million, which are permanently reinvested abroad. Presently, limited foreign tax credits are available to reduce the U.S. taxes on such amounts if repatriated. At December 31, 2000, the Company had U.S. and foreign statutory depletion carryforwards totaling $10.9 million that can be carried forward indefinitely. The Company has alternative minimum tax (AMT) credit carryforwards of $13.1 million that can be carried forward indefinitely, but which can be used only to reduce regular tax liabilities in excess of AMT liabilities. The Company has investment and other tax credit carryforwards of $1.6 million that most likely will be utilized or expire in 2001, which have been fully reserved through a valuation allowance. 6. ADVANCES FROM GAS PURCHASERS In July 1998, Apache received $71.8 million from a purchaser as an advance payment for future natural gas deliveries ranging from 6,726 MMBtu per day to 24,669 MMBtu per day, for a total of 45,330,949 MMBtu, over a ten-year period commencing August 1998. As a condition of the arrangement with the purchaser, Apache entered into three gas price swap contracts with a third party under which Apache became a fixed price payor for identical volumes at prices ranging from $2.34 per MMBtu to $2.56 per MMBtu. In addition, the purchaser pays Apache a monthly fee of $.08 per MMBtu on the contracted volumes. The net result of these related transactions is that gas delivered to the purchaser is reported as revenue at prevailing spot prices with Apache realizing a premium associated with the monthly fee paid by the purchaser. In August 1997, Apache received $115.2 million from a purchaser as an advance payment for future natural gas deliveries of 20,000 MMBtu per day over a ten-year period commencing September 1997. As a condition of the arrangement with the purchaser, Apache entered into two gas price swap contracts with a third party under which Apache became a fixed price payor for identical volumes at average prices starting at $2.19 per MMBtu in 1997 and escalating to $2.59 per MMBtu in 2007. In addition, the purchaser pays F-18 57 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Apache a monthly fee of $.07 per MMBtu on the contracted volumes. The net result of these related transactions is that gas delivered to the purchaser is reported as revenue at prevailing spot prices with Apache realizing a premium associated with the monthly fee paid by the purchaser. In December 1994, Apache received $67.4 million from a purchaser as an advance payment for future natural gas deliveries of 20,000 MMBtu per day over a six-year period commencing January 1995. As a condition of the arrangement with the purchaser, Apache entered into a gas price swap contract with a third party under which Apache became a fixed price payor for identical volumes at prices starting at $1.81 per MMBtu in 1995 and escalating at $.10 per MMBtu per year through 2000. The net result of these related transactions is that gas delivered to the purchaser is reported as revenue at prevailing spot prices with Apache realizing a $.05 per MMBtu premium associated with a monthly fee paid by the purchaser. This agreement expired at the end of 2000. Contracted volumes relating to these arrangements are included in the Company's supplemental oil and gas disclosures. These advance payments have been classified as advances from gas purchasers in the accompanying consolidated balance sheet and are being reduced as gas is delivered to the purchasers under the terms of the contracts. At December 31, 2000 and 1999, advances of $153.1 and $181.0 million, respectively, were outstanding. Gas volumes delivered to the purchaser are reported as revenue at prices used to calculate the amount advanced, before imputed interest, plus or minus amounts paid or received by Apache applicable to the price swap agreements. Interest expense is recorded based on a rate of 8 percent on the 1998 and 1997 advances, and 9.5 percent on the 1994 advances. 7. CAPITAL STOCK Common Stock Outstanding
2000 1999 1998 ----------- ----------- ---------- Balance, beginning of year............................. 113,996,464 97,769,122 93,304,541 Treasury shares acquired, net.......................... (459,479) (385,334) (846,968) Shares issued for: Public offering(1)................................... 9,200,000 14,950,000 -- Acquisition of Shell Offshore properties............. -- 1,000,000 -- Conversion of 6-percent convertible debentures....... -- -- 5,070,914 Acquisition of oil and gas property interests........ -- -- 176,836 Dividend reinvestment plan........................... -- 12,436 -- 401(k) savings plan.................................. -- 24,988 10,477 Stock option plans................................... 897,763 625,252 53,322 ----------- ----------- ---------- Balance, end of year................................... 123,634,748 113,996,464 97,769,122 =========== =========== ==========
- --------------- (1) In August 2000, Apache completed a public offering of 9.2 million shares of common stock, including 1.2 million shares for the underwriters' over-allotment option, for net proceeds of $433.9 million. In May 1999, Apache completed a public offering of approximately 15.0 million shares of common stock for net proceeds of $444.3 million. F-19 58 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net Income (Loss) Per Common Share -- A reconciliation of the components of basic and diluted net income (loss) per common share for the years ended December 31, 2000, 1999 and 1998 is presented in the table below:
2000 1999 1998 ------------------------------ ------------------------------ ------------------------------ INCOME SHARES PER SHARE INCOME SHARES PER SHARE INCOME SHARES PER SHARE -------- ------- --------- -------- ------- --------- --------- ------ --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Basic: Income (loss) attributable to common stock........... $693,068 117,979 $5.87 $186,406 107,936 $1.73 $(131,391) 98,066 $(1.34) ===== ===== ====== Effect of Dilutive Securities: Stock options and other..... -- 1,046 -- 418 -- -- Series C Preferred Stock.... 14,307 5,691 -- -- -- -- -------- ------- -------- ------- --------- ------ Diluted: Income (loss) attributable to common stock, including assumed conversions....... $707,375 124,716 $5.67 $186,406 108,354 $1.72 $(131,391) 98,066 $(1.34) ======== ======= ===== ======== ======= ===== ========= ====== ======
The effect of the Series C Preferred Stock was not included in the computation of diluted net income per common share during 1999 because to do so would have been antidilutive. Stock Option Plans -- At December 31, 2000, officers and certain key employees had been granted options to purchase the Company's common stock under employee stock option plans adopted in 1990, 1995, 1998 and 2000 (collectively, the Stock Option Plans). Under the Stock Option Plans, the exercise price of each option equals the market price of Apache's common stock on the date of grant. Options generally become exercisable ratably over a four-year period and expire after 10 years. On October 31, 1996, the Company established the 1996 Performance Stock Option Plan (the Performance Plan) for substantially all full-time employees, excluding officers and certain key employees. Under the Performance Plan, the exercise price of each option equals the market price of Apache common stock on the date of grant. All options become exercisable after nine and one-half years and expire ten years from the date of grant; however, exercisability would have been accelerated if certain share price goals had been attained before January 1, 2000. These share price goals were not attained and no acceleration will occur. Under the terms of the Performance Plan, no grants were made after December 31, 1998. F-20 59 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of the status of the plans described above as of December 31, 2000, 1999 and 1998, and changes during the years then ended, is presented in the table and narrative below (shares in thousands):
2000 1999 1998 ----------------- ----------------- ----------------- WEIGHTED WEIGHTED WEIGHTED SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE OPTION PRICE OPTION PRICE OPTION PRICE ------ -------- ------ -------- ------ -------- Outstanding, beginning of year.......... 4,524 $33.49 4,421 $32.15 3,629 $32.20 Granted................................. 884 49.66 849 37.41 1,243 32.53 Exercised............................... (884) 31.46 (533) 28.53 (20) 26.68 Forfeited............................... (184) 38.02 (213) 33.31 (431) 33.98 ------ ------ ------ Outstanding, end of year(1)............. 4,340 37.04 4,524 33.49 4,421 32.15 ====== ====== ====== Exercisable, end of year................ 1,398 32.60 1,392 30.64 1,223 28.86 ====== ====== ====== Available for grant, end of year........ 1,478 1,276 2,006 ====== ====== ====== Weighted average fair value of options granted during the year(2)............ $20.85 $13.93 $10.87 ====== ====== ======
The following table summarizes information about stock options covered by the plans described above that are outstanding at December 31, 2000 (shares in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------ ---------------------- NUMBER OF WEIGHTED NUMBER OF SHARES AVERAGE WEIGHTED SHARES WEIGHTED UNDER REMAINING AVERAGE UNDER AVERAGE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE RANGE OF EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE - ------------------------ ----------- ----------- -------- ----------- -------- $13.750 -- $29.875....................... 676 5.80 $27.20 488 $27.25 30.250 -- 37.875....................... 2,349 6.69 34.41 748 33.76 40.000 -- 49.125....................... 1,231 8.96 46.19 162 43.35 53.188 -- 63.630....................... 84 9.56 55.68 -- -- ----- ----- 4,340 1,398 ===== =====
- --------------- (1) Excludes 142,500, 219,000 and 449,625 shares as of December 31, 2000, 1999 and 1998, respectively, issuable under stock options assumed by Apache in connection with the 1996 merger with The Phoenix Resource Companies, Inc. (2) The fair value of each option is estimated as of the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2000, 1999 and 1998, respectively: (i) risk-free interest rates of 6.74, 5.65 and 5.46 percent; (ii) expected lives of five years for the Stock Option Plans, and 2.5 years for the Performance Plan; (iii) expected volatility of 37.42, 33.87 and 31.17 percent, and (iv) expected dividend yields of .57, .75 and .88 percent. F-21 60 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In October 2000, the Company adopted the 2000 Share Appreciation Plan (the Share Appreciation Plan) under which grants were made to the Company's officers and substantially all full-time employees. The Share Appreciation Plan provides for conditional grants of up to an aggregate of 3.5 million shares of Apache common stock, based on attainment of one or more of three share price goals (the Share Price Goals) and/or a separate production goal (the Production Goal). Generally, shares will be issued in three installments over 24 months after achievement of each goal. When and if the goals are achieved, the Company will recognize compensation expense over the 24-month vesting period equal to the value of the stock on the date the particular goal is achieved. The shares of Apache common stock contingently issuable under the Share Appreciation Plan will be excluded from the computation of income per common share until the stated goals are met. The Share Price Goals are based on achieving a share price of $100, $120 and $180 per share before January 1, 2005. A summary of the number of shares contingently issuable under the Share Price Goals as of December 31, 2000 is presented in the table below (shares in thousands):
SHARES SUBJECT TO CONDITIONAL GRANTS ------------------ Outstanding, beginning of year...................... -- Granted............................................. 2,496 ------ Outstanding, end of year(1)......................... 2,496 ====== Exercisable, end of year............................ -- ====== Weighted average fair value of conditional grants -- Share Price Goals(2).............................. $40.26 ======
The Production Goal will be attained if and when the Company's average daily production equals or exceeds 1.54 barrels of oil equivalent per diluted share (calculated on an annualized basis) during any fiscal quarter ending before January 1, 2005. Such level of production is approximately twice the Company's level of production at the time the Share Appreciation Plan was adopted. Shares issuable in connection with the Production Goal will be a number of shares of the Company's common stock equal to (a) 37.5 percent, 75 percent or 150 percent of a participant's annual base salary (at the time of attainment), as applicable, divided by (b) the average daily per share closing price of the Company's common stock for the fiscal quarter during which the Production Goal is attained. - --------------- (1) Represents shares issuable upon attainment of $100, $120 and $180 per share price goals of 542,000, 1,353,000 and 601,000 shares, respectively. (2) The fair value of each Share Price Goal conditional grant is estimated as of the date of grant using a Monte Carlo simulation with the following weighted-average assumptions used for grants in 2000: (i) risk-free interest rate of 5.95 percent; (ii) expected volatility of 44.69 percent; and (iii) expected dividend yield of .44 percent. F-22 61 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company accounts for its stock-based compensation plans under APB Opinion No. 25 and related interpretations, under which, generally, no compensation cost has been recognized for the Stock Option Plans, the Performance Plan, or the Share Appreciation Plan. If compensation costs for these plans had been determined in accordance with SFAS No. 123, the Company's net income and net income per common share would approximate the following pro forma amounts:
2000 1999 1998 ----------- ----------- ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Income (Loss) Attributable to Common Stock: As reported...................................... $693,068 $186,406 $(131,391) Pro forma........................................ 679,856 177,518 (141,306) Net Income (Loss) per Common Share: Basic: As reported................................... $ 5.87 $ 1.73 $ (1.34) Pro forma..................................... 5.76 1.64 (1.44) Diluted: As reported................................... $ 5.67 $ 1.72 $ (1.34) Pro forma..................................... 5.58 1.64 (1.44)
The pro forma amounts shown above may not be representative of future results, as the SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995. In December 1998, the Company entered into a conditional stock grant agreement with an executive of the Company which would award up to 100,000 shares of the Company's common stock in five annual installments. Each installment has a five-year vesting period, 40 percent of the conditional grants will be paid in cash at the market value of the stock on the date of payment and the balance (60,000 shares) will be issued in Apache common stock. Preferred Stock The Company has five million shares of no par preferred stock authorized, of which 25,000 shares have been "designated" as Series A Junior Participating Preferred Stock (the Series A Preferred Stock), 100,000 shares have been designated as the 5.68 percent Series B Cumulative Preferred Stock (the Series B Preferred Stock) and 140,000 shares have been designated as Automatically Convertible Equity Securities, Conversion Preferred Stock, Series C (the Series C Preferred Stock). The shares of Series A Preferred Stock are authorized for issuance pursuant to certain rights that trade with Apache common stock outstanding and are reserved for issuance upon the exercise of the Rights as defined and discussed below. Rights to Purchase Series A Preferred Stock -- In December 1995, the Company declared a dividend of one right (a Right) for each share of Apache common stock outstanding on January 31, 1996. Each Right entitles the registered holder to purchase from the Company one ten-thousandth (1/10,000) of a share of Series A Preferred Stock at a price of $100 per one ten-thousandth of a share, subject to adjustment. The Rights are exercisable 10 calendar days following a public announcement that certain persons or groups have acquired 20 percent or more of the outstanding shares of Apache common stock or 10 business days following commencement of an offer for 30 percent or more of the outstanding shares of Apache common stock. In addition, if a person or group becomes the beneficial owner of 20 percent or more of Apache's outstanding common stock (flip in event), each Right will become exercisable for shares of Apache's common stock at 50 percent of the then market price of the common stock. If a 20 percent shareholder of Apache acquires Apache, by merger or otherwise, in a transaction where Apache does not survive or in which Apache's common stock is changed or exchanged (flip over event), the Rights become exercisable for shares of the common stock of the company acquiring Apache at 50 percent of the then market price for Apache common F-23 62 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) stock. Any Rights that are or were beneficially owned by a person who has acquired 20 percent or more of the outstanding shares of Apache common stock and who engages in certain transactions or realizes the benefits of certain transactions with the Company will become void. The Company may redeem the Rights at $.01 per Right at any time until 10 business days after public announcement of a flip in event. The Rights will expire on January 31, 2006, unless earlier redeemed by the Company. Unless the Rights have been previously redeemed, all shares of Apache common stock issued by the Company after January 31, 1996 will include Rights. Unless and until the Rights become exercisable, they will be transferred with and only with the shares of Apache common stock. Series B Preferred Stock -- In August 1998, Apache issued 100,000 shares ($100 million) of Series B Preferred Stock in the form of one million depositary shares, each representing one-tenth (1/10) of a share of Series B Preferred Stock, for net proceeds of $98.4 million. The Series B Preferred Stock has no stated maturity, is not subject to a sinking fund and is not convertible into Apache common stock or any other securities of the Company. Apache has the option to redeem the Series B Preferred Stock at $1,000 per share on or after August 25, 2008. Holders of the shares are entitled to receive cumulative cash dividends at an annual rate of $5.68 per depositary share when, and if, declared by Apache's board of directors. Series C Preferred Stock -- In May 1999, Apache issued 140,000 shares ($217 million) of Series C Preferred Stock in the form of seven million depositary shares each representing one-fiftieth (1/50) of a share of Series C Preferred Stock, for net proceeds of $210.5 million. The Series C Preferred Stock is not subject to a sinking fund or mandatory redemption. On May 15, 2002, each depositary share will automatically convert, subject to adjustments, into not more than one share and not less than 0.8197 of a share of Apache common stock, depending on the market price of Apache common stock at that time. In 2000, Apache bought back 75,900 depository shares at an average price of $34.42 per share. The excess of the purchase price to reacquire the depository shares over the original issuance price is reflected as a preferred stock dividend in the accompanying statement of consolidated operations. At any time prior to May 15, 2002, holders of the depositary shares may elect to convert each of their shares, subject to adjustments, into not less than 0.8197 of a share of Apache common stock (5,675,685 common shares). Holders of the shares are entitled to receive cumulative cash dividends at an annual rate of $2.015 per depositary share when, and if, declared by Apache's board of directors. Comprehensive Income -- Components of accumulated other comprehensive income (loss) consist of the following (in thousands):
FOR THE YEAR ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 --------- -------- --------- Currency translation adjustments...................... $(40,050) $(8,661) $(33,204) Unrealized gain (loss) on marketable securities....... (182) 215 -- -------- ------- -------- Accumulated other comprehensive income (loss)......... $(40,232) $(8,446) $(33,204) ======== ======= ========
The unrealized gain (loss) on marketable securities at December 31, 2000 and 1999 is net of income tax expense (benefit) of $(94,000) and $129,000, respectively. The currency translation adjustments are not adjusted for income taxes as they relate to an indefinite investment in a non-U.S. subsidiary. F-24 63 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. NON-CASH INVESTING AND FINANCING ACTIVITIES A summary of non-cash investing and financing activities is presented below: In January 2000, the Company acquired producing properties formerly owned by a subsidiary of Repsol for cash and the assumption of certain non-cash liabilities. The accompanying financial statements include the amounts detailed in Note 2. In August 2000, the Company acquired an LLC owned by subsidiaries of Occidental for cash and future payments as discussed in Note 2. The accompanying financial statements included a discounted liability of $36.8 million as of the acquisition date for such payments. In June 1999, the Company acquired certain oil and gas interests from British-Borneo for cash and the assumption of certain liabilities. The accompanying financial statements include the amounts detailed in Note 2. In May 1999, the Company issued one million shares of Apache common stock to Shell Offshore in connection with the transaction discussed in Note 2. In December 1998 and January 1999, the Company acquired certain oil and gas interests from subsidiaries of Novus for cash and the assumption of certain liabilities. The accompanying financial statements include the amounts detailed in Note 2. In June 1998, Apache formed a strategic alliance with Cinergy Corp. (Cinergy) and sold its 57 percent interest in ProEnergy for 771,258 shares of Cinergy common stock valued at $26.5 million. In March 1998, Apache acquired certain oil and gas property interests for approximately 177,000 shares of Apache common stock valued at $6.1 million. In January 1998, approximately 90 percent, or $155.6 million principal amount, of the Company's 6-percent convertible subordinated debentures was converted into approximately 5.1 million shares of Apache common stock at a conversion price of $30.68 per share. Supplemental Disclosure of Cash Flow Information:
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 2000 1999 1998 --------- -------- -------- (IN THOUSANDS) Cash paid during the year for: Interest, net of amounts capitalized...................... $108,292 $70,691 $71,968 Income and other taxes, net of refunds.................... 122,716 66,224 23,680
F-25 64 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. FINANCIAL INSTRUMENTS AND OFF-BALANCE-SHEET RISK The following table presents the carrying amounts and estimated fair values of the Company's financial instruments at December 31, 2000 and 1999.
2000 1999 ------------------- ------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- (IN THOUSANDS) Cash and cash equivalents.......................... $ 37,173 $ 37,173 $ 13,171 $ 13,171 Long-term debt: Bank debt........................................ 145,000 145,000 312,590 312,590 Commercial paper................................. 510,100 510,100 -- -- 7.95-percent notes............................... 178,577 191,088 178,560 176,760 7.625-percent debentures......................... 149,175 155,580 149,175 136,628 7.625-percent notes.............................. 149,085 154,800 149,063 144,075 7-percent notes.................................. 148,339 145,905 148,291 135,975 7.375-percent debentures......................... 147,998 148,755 147,993 136,755 9.25-percent notes............................... 99,926 104,060 99,882 104,170 7.7-percent notes................................ 99,650 103,280 99,646 95,470 Money market lines of credit..................... 25,000 25,000 6,158 6,158 Apache Finance Australia 6.5-percent notes....... 169,023 168,946 168,916 156,689 Apache Finance Australia 7-percent notes......... 99,425 102,842 99,376 95,238 DEKALB 9.875-percent notes....................... -- -- 29,225 29,655 Apache Finance Canada 7.75-percent notes......... 296,960 302,610 296,933 283,380 Hedging financial instruments: Commodity price swaps: -- Natural gas (pay fixed)(1)................. -- 121,453 -- 11,073 -- Natural gas (receive fixed)................ -- (3,924) -- (1,547) -- Oil (receive fixed)........................ -- (26,948) -- (9,369) Commodity collars: -- Natural gas................................ -- (94,323) 183 846 -- Oil........................................ -- 8,966 425 (4,890)
- --------------- (1) The fair value of natural gas price swaps at December 31, 2000 and 1999 reflects fixed-to-floating price swaps where there is an offsetting physical position valued at a negative $121.5 million. See Commodity Price Hedges below. F-26 65 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following methods and assumptions were used to estimate the fair value of the financial instruments summarized in the table above. The carrying values of trade receivables and trade payables included in the accompanying consolidated balance sheet approximated market value at December 31, 2000 and 1999. Cash and Cash Equivalents -- The carrying amounts approximated fair value due to the short maturity of these instruments. Long-Term Debt -- The fair values of the 7.625-percent debentures and the Apache Finance Australia 7-percent notes are based upon estimates provided to the Company by independent investment banking firms. The fair values of all other notes and debentures are based on the quoted market prices. The carrying amount of the bank debt, commercial paper and money market lines of credit approximated fair value because the interest rates are variable and reflective of market rates. Commodity Price Hedges -- Apache periodically enters into commodity derivative contracts and fixed-price physical contracts to manage its exposure to oil and gas price volatility. Commodity derivatives contracts, which are usually placed with major financial institutions that the Company believes are minimal credit risks, may take the form of futures contracts, swaps or options. The derivative contracts call for Apache to receive, or make, payments based upon the differential between a fixed and a variable commodity price as specified in the contract. As a result of these activities, Apache recognized hedging losses of $42.1 million and $6.7 million in 2000 and 1999, respectively, and hedging gains of $1.3 million in 1998. The hedging gains and losses are included in oil and gas production revenues in the statement of consolidated operations. The following table and note thereto cover the Company's pricing and notional volumes on open commodity derivative contracts as of December 31, 2000:
2001 2002 2003 2004 2005 THEREAFTER ------ ------ ------ ----- ----- ---------- Natural Gas Swap Positions: Pay fixed price -- January 2001 to July 2008 (thousand MMBtu/d)(1)......................... 30 30 30 30 32 31 Average swap price, per MMBtu(1)................ $ 2.27 $ 2.31 $ 2.35 $2.39 $2.45 $2.53 Natural Gas Swap Positions: Receive fixed price -- January 2001 to June 2001 (thousand MMBtu/d)............................ 4 -- -- -- -- -- Average swap price, per MMBtu................... $ 1.58 -- -- -- -- -- Oil Swap Positions: Receive fixed price -- January 2001 to June 2002 (Mbbl/d)...................................... 9 8 -- -- -- -- Average swap price, per bbl..................... $18.82 $18.45 -- -- -- -- Oil Collar Positions: Volume -- January 2001 to December 2003 (Mbbl/d)...................................... 11 10 3 -- -- -- Average ceiling price, per bbl.................. $30.96 $27.14 $27.40 -- -- -- Average floor price, per bbl.................... $23.73 $22.11 $22.00 -- -- -- Gas Collar Positions: Volume -- January 2001 to December 2003 (thousand MMBtu/d)............................ 161 145 45 -- -- -- Average ceiling price, per MMBtu................ $ 5.64 $ 4.67 $ 4.17 -- -- -- Average floor price, per MMBtu.................. $ 3.03 $ 2.89 $ 2.59 -- -- --
- --------------- (1) The Company has various contracts to supply gas at fixed prices. In order to lock in a margin on a portion of the volumes, the Company is a fixed price payor on swap transactions. The average physical contract price ranges from $2.32 in 2001 to $2.56 in 2008. The fair value of these hedges was $121.5 million at December 31, 2000, all of which is related to the arrangements discussed in Note 6. F-27 66 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. COMMITMENTS AND CONTINGENCIES Litigation -- The Company is involved in litigation and is subject to governmental and regulatory controls arising in the ordinary course of business. It is the opinion of the Company's management that all claims and litigation involving the Company are not likely to have a material adverse effect on its financial position or results of operations. Environmental -- Apache, as an owner and operator of oil and gas properties, is subject to various federal, state, local and foreign country laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the lessee under an oil and gas lease for the cost of pollution clean-up resulting from operations and subject the lessee to liability for pollution damages. Apache maintains insurance coverage, which it believes, is customary in the industry, although it is not fully insured against all environmental risks. As part of the Company's due diligence review for acquisitions, Apache conducts an extensive environmental evaluation of purchased properties. Depending on the extent of an identified environmental problem, the Company may exclude a property from the acquisition, require the seller to remediate the property to Apache's satisfaction, or agree to assume liability for remediation of the property. As of December 31, 2000, Apache had a reserve for environmental remediation of approximately $6.5 million. The Company is not aware of any environmental claims existing as of December 31, 2000, which have not been provided for or would otherwise have a material impact on its financial position or results of operations. There can be no assurance, however, that current regulatory requirements will not change, or past non-compliance with environmental laws will not be discovered on the Company's properties. International Commitments -- The Company, through its subsidiaries, has acquired or has been conditionally or unconditionally granted exploration rights in Australia, Egypt, China and Poland. In order to comply with the contracts and agreements granting these rights, the Company, through various wholly-owned subsidiaries, is committed to expend approximately $103.5 million through 2004. Retirement and Deferred Compensation Plans -- The Company provides a 401(k) savings plan for employees which allows participating employees to elect to contribute up to 12 percent of their salaries, with Apache making matching contributions up to a maximum of six percent of each employee's salary. In addition, the Company annually contributes six percent of each participating employee's compensation, as defined, to a money purchase retirement plan. The 401(k) plan and the money purchase retirement plan are subject to certain annually-adjusted, government-mandated restrictions which limit the amount of each employee's contributions. For certain eligible employees, the Company also provides a non-qualified retirement/savings plan which allows the deferral of up to 50 percent of each such employee's salary, and which accepts employee contributions and the Company's matching contributions in excess of the above-referenced restrictions on the 401(k) savings plan and money purchase retirement plan. Additionally, Apache Energy Limited and Apache Canada Ltd. maintain separate retirement plans, as required under the laws of Australia and Canada, respectively. Vesting in the Company's contributions to the 401(k) savings plan, the money purchase retirement plan and the non-qualified retirement/savings plan occurs at the rate of 20 percent per year. Total expenses under all plans were $9.5 million, $7.8 million and $7.3 million for 2000, 1999 and 1998, respectively. The unfunded liability for all plans has been accrued in the consolidated balance sheet. China -- In June 2000, the Company's subsidiary, Apache China Corporation LDC (Apache China), filed a lawsuit against PetroChina Company Limited (PetroChina), China National Petroleum Corporation and China National Oil and Gas Exploration and Development Corporation in connection with certain of the Company's Chinese operations in the Zhao Dong Block of the Bohai Bay in China. The Company filed F-28 67 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) seeking damages and injunctive relief to prevent the Chinese parties from declaring that Apache and XCL-China, Ltd. had relinquished some of the Company's Chinese exploratory acreage, and other claims. The lawsuit was filed in the U.S. Bankruptcy Court in Opelousas, Louisiana, in connection with bankruptcy proceedings of XCL-China, Ltd., a co-owner in the Zhao Dong Block. On June 30, 2000, Apache and PetroChina announced having reached agreement to resolve the outstanding issues associated with development of the Zhao Dong Block. The agreement called for PetroChina and the China National Petroleum Corporation to obtain various governmental approvals including approval of the overall development plan. By the middle of February 2001, all of the agreed actions had occurred, including all of the required governmental approvals, and Apache China's lawsuit was dismissed with prejudice. Apache and the other participants in the Zhao Dong Block are preparing to begin the construction of production facilities and development drilling in accordance with the approved overall development plan. Lease Commitments -- The Company has leases for buildings, facilities and equipment with varying expiration dates through 2008. Net rental expense was $15.6 million, $11.5 million and $8.1 million for 2000, 1999 and 1998, respectively. As of December 31, 2000, minimum rental commitments under long-term operating leases, net of sublease rentals, and long-term pipeline transportation commitments, ranging from one to 23 years, are as follows:
NET MINIMUM COMMITMENTS -------------- (IN THOUSANDS) 2001.................................................. $ 22,844 2002.................................................. 23,700 2003.................................................. 19,630 2004.................................................. 16,956 2005.................................................. 16,045 Thereafter............................................ 62,922 -------- $162,097 ========
11. TRANSACTIONS WITH RELATED PARTIES AND MAJOR CUSTOMERS Strategic Alliance with Cinergy Corp. -- In June 1998, Apache formed a strategic alliance with Cinergy to market substantially all the Company's natural gas production from North America and sold its 57 percent interest in ProEnergy for 771,258 shares of Cinergy common stock subsequently sold for $26.1 million. ProEnergy, renamed Cinergy Marketing and Trading LLC, will continue to market Apache's North American natural gas production for 10 years, with an option to terminate after six years, under an amended and restated gas purchase agreement effective July 1, 1998. During this period, Apache is generally obligated to deliver most of its North American gas production to Cinergy and, under certain circumstances, reimburse Cinergy if certain gas throughput thresholds are not met. Accordingly, Apache recorded a deferred gain of $20.0 million, subject to adjustment, on the sale of ProEnergy that is being amortized over six years. Related Parties -- F.H. Merelli, a member of the Company's board of directors since July 1997, is chairman and chief executive officer of Key Production Company, Inc. (Key). In the normal course of business, Key paid to Apache approximately $2.7 million during 2000 for Key's proportionate share of drilling and workover costs, mineral interests and routine expenses related to 392 oil and gas wells in which Key owns interests and for which Apache is the operator. Key received approximately $9.9 million in 2000 for its proportionate share of revenues from such interests, of which approximately $6.7 million was paid directly to Key by Apache or related entities. F-29 68 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Major Purchasers -- In 2000, purchases by Cinergy and the Egyptian General Petroleum Corporation (EGPC) accounted for 26 percent and 16 percent of the Company's oil and gas production revenues, respectively. In 1999, purchases by Cinergy and EGPC accounted for 29 percent and 21 percent of the Company's oil and gas production revenues, respectively. In 1998, purchases by Cinergy/ProEnergy and EGPC accounted for 38 percent and 17 percent of the Company's oil and gas production revenues, respectively. Concentration of Credit Risk -- The Company's revenues are derived principally from uncollateralized sales to customers in the oil and gas industry; therefore, customers may be similarly affected by changes in economic and other conditions within the industry. Apache has not experienced significant credit losses on such sales. Sales of natural gas by Apache to Cinergy are similarly uncollateralized. 12. BUSINESS SEGMENT INFORMATION Apache has five reportable segments which are primarily in the business of crude oil and natural gas exploration and production. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on profit or loss from oil and gas operations before income and expense items incidental to oil and gas operations and income taxes. Apache's reportable segments are managed separately because of their geographic locations. Financial information by operating segment is presented below:
OTHER UNITED STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL ------------- ---------- -------- --------- ------------- ---------- (IN THOUSANDS) 2000 Oil and Gas Production Revenues...................... $1,374,941 $ 331,503 $360,772 $223,543 $ -- $2,290,759 Operating Expenses: Depreciation, depletion and amortization............... 356,998 79,892 84,425 62,183 48 583,546 Operating costs............... 216,001 39,559 28,328 30,536 -- 314,424 ---------- ---------- -------- -------- -------- ---------- Operating Income (Loss)......... $ 801,942 $ 212,052 $248,019 $130,824 $ (48) 1,392,789 ========== ========== ======== ======== ======== Other Income (Expense): Equity in income of affiliates................. 862 Other revenues................ (7,717) Administrative, selling and other...................... (75,615) Financing costs, net.......... (106,638) ---------- Income Before Income Taxes...... $1,203,681 ========== Total Long-Lived Assets......... $3,643,439 $1,378,639 $854,531 $783,884 $151,969 $6,812,462 ========== ========== ======== ======== ======== ========== Total Assets.................... $4,022,749 $1,463,306 $965,733 $856,575 $173,587 $7,481,950 ========== ========== ======== ======== ======== ========== Additions to Long-Lived Assets........................ $1,461,479 $ 649,804 $ 93,083 $117,248 $ 20,865 $2,342,479 ========== ========== ======== ======== ======== ==========
F-30 69 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER UNITED STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL ------------- ---------- -------- --------- ------------- ---------- (IN THOUSANDS) 1999 Oil and Gas Production Revenues...................... $ 700,649 $ 86,901 $235,935 $118,524 $ 1,937 $1,143,946 Operating Expenses: Depreciation, depletion and amortization............... 290,771 34,560 74,736 41,716 1,061 442,844 Operating costs............... 150,505 19,962 26,444 25,216 849 222,976 ---------- ---------- -------- -------- -------- ---------- Operating Income................ $ 259,373 $ 32,379 $134,755 $ 51,592 $ 27 478,126 ========== ========== ======== ======== ======== Other Income (Expense): Equity in income of affiliates................. 153 Other revenues................ 2,454 Administrative, selling and other...................... (53,894) Financing costs, net.......... (82,266) ---------- Income Before Income Taxes...... $ 344,573 ========== Total Long-Lived Assets......... $2,548,413 $ 861,829 $845,873 $728,592 $131,151 $5,115,858 ========== ========== ======== ======== ======== ========== Total Assets.................... $2,760,163 $ 894,592 $908,502 $782,520 $156,766 $5,502,543 ========== ========== ======== ======== ======== ========== Additions to Long-Lived Assets........................ $1,053,285 $ 577,455 $111,534 $175,848 $ 28,286 $1,946,408 ========== ========== ======== ======== ======== ========== 1998 Oil and Gas Production Revenues...................... $ 498,388 $ 63,620 $129,123 $ 70,057 $ -- $ 761,188 Operating Expenses: Depreciation, depletion and amortization............... Recurring.................. 256,507 30,514 59,825 35,961 -- 382,807 Additional................. 243,178 -- -- -- -- 243,178 Operating costs............... 153,490 17,216 23,436 16,638 -- 210,780 ---------- ---------- -------- -------- -------- ---------- Operating Income (Loss)......... $ (154,787) $ 15,890 $ 45,862 $ 17,458 $ -- (75,577) ========== ========== ======== ======== ======== Other Income (Expense): Equity in loss of affiliates................. (1,558) Other revenues................ 840 Administrative, selling and other...................... (40,731) Financing costs, net.......... (70,537) ---------- Loss Before Income Taxes........ $ (187,563) ========== Total Long-Lived Assets......... $1,892,020 $ 290,341 $809,075 $592,979 $143,126 $3,727,541 ========== ========== ======== ======== ======== ========== Total Assets.................... $2,046,628 $ 305,238 $853,561 $633,981 $156,654 $3,996,062 ========== ========== ======== ======== ======== ========== Additions to Long-Lived Assets........................ $ 274,395 $ 73,327 $219,162 $145,037 $ 70,251 $ 782,172 ========== ========== ======== ======== ======== ==========
F-31 70 APACHE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL OIL AND GAS DISCLOSURES (UNAUDITED) Oil and Gas Operations -- The following table sets forth revenue and direct cost information relating to the Company's oil and gas exploration and production activities. Apache has no long-term agreements to purchase oil or gas production from foreign governments or authorities.
UNITED IVORY STATES CANADA EGYPT AUSTRALIA COAST TOTAL ------------- -------- -------- --------- ------ ---------- (IN THOUSANDS) 2000 Oil and gas production revenues...................... $1,374,941 $331,503 $360,772 $223,543 $ -- $2,290,759 ---------- -------- -------- -------- ------ ---------- Operating costs: Depreciation, depletion and amortization............... 345,624 76,286 84,302 61,358 -- 567,570 Lease operating expenses...... 167,985 34,487 28,328 24,451 -- 255,251 Production taxes.............. 46,509 -- -- 6,086 -- 52,595 Income tax.................... 305,559 98,489 119,108 44,760 -- 567,916 ---------- -------- -------- -------- ------ ---------- 865,677 209,262 231,738 136,655 -- 1,443,332 ---------- -------- -------- -------- ------ ---------- Results of operations........... $ 509,264 $122,241 $129,034 $ 86,888 $ -- $ 847,427 ========== ======== ======== ======== ====== ========== Amortization rate per boe(1).... $ 6.16 $ 5.53 $ 5.46 $ 4.42 $ -- $ 5.75 ========== ======== ======== ======== ====== ========== 1999 Oil and gas production revenues...................... $ 700,649 $ 86,901 $235,935 $118,524 $1,937 $1,143,946 ---------- -------- -------- -------- ------ ---------- Operating costs: Depreciation, depletion and amortization............... 280,033 33,671 74,695 40,952 309 429,660 Lease operating expenses...... 124,867 18,095 26,444 20,321 849 190,576 Production taxes.............. 23,212 -- -- 4,895 -- 28,107 Income tax.................... 102,201 15,677 64,702 18,848 273 201,701 ---------- -------- -------- -------- ------ ---------- 530,313 67,443 165,841 85,016 1,431 850,044 ---------- -------- -------- -------- ------ ---------- Results of operations........... $ 170,336 $ 19,458 $ 70,094 $ 33,508 $ 506 $ 293,902 ========== ======== ======== ======== ====== ========== Amortization rate per boe(1).... $ 6.10 $ 4.54 $ 5.25 $ 4.12 $ 1.72 $ 5.57 ========== ======== ======== ======== ====== ========== 1998 Oil and gas production revenues...................... $ 498,388 $ 63,620 $129,123 $ 70,057 $ -- $ 761,188 ---------- -------- -------- -------- ------ ---------- Operating costs: Depreciation, depletion and amortization Recurring................ 246,994 29,967 59,825 35,219 -- 372,005 Additional............... 243,178 -- -- -- -- 243,178 Lease operating expenses...... 128,811 16,419 23,436 13,472 -- 182,138 Production taxes.............. 21,503 -- -- 3,166 -- 24,669 Income tax (benefit).......... (53,287) 7,686 22,014 6,552 -- (17,035) ---------- -------- -------- -------- ------ ---------- 587,199 54,072 105,275 58,409 -- 804,955 ---------- -------- -------- -------- ------ ---------- Results of operations........... $ (88,811) $ 9,548 $ 23,848 $ 11,648 $ -- $ (43,767) ========== ======== ======== ======== ====== ========== Amortization rate per boe(1).... $ 6.21 $ 4.03 $ 5.22 $ 4.86 $ -- $ 5.66 ========== ======== ======== ======== ====== ==========
- --------------- (1) Amortization rate per boe reflects only depreciation, depletion and amortization (DD&A) of capitalized costs of proved oil and gas properties (and excludes the additional DD&A recorded in 1998). F-32 71 APACHE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED) (UNAUDITED) Costs Not Being Amortized -- The following table sets forth a summary of oil and gas property costs not being amortized at December 31, 2000, by the year in which such costs were incurred:
1997 TOTAL 2000 1999 1998 AND PRIOR -------- -------- -------- -------- --------- (IN THOUSANDS) Property acquisition costs.............. $665,567 $189,481 $211,609 $ 55,619 $208,858 Exploration and development............. 311,924 96,536 43,416 78,639 93,333 -------- -------- -------- -------- -------- Total......................... $977,491 $286,017 $255,025 $134,258 $302,191 ======== ======== ======== ======== ========
Capitalized Costs Incurred -- The following table sets forth the capitalized costs incurred in oil and gas producing activities:
OTHER UNITED STATES CANADA EGYPT AUSTRALIA IVORY COAST INTERNATIONAL TOTAL ------------- -------- -------- --------- ----------- ------------- ---------- (IN THOUSANDS) 2000 Acquisition of proved properties(1)............. $ 922,523 $401,904 $ -- $ -- $ -- $ -- $1,324,427 Acquisition of unproved properties................ 10,712 11,548 -- -- -- -- 22,260 Exploration................. 26,045 16,331 51,819 40,917 -- 18,077 153,189 Development................. 459,046 107,748 33,130 32,918 -- -- 632,842 Capitalized interest........ 27,185 10,063 12,194 9,908 -- 2,650 62,000 Property sales.............. (10,853) (15,418) -- -- -- -- (26,271) ---------- -------- -------- -------- -------- -------- ---------- $1,434,658 $532,176 $ 97,143 $ 83,743 $ -- $ 20,727 $2,168,447 ========== ======== ======== ======== ======== ======== ========== 1999 Acquisition of proved properties(1)............. $ 801,157 $503,771 $ -- $ 86,278 $ -- $ -- $1,391,206 Acquisition of unproved properties................ 9,044 5,464 -- -- -- -- 14,508 Exploration................. 29,207 14,218 24,071 26,866 -- 17,097 111,459 Development................. 179,225 26,009 35,737 34,110 2,553 1,738 279,372 Capitalized interest........ 22,031 3,176 7,904 8,289 619 3,703 45,722 Property sales.............. (106,122) (3,872) -- -- (45,232) -- (155,226) ---------- -------- -------- -------- -------- -------- ---------- $ 934,542 $548,766 $ 67,712 $155,543 $(42,060) $ 22,538 $1,687,041 ========== ======== ======== ======== ======== ======== ========== 1998 Acquisition of proved properties(1)............. $ 13,240 $ 1,034 $ 2,249 $ 41,608 $ 271 $ -- $ 58,402 Acquisition of unproved properties................ 20,819 5,458 -- -- -- -- 26,277 Exploration................. 27,482 20,054 65,696 39,578 -- 30,563 183,373 Development................. 174,449 44,245 39,735 40,521 23,527 9,293 331,770 Capitalized interest........ 15,390 1,710 19,226 6,354 829 5,770 49,279 Property sales.............. (123,861) (4,943) -- -- -- (12,645) (141,449) ---------- -------- -------- -------- -------- -------- ---------- $ 127,519 $ 67,558 $126,906 $128,061 $ 24,627 $ 32,981 $ 507,652 ========== ======== ======== ======== ======== ======== ==========
- --------------- (1) Acquisition of proved properties includes unevaluated costs of $125.1 million, $256.4 million and $15.7 million for transactions completed in 2000, 1999 and 1998, respectively. F-33 72 APACHE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED) (UNAUDITED) Capitalized Costs -- The following table sets forth the capitalized costs and associated accumulated depreciation, depletion and amortization, including impairments, relating to the Company's oil and gas production, exploration and development activities:
OTHER UNITED STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL ------------- ---------- --------- --------- ------------- ----------- (IN THOUSANDS) 2000 Proved properties............... $ 6,641,162 $1,414,598 $ 639,938 $ 677,999 $ 50,225 $ 9,423,922 Unproved properties............. 296,319 168,228 215,919 146,108 150,917 977,491 ----------- ---------- --------- --------- -------- ----------- 6,937,481 1,582,826 855,857 824,107 201,142 10,401,413 Accumulated DD&A................ (3,342,791) (326,621) (245,741) (185,543) (50,225) (4,150,921) ----------- ---------- --------- --------- -------- ----------- $ 3,594,690 $1,256,205 $ 610,116 $ 638,564 $150,917 $ 6,250,492 =========== ========== ========= ========= ======== =========== 1999 Proved properties............... $ 5,291,247 $ 939,979 $ 543,132 $ 585,204 $ 50,225 $ 7,409,787 Unproved properties............. 211,576 156,600 215,582 155,160 130,190 869,108 ----------- ---------- --------- --------- -------- ----------- 5,502,823 1,096,579 758,714 740,364 180,415 8,278,895 Accumulated DD&A................ (2,997,167) (260,573) (174,431) (131,296) (50,225) (3,613,692) ----------- ---------- --------- --------- -------- ----------- $ 2,505,656 $ 836,006 $ 584,283 $ 609,068 $130,190 $ 4,665,203 =========== ========== ========= ========= ======== ===========
F-34 73 APACHE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED) (UNAUDITED) Oil and Gas Reserve Information -- Proved oil and gas reserve quantities are based on estimates prepared by the Company's engineers in accordance with guidelines established by the Securities and Exchange Commission (SEC). The Company's estimates of proved reserve quantities of its U.S., Canadian and international properties are subject to review by Ryder Scott Company, L.P. Petroleum Consultants, independent petroleum engineers. There are numerous uncertainties inherent in estimating quantities of proved reserves and projecting future rates of production and timing of development expenditures. The following reserve data represents estimates only and should not be construed as being exact.
CRUDE OIL, CONDENSATE AND NATURAL GAS LIQUIDS ------------------------------------------------------------ (THOUSANDS OF BARRELS) UNITED IVORY STATES CANADA EGYPT AUSTRALIA COAST TOTAL -------- -------- ------- --------- ------ ------- PROVED DEVELOPED RESERVES: December 31, 1997................ 133,035 11,313 42,714 15,690 393 203,145 December 31, 1998................ 107,306 10,962 33,705 24,674 1,352 177,999 December 31, 1999................ 186,962 50,401 30,719 33,887 -- 301,969 December 31, 2000................ 232,361 66,484 26,028 29,124 -- 353,997 TOTAL PROVED RESERVES: Balance December 31,1997.......... 167,617 11,328 54,696 39,744 393 273,778 Extensions, discoveries and other additions...................... 36,655 1,917 5,906 11,765 930 57,173 Purchases of minerals in-place... 4,768 59 -- 1,214 -- 6,041 Revisions of previous estimates...................... (40,868) (155) 4,739 (3,121) 29 (39,376) Production....................... (13,262) (988) (10,188) (3,225) -- (27,663) Sales of properties.............. (18,726) (219) -- -- -- (18,945) -------- -------- ------- ------ ------ ------- Balance December 31,1998.......... 136,184 11,942 55,153 46,377 1,352 251,008 Extensions, discoveries and other additions...................... 23,370 1,114 5,327 4,056 -- 33,867 Purchases of minerals in-place... 76,493 70,640 -- 4,686 -- 151,819 Revisions of previous estimates...................... 27,615 772 (9,815) 3,225 (30) 21,767 Production....................... (17,836) (1,344) (11,589) (3,878) (13) (34,660) Sales of properties.............. (7,169) (81) -- -- (1,309) (8,559) -------- -------- ------- ------ ------ ------- Balance December 31,1999.......... 238,657 83,043 39,076 54,466 -- 415,242 Extensions, discoveries and other additions...................... 36,681 6,589 9,168 6,074 -- 58,512 Purchases of minerals in-place... 60,519 29,514 -- -- -- 90,033 Revisions of previous estimates...................... 2,655 159 1,012 429 -- 4,255 Production....................... (22,894) (5,828) (10,155) (5,691) -- (44,568) Sales of properties.............. (914) (87) -- -- -- (1,001) -------- -------- ------- ------ ------ ------- Balance December 31, 2000......... 314,704 113,390 39,101 55,278 -- 522,473 ======== ======== ======= ====== ====== ======= NATURAL GAS TOTAL ---------------------------------------------------------------- ----------- (MILLIONS OF CUBIC FEET) (THOUSAND BARRELS OF UNITED IVORY OIL STATES CANADA EGYPT AUSTRALIA COAST TOTAL EQUIVALENT) --------- -------- ------- --------- ------- --------- ----------- PROVED DEVELOPED RESERVES: December 31, 1997................ 1,009,080 326,237 8,825 183,962 26,208 1,554,312 462,197 December 31, 1998................ 869,464 322,576 4,790 173,764 79,515 1,450,109 419,684 December 31, 1999................ 1,004,844 397,704 106,830 364,369 -- 1,873,747 614,260 December 31, 2000................ 1,579,865 660,334 93,205 331,390 -- 2,664,794 798,129 TOTAL PROVED RESERVES: Balance December 31,1997.......... 1,131,749 328,208 144,246 241,410 26,208 1,871,821 585,748 Extensions, discoveries and other additions...................... 146,112 60,660 31,201 267,533 50,406 555,912 149,825 Purchases of minerals in-place... 25,188 599 -- 27,373 -- 53,160 14,901 Revisions of previous estimates...................... (43,778) (7,812) 19,550 (76) 2,901 (29,215) (44,245) Production....................... (157,701) (38,643) (567) (18,478) -- (215,389) (63,561) Sales of properties.............. (52,995) (11,068) -- -- -- (64,063) (29,622) --------- -------- ------- ------- ------- --------- ---------- Balance December 31,1998.......... 1,048,575 331,944 194,430 517,762 79,515 2,172,226 613,046 Extensions, discoveries and other additions...................... 34,804 13,015 11,725 10,837 -- 70,381 45,597 Purchases of minerals in-place... 393,716 99,535 -- 72,770 -- 566,021 246,156 Revisions of previous estimates...................... 27,221 1,835 (44,297) 40 (4,296) (19,497) 18,518 Production....................... (168,428) (36,424) (5,809) (27,820) (1,003) (239,484) (74,574) Sales of properties.............. (121,001) (2,852) -- -- (74,216) (198,069) (41,571) --------- -------- ------- ------- ------- --------- ---------- Balance December 31,1999.......... 1,214,887 407,053 156,049 573,589 -- 2,351,578 807,172 Extensions, discoveries and other additions...................... 154,489 94,792 32,967 55,195 -- 337,443 114,752 Purchases of minerals in-place... 736,079 246,360 -- -- -- 982,439 253,773 Revisions of previous estimates...................... 32,414 (8,397) 2,966 (6) -- 26,977 8,751 Production....................... (199,362) (47,758) (17,371) (39,489) -- (303,980) (95,231) Sales of properties.............. (10,454) (333) -- -- -- (10,787) (2,799) --------- -------- ------- ------- ------- --------- ---------- Balance December 31, 2000......... 1,928,053 691,717 174,611 589,289 -- 3,383,670 1,086,418 ========= ======== ======= ======= ======= ========= ==========
F-35 74 APACHE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED) (UNAUDITED) Future Net Cash Flows -- Future cash inflows are based on year-end oil and gas prices except in those instances where future natural gas or oil sales are covered by physical contract terms providing for higher or lower amounts. Operating costs, production and ad valorem taxes and future development costs are based on current costs with no escalation. The following table sets forth unaudited information concerning future net cash flows for oil and gas reserves, net of income tax expense. Income tax expense has been computed using expected future tax rates and giving effect to tax deductions and credits available, under current laws, and which relate to oil and gas producing activities. This information does not purport to present the fair market value of the Company's oil and gas assets, but does present a standardized disclosure concerning possible future net cash flows that would result under the assumptions used.
UNITED IVORY STATES CANADA(1) EGYPT AUSTRALIA COAST TOTAL ----------- ----------- ---------- ---------- -------- ------------ (IN THOUSANDS) 2000 Cash inflows...................... $26,652,689 $ 8,865,939 $1,430,178 $2,133,073 $ -- $ 39,081,879 Production and development costs........................... (5,549,309) (1,343,831) (298,711) (651,151) -- (7,843,002) Income tax expense................ (7,132,257) (2,194,511) (375,112) (385,953) -- (10,087,833) ----------- ----------- ---------- ---------- -------- ------------ Net cash flows.................... 13,971,123 5,327,597 756,355 1,095,969 -- 21,151,044 10 percent discount rate.......... (6,148,566) (2,478,102) (238,985) (337,741) -- (9,203,394) ----------- ----------- ---------- ---------- -------- ------------ Discounted future net cash flows(2)........................ $ 7,822,557 $ 2,849,495 $ 517,370 $ 758,228 $ -- $ 11,947,650 =========== =========== ========== ========== ======== ============ 1999 Cash inflows...................... $ 8,559,045 $ 2,635,191 $1,529,575 $2,227,818 $ -- $ 14,951,629 Production and development costs........................... (2,820,412) (845,373) (254,287) (639,441) -- (4,559,513) Income tax expense................ (1,527,499) (427,930) (428,608) (310,472) -- (2,694,509) ----------- ----------- ---------- ---------- -------- ------------ Net cash flows.................... 4,211,134 1,361,888 846,680 1,277,905 -- 7,697,607 10 percent discount rate.......... (1,815,462) (667,085) (252,379) (387,320) -- (3,122,246) ----------- ----------- ---------- ---------- -------- ------------ Discounted future net cash flows(2)........................ $ 2,395,672 $ 694,803 $ 594,301 $ 890,585 $ -- $ 4,575,361 =========== =========== ========== ========== ======== ============ 1998 Cash inflows...................... $ 3,523,294 $ 763,349 $ 877,861 $1,208,235 $129,965 $ 6,502,704 Production and development costs........................... (1,496,382) (240,166) (263,199) (479,627) (28,718) (2,508,092) Income tax expense................ (327,470) (127,405) (166,751) (156,409) (29,211) (807,246) ----------- ----------- ---------- ---------- -------- ------------ Net cash flows.................... 1,699,442 395,778 447,911 572,199 72,036 3,187,366 10 percent discount rate.......... (675,035) (165,220) (127,723) (209,448) (45,889) (1,223,315) ----------- ----------- ---------- ---------- -------- ------------ Discounted future net cash flows(2)........................ $ 1,024,407 $ 230,558 $ 320,188 $ 362,751 $ 26,147 $ 1,964,051 =========== =========== ========== ========== ======== ============
- --------------- (1) Included in cash inflows is approximately $10.9 million, $30.8 million and $27.9 million ($3.3 million, $9.7 million and $9.1 million after discount at 10 percent per annum) for 2000, 1999 and 1998, respectively, of Canadian provincial tax credits expected to be realized beyond the date at which the legislation, under its provisions, could be repealed. (2) Estimated future net cash flows before income tax expense, discounted at 10 percent per annum, totaled approximately $17.7 billion, $6.1 billion and $2.4 billion as of December 31, 2000, 1999 and 1998, respectively. F-36 75 APACHE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED) (UNAUDITED) The following table sets forth the principal sources of change in the discounted future net cash flows:
FOR THE YEAR ENDED DECEMBER 31, --------------------------------------- 2000 1999 1998 ----------- ----------- ----------- (IN THOUSANDS) Sales, net of production costs................ $(2,064,471) $ (923,068) $ (551,457) Net change in prices and production costs..... 4,693,840 2,619,118 (1,253,213) Discoveries and improved recovery, net of related costs............................... 2,703,195 282,523 620,153 Change in future development costs............ 67,442 82,853 251,638 Revision of quantities........................ 135,669 90,221 (149,859) Purchases of minerals in-place................ 5,796,278 1,488,905 52,785 Accretion of discount......................... 606,801 239,589 327,262 Change in income taxes........................ (4,284,904) (1,060,814) 277,518 Sales of properties........................... (25,585) (136,453) (132,337) Change in production rates and other.......... (255,976) (71,564) (41,701) ----------- ----------- ----------- $ 7,372,289 $ 2,611,310 $ (599,211) =========== =========== ===========
Impact of Pricing -- The estimates of cash flows and reserve quantities shown above are based on year-end oil and gas prices, except in those cases where future natural gas or oil sales are covered by physical contracts at specified prices. Price fluctuations are largely due to supply and demand perceptions for natural gas and volatility in oil prices. Under the full cost accounting rules of the SEC, the Company reviews the carrying value of its proved oil and gas properties each quarter on a country-by-country basis. Under these rules, capitalized costs of proved oil and gas properties, net of accumulated DD&A and deferred income taxes, may not exceed the present value of estimated future net cash flows from proved oil and gas reserves, discounted at 10 percent, plus the lower of cost or fair value of unproved properties included in the costs being amortized, net of related tax effects. These rules generally require pricing future oil and gas production at the unescalated oil and gas prices at the end of each fiscal quarter and require a write-down if the "ceiling" is exceeded. Given the volatility of oil and gas prices, it is reasonably possible that the Company's estimate of discounted future net cash flows from proved oil and gas reserves could change in the near term. If oil and gas prices decline significantly, even if only for a short period of time, it is possible that write-downs of oil and gas properties could occur in the future. F-37 76 APACHE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST(1) SECOND(1) THIRD(1) FOURTH TOTAL -------- --------- -------- -------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000 Revenues................................... $448,191 $486,413 $618,513 $730,787 $2,283,904 Expenses, net.............................. 331,195 342,181 416,265 473,668 1,563,309 -------- -------- -------- -------- ---------- Income before change in accounting principle................................ 116,996 144,232 202,248 257,119 720,595 Cumulative effect of change in accounting principle, net of income tax............. (7,539) -- -- -- (7,539) -------- -------- -------- -------- ---------- Net income................................. $109,457 $144,232 $202,248 $257,119 $ 713,056 ======== ======== ======== ======== ========== Income attributable to common stock........ $104,193 $139,324 $197,340 $252,211 $ 693,068 ======== ======== ======== ======== ========== Basic net income per common shares(2): Before change in accounting principle.... $ .98 $ 1.22 $ 1.64 $ 2.04 $ 5.94 ======== ======== ======== ======== ========== After change in accounting principle..... $ .92 $ 1.22 $ 1.64 $ 2.04 $ 5.87 ======== ======== ======== ======== ========== Diluted net income per common share(2): Before change in accounting principle.... $ .96 $ 1.18 $ 1.58 $ 1.96 $ 5.73 ======== ======== ======== ======== ========== After change in accounting principle..... $ .90 $ 1.18 $ 1.58 $ 1.96 $ 5.67 ======== ======== ======== ======== ========== 1999 Revenues................................... $163,422 $246,418 $340,821 $395,892 $1,146,553 Expenses, net.............................. 165,590 213,650 268,043 298,415 945,698 -------- -------- -------- -------- ---------- Net income (loss).......................... $ (2,168) $ 32,768 $ 72,778 $ 97,477 $ 200,855 ======== ======== ======== ======== ========== Income (loss) attributable to common stock.................................... $ (3,588) $ 29,632 $ 67,831 $ 92,531 $ 186,406 ======== ======== ======== ======== ========== Net income (loss) per common share(2): Basic.................................... $ (.04) $ .28 $ .59 $ .81 $ 1.73 ======== ======== ======== ======== ========== Diluted.................................. $ (.04) $ .28 $ .59 $ .80 $ 1.72 ======== ======== ======== ======== ==========
- --------------- (1) Prior quarters for 2000 have been restated to reflect a change in accounting principle, which was effective as of January 1, 2000 (see Note 1 to the consolidated financial statements). (2) The sum of the individual quarterly net income (loss) per common share amounts may not agree with year-to-date net income (loss) per common share as each quarterly computation is based on the weighted average number of common shares outstanding during that period. In addition, certain potentially dilutive securities were not included in certain of the quarterly computations of diluted net income (loss) per common share because to do so would have been antidilutive. F-38 77 BOARD OF DIRECTORS FREDERICK M. BOHEN(3)(5) Former Executive Vice President and Chief Operating Officer The Rockefeller University G. STEVEN FARRIS President and Chief Operating Officer Apache Corporation RANDOLPH M. FERLIC, M.D.(1)(2)(4) Founder and Former President, Surgical Services of the Great Plains, P.C. EUGENE C. FIEDOREK(2) Private Investor, Former Managing Director, EnCap Investments L.C. A. D. FRAZIER, JR.(3)(5) President and Chief Executive Officer Chicago Stock Exchange, Inc. JOHN A. KOCUR(1)(3)(4) Attorney at Law; Former Vice Chairman of the Board, Apache Corporation GEORGE D. LAWRENCE JR.(1)(3) Private Investor; Former Chief Executive Officer, The Phoenix Resource Companies, Inc. MARY RALPH LOWE(3)(4)(5) President and Chief Executive Officer, Maralo, LLC F. H. MERELLI(1)(2) Chairman of the Board and Chief Executive Officer, Key Production Company, Inc. RODMAN D. PATTON(2) Former Managing Director, Merrill Lynch Energy Group CHARLES J. PITMAN(4) Former Regional President -- Middle East/ Caspian/Egypt/India, BP Amoco plc, and Sole Member, Shaker Mountain Energy Associates, LLC RAYMOND PLANK(1)(4) Chairman of the Board and Chief Executive Officer Apache Corporation OFFICERS RAYMOND PLANK Chairman of the Board and Chief Executive Officer G. STEVEN FARRIS President and Chief Operating Officer MICHAEL S. BAHORICH Executive Vice President -- Exploration and Production Technology H. CRAIG CLARK Executive Vice President -- U.S. Operations JOHN A. CRUM Executive Vice President -- Eurasia and New Ventures ROGER B. PLANK Executive Vice President and Chief Financial Officer LISA A. STEWART Executive Vice President -- Business Development and E&P Services ZURAB S. KOBIASHVILI Senior Vice President and General Counsel JEFFREY M. BENDER Vice President -- Human Resources MATTHEW W. DUNDREA Vice President and Treasurer ROBERT J. DYE Vice President -- Investor Relations ERIC L. HARRY Vice President and Associate General Counsel ANTHONY R. LENTINI, JR. Vice President -- Public and International Affairs THOMAS L. MITCHELL Vice President and Controller CHERI L. PEPER Corporate Secretary - --------------- (1) Executive Committee (2) Audit Committee (3) Management, Development & Compensation Committee (4) Nominating Committee (5) Stock Option Plan Committee 78 SHAREHOLDER INFORMATION STOCK DATA
DIVIDENDS PRICE RANGE PER SHARE* ------------------- ---------------- HIGH LOW DECLARED PAID 2000 -------- -------- -------- ----- First Quarter $51.5000 $32.1250 $0.07 $0.07 Second Quarter $61.5000 $44.0000 -- $0.07 Third Quarter $67.6875 $46.3750 $0.14 -- Fourth Quarter $74.1875 $51.5000 -- $0.14 1999 First Quarter $28.5625 $17.6250 $0.07 $0.07 Second Quarter $39.8750 $25.0625 $0.07 $0.07 Third Quarter $49.9375 $37.0000 $0.07 $0.07 Fourth Quarter $44.0000 $30.0000 $0.07 $0.07
* The Company paid dividends of $0.28 per share in 2000, of which $0.21 was declared in 2000 and $0.07 was declared in the fourth quarter of 1999, as a result of changing its dividend payment schedule during 2000 from a quarterly basis to an annual basis. The Company has paid cash dividends on its common stock for 34 consecutive years through December 31, 2000. Absent significant events, the Company expects to maintain the current dividend level on its common stock. During 2000, the Company changed the dividend payment schedule on its common stock from a quarterly basis to an annual basis. Future dividend payments will depend upon the Company's level of earnings, financial requirements and other relevant factors. Apache common stock is listed on the New York and Chicago stock exchanges (symbol APA). At December 31, 2000, the company's shares of common stock outstanding were held by approximately 10,000 shareholders of record and 50,000 beneficial owners. Also listed on the New York Stock Exchange are: - - the company's 9.25% notes, due 2002 (symbol APA 02) - - the company's $2.015 depositary shares (symbol APAPrC) - - Apache Finance Canada's 7.75% notes, due 2029 (symbol APA 29) CORPORATE OFFICES One Post Oak Central 2000 Post Oak Boulevard Suite 100 Houston, Texas 77056-4400 (713) 296-6000 INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP 711 Louisiana Suite 1300 Houston, Texas 77002 STOCK TRANSFER AGENT AND REGISTRAR Wells Fargo Bank Minnesota, N.A. (formerly known as Norwest Bank Minnesota, N.A.) 161 North Concord Exchange P.O. Box 738 South St. Paul, Minnesota 55075 (651) 450-4064 or (800) 468-9716 Communications concerning the transfer of shares, lost certificates, dividend checks, duplicate mailings or change of address should be directed to the stock transfer agent. DIVIDEND REINVESTMENT PLAN Shareholders of record may invest their dividends automatically in additional shares of Apache common stock at the market price. Participants may also invest up to an additional $5,000 in Apache shares each quarter through this service. All bank service fees and brokerage commissions on purchases are paid by Apache. A prospectus describing the terms of the Plan and an authorization form may be obtained from the Company's stock transfer agent, Wells Fargo Bank Minnesota, N.A. ANNUAL MEETING Apache will hold its annual meeting of shareholders on Thursday, May 3, 2001, at 10 a.m. in the Ballroom, Doubletree Hotel at Post Oak, 2001 Post Oak Boulevard, Houston, Texas. Apache plans to web cast the annual meeting live; connect through the Apache web site: http://www.apachecorp.com STOCK HELD IN "STREET NAME" The Company maintains a direct mailing list to ensure that shareholders with stock held in brokerage accounts receive information on a timely basis. Shareholders wanting to be added to this list should direct their requests to Apache's Public and International Affairs Department, 2000 Post Oak Boulevard, Suite 100, Houston, Texas, 77056-4400, by calling (713) 296-6157 or by e-mail to requests@apachecorp.com. FORM 10-K REQUEST Shareholders and other persons interested in obtaining, without cost, a copy of the Company's Form 10-K filed with the Securities and Exchange Commission may do so by writing to Cheri L. Peper, Corporate Secretary, 2000 Post Oak Boulevard, Suite 100, Houston, Texas, 77056-4400. INVESTOR RELATIONS Shareholders, brokers, securities analysts or portfolio managers seeking information about the Company are welcome to contact Robert J. Dye, Vice President of Investor Relations, at (713) 296-6662. Members of the news media and others seeking information about the Company should contact Apache's Public and International Affairs Department at (713) 296-6107. WEB SITE: http://www.apachecorp.com 79 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ------- ----------- 2.1 -- Purchase and Sale Agreement by and between Texaco Exploration and Production Inc., as seller, and Registrant, as buyer, dated December 22, 1994 (incorporated by reference to Exhibit 99.3 to Registrant's Current Report on Form 8-K, dated November 29, 1994, SEC File No. 1- 4300). 2.2 -- Amended and Restated Agreement and Plan of Merger among Registrant, XPX Acquisitions, Inc and DEKALB Energy Company, dated December 21, 1994 (incorporated by reference to Exhibit 2.1 to Amendment No. 3 to Registrant's Registration Statement on Form S-4, Registration No. 33-57321, filed April 14, 1995). 2.3 -- Agreement and Plan of Merger among Registrant, YPY Acquisitions, Inc. and The Phoenix Resource Companies, Inc., dated March 27, 1996 (incorporated by reference to Exhibit 2.1 to Registrant's Registration Statement on Form S-4, Registration No. 333-02305, filed April 5, 1996). 3.1 -- Restated Certificate of Incorporation of Registrant, dated December 16, 1999, as filed with the Secretary of State of Delaware on December 17, 1999 (incorporated by reference to Exhibit 99.1 to Registrant's Current Report on Form 8-K, dated December 17, 1999, SEC File No. 1-4300). 3.2 -- Bylaws of Registrant, as amended May 4, 2000 (incorporated by reference to Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, SEC File No. 1-4300). 4.1 -- Form of Certificate for Registrant's Common Stock (incorporated by reference to Exhibit 4.1 to Registrant's Annual Report on Form 10-K for year ended December 31, 1995, SEC File No. 1-4300). 4.2 -- Form of Certificate for Registrant's 5.68% Cumulative Preferred Stock, Series B (incorporated by reference to Exhibit 4.2 to Amendment No. 2 on Form 8-K/A to Registrant's Current Report on Form 8-K, dated August 18, 1998, SEC File No. 1-4300). 4.3 -- Form of Certificate for Registrant's Automatically Convertible Equity Securities, Conversion Preferred Stock, Series C (incorporated by reference to Exhibit 99.8 to Amendment No. 1 on Form 8-K/A to Registrant's Current Report on Form 8-K, dated April 29, 1999, SEC File No. 1-4300). 4.4 -- Rights Agreement, dated January 31, 1996, between Registrant and Norwest Bank Minnesota, N.A., rights agent, relating to the declaration of a rights dividend to Registrant's common shareholders of record on January 31, 1996 (incorporated by reference to Exhibit (a) to Registrant's Registration Statement on Form 8-A, dated January 24, 1996, SEC File No. 1-4300). 10.1 -- Credit Agreement, dated June 12, 1997, among the Registrant, the lenders named therein, Morgan Guaranty Trust Company, as Global Documentation Agent and U.S. Syndication Agent, The First National Bank of Chicago, as U.S. Documentation Agent, NationsBank of Texas, N.A., as Co-Agent, Union Bank of Switzerland, Houston Agency, as Co-Agent, and The Chase Manhattan Bank, as Global Administrative Agent (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K, dated June 13, 1997, SEC File No. 1-4300).
80
EXHIBIT NO. DESCRIPTION - ------- ----------- 10.2 -- Credit Agreement, dated June 12, 1997, among Apache Canada Ltd., a wholly-owned subsidiary of the Registrant, the lenders named therein, Morgan Guaranty Trust Company, as Global Documentation Agent, Royal Bank of Canada, as Canadian Documentation Agent, The Chase Manhattan Bank of Canada, as Canadian Syndication Agent, Bank of Montreal, as Canadian Administrative Agent, and The Chase Manhattan Bank, as Global Administrative Agent (incorporated by reference to Exhibit 10.2 to Registrant's Current Report on Form 8-K, dated June 13, 1997, SEC File No. 1-4300). 10.3 -- Credit Agreement, dated June 12, 1997, among Apache Energy Limited and Apache Oil Australia Pty Limited, wholly-owned subsidiaries of the Registrant, the lenders named therein, Morgan Guaranty Trust Company, as Global Documentation Agent, Bank of America National Trust and Savings Association, Sydney Branch, as Australian Documentation Agent, The Chase Manhattan Bank, as Australian Syndication Agent, Citisecurities Limited, as Australian Administrative Agent, and The Chase Manhattan Bank, as Global Administrative Agent (incorporated by reference to Exhibit 10.3 to Registrant's Current Report on Form 8-K, dated June 13, 1997, SEC File No. 1-4300). 10.4 -- Fiscal Agency Agreement, dated January 4, 1995, between Registrant and Chemical Bank, as fiscal agent, relating to Registrant's 6% Convertible Subordinated Debentures due 2002 (incorporated by reference to Exhibit 99.2 to Registrant's Current Report on Form 8-K, dated December 6, 1994, SEC File No. 1-4300). 10.5 -- Concession Agreement for Petroleum Exploration and Exploitation in the Khalda Area in Western Desert of Egypt by and among Arab Republic of Egypt, the Egyptian General Petroleum Corporation and Phoenix Resources Company of Egypt, dated April 6, 1981 (incorporated by reference to Exhibit 19(g) to Phoenix's Annual Report on Form 10-K for year ended December 31, 1984, SEC File No. 1-547). 10.6 -- Amendment, dated July 10, 1989, to Concession Agreement for Petroleum Exploration and Exploitation in the Khalda Area in Western Desert of Egypt by and among Arab Republic of Egypt, the Egyptian General Petroleum Corporation and Phoenix Resources Company of Egypt incorporated by reference to Exhibit 10(d)(4) to Phoenix's Quarterly Report on Form 10-Q for quarter ended June 30, 1989, SEC File No. 1-547). 10.7 -- Farmout Agreement, dated September 13, 1985 and relating to the Khalda Area Concession, by and between Phoenix Resources Company of Egypt and Conoco Khalda Inc(incorporated by reference to Exhibit 10.1 to Phoenix's Registration Statement on Form S-1, Registration No. 33-1069, filed October 23, 1985). 10.8 -- Amendment, dated March 30, 1989, to Farmout Agreement relating to the Khalda Area Concession, by and between Phoenix Resources Company of Egypt and Conoco Khalda Inc(incorporated by reference to Exhibit 10(d)(5) to Phoenix's Quarterly Report on Form 10-Q for quarter ended June 30, 1989, SEC File No. 1-547).
81
EXHIBIT NO. DESCRIPTION - ------- ----------- 10.9 -- Amendment, dated May 21, 1995, to Concession Agreement for Petroleum Exploration and Exploitation in the Khalda Area in Western Desert of Egypt between Arab Republic of Egypt, the Egyptian General Petroleum Corporation, Repsol Exploracion Egipto S.A., Phoenix Resources Company of Egypt and Samsung Corporation (incorporated by reference to exhibit 10.12 to Registrant's Annual Report on Form 10-K for year ended December 31, 1997, SEC File No. 1-4300). 10.10 -- Concession Agreement for Petroleum Exploration and Exploitation in the Qarun Area in Western Desert of Egypt, between Arab Republic of Egypt, the Egyptian General Petroleum Corporation, Phoenix Resources Company of Qarun and Apache Oil Egypt, Inc., dated May 17, 1993 (incorporated by reference to Exhibit 10(b) to Phoenix's Annual Report on Form 10-K for year ended December 31, 1993, SEC File No. 1-547). 10.11 -- Agreement for Amending the Gas Pricing Provisions under the Concession Agreement for Petroleum Exploration and Exploitation in the Qarun Area, effective June 16, 1994 (incorporated by reference to Exhibit 10.18 to Registrant's Annual Report on Form 10-K for year ended December 31, 1996, SEC File No. 1-4300). +10.12 -- Apache Corporation Corporate Incentive Compensation Plan A (Senior Officers' Plan), dated July 16, 1998 (incorporated by reference to Exhibit 10.13 to Registrant's Annual Report on Form 10-K for year ended December 31, 1998, SEC File No. 1-4300). +10.13 -- Apache Corporation Corporate Incentive Compensation Plan B (Strategic Objectives Format), dated July 16, 1998 (incorporated by reference to Exhibit 10.14 to Registrant's Annual Report on Form 10-K for year ended December 31, 1998, SEC File No. 1-4300). +10.14 -- Apache Corporation 401(k) Savings Plan, dated August 1, 1997, effective January 1, 1997 (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K, dated August 8, 1997, SEC File No. 1-4300). +10.15 -- Amendments to Apache Corporation 401(k) Savings Plan, dated October 21, 1999, effective as of January 1, 1997 and 1999. +10.16 -- Apache Corporation Money Purchase Retirement Plan, dated December 31, 1997, effective January 1, 1997 (incorporated by reference to Exhibit 10.19 to Registrant's Annual Report on Form 10-K for year ended December 31, 1997, SEC File No. 1-4300). +10.17 -- Amendments to Apache Corporation Money Purchase Retirement Plan, dated October 21, 1999, effective as of January 1, 1997 and 1998. +10.18 -- Non-Qualified Retirement/Savings Plan of Apache Corporation, restated as of January 1, 1997, and amendments effective as of January 1, 1997, January 1, 1998 and January 1, 1999 (incorporated by reference to Exhibit 10.17 to Registrant's Annual Report on Form 10-K for year ended December 31, 1998, SEC File No. 1-4300). +10.19 -- Amendment to Non-Qualified Retirement/Savings Plan of Apache Corporation, dated February 22, 2000, effective as of January 1, 1999 (incorporated by reference to Exhibit 4.7 to Registrant's Registration Statement on Form S-8, Registration No. 333-31092, filed February 25, 2000); and Amendment dated July 27, 2000 (incorporated by reference to Exhibit 4.8 to Amendment No. 1 to Registrant's Registration Statement on Form S-8, Registration No. 333-31092, filed August 18, 2000).
82
EXHIBIT NO. DESCRIPTION - ------- ----------- +*10.20 -- Apache Corporation 1990 Stock Incentive Plan, as amended and restated December 14, 2000, effective March 1, 2001. +*10.21 -- Apache Corporation 1995 Stock Option Plan, as amended and restated December 14, 2000, effective March 1, 2001. +*10.22 -- Apache Corporation 2000 Share Appreciation Plan, dated December 19, 2000, effective October 12, 2000. +*10.23 -- Apache Corporation 1996 Performance Stock Option Plan, as amended and restated December 14, 2000, effective March 1, 2001. +*10.24 -- Apache Corporation 1998 Stock Option Plan, as amended and restated December 14, 2000, effective March 1, 2001. +*10.25 -- Apache Corporation 2000 Stock Option Plan, as amended and restated December 14, 2000, effective March 1, 2001. +10.26 -- 1990 Employee Stock Option Plan of The Phoenix Resource Companies, Inc., as amended through September 29, 1995, effective April 9, 1990 (incorporated by reference to Exhibit 10.33 to Registrant's Annual Report on Form 10-K for year ended December 31, 1996, SEC File No. 1-4300). +10.27 -- Apache Corporation Income Continuance Plan, as amended and restated February 24, 1988 (incorporated by reference to Exhibit 10.19 to Registrant's Annual Report on Form 10-K for year ended December 31, 1990, SEC File No. 1-4300). +*10.28 -- Apache Corporation Deferred Delivery Plan, as amended and restated December 14, 2000. +10.29 -- Apache Corporation Non-Employee Directors' Compensation Plan, as amended and restated December 17, 1998 (incorporated by reference to Exhibit 10.26 to Registrant's Annual Report on Form 10-K for year ended December 31, 1998, SEC File No. 1-4300). +*10.30 -- Apache Corporation Outside Directors' Retirement Plan, as amended and restated February 8, 2001. +*10.31 -- Apache Corporation Equity Compensation Plan for Non-Employee Directors, as amended and restated September 14, 2000. +10.32 -- Amended and Restated Employment Agreement, dated December 5, 1990, between Registrant and Raymond Plank (incorporated by reference to Exhibit 10.39 to Registrant's Annual Report on Form 10-K for year ended December 31, 1996, SEC File No. 1-4300). +10.33 -- First Amendment, dated April 4, 1996, to Restated Employment Agreement between Registrant and Raymond Plank (incorporated by reference to Exhibit 10.40 to Registrant's Annual Report on Form 10-K for year ended December 31,1996, SEC File No. 1-4300). +10.34 -- Amended and Restated Employment Agreement, dated December 20, 1990, between Registrant and John A. Kocur (incorporated by reference to Exhibit 10.10 to Registrant's Annual Report on Form 10-K for year ended December 31, 1990, SEC File No. 1-4300). +10.35 -- Employment Agreement, dated June 6, 1988, between Registrant and G. Steven Farris (incorporated by reference to Exhibit 10.6 to Registrant's Annual Report on Form 10-K for year ended December 31, 1989, SEC File No. 1-4300).
83
EXHIBIT NO. DESCRIPTION - ------- ----------- +10.36 -- Conditional Stock Grant Agreement, dated December 17, 1998, between Registrant and G. Steven Farris (incorporated by reference to Exhibit 10.33 to Registrant's Annual Report on Form 10-K for year ended December 31, 1998, SEC File No. 1-4300). 10.37 -- Amended and Restated Gas Purchase Agreement, effective July 1, 1998, by and among Registrant and MW Petroleum Corporation, as Seller, and Producers Energy Marketing, LLC, as Buyer (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K, dated June 18, 1998, SEC File No. 1-4300). *12.1 -- Statement of Computation of Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividends *21.1 -- Subsidiaries of Registrant *23.1 -- Consent of Arthur Andersen LLP *23.2 -- Consent of Ryder Scott Company L.P., Petroleum Consultants *24.1 -- Power of Attorney (included as a part of the signature pages to this report)
- --------------- * Filed herewith. + Management contracts or compensatory plans or arrangements required to be filed herewith pursuant to Item 14 hereof. EX-10.20 2 h84997ex10-20.txt 1990 STOCK INCENTIVE PLAN 1 EXHIBIT 10.20 APACHE CORPORATION 1990 STOCK INCENTIVE PLAN (AS AMENDED AND RESTATED DECEMBER 14, 2000; EFFECTIVE AS OF MARCH 1, 2001) 2 APACHE CORPORATION 1990 STOCK INCENTIVE PLAN (AS AMENDED AND RESTATED DECEMBER 14, 2000; EFFECTIVE AS OF MARCH 1, 2001) SECTION 1 INTRODUCTION 1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter referred to, together with its Affiliated Corporations (as defined in subsection 2.1(a)) as the "Company" except where the context otherwise requires), hereby establishes the Apache Corporation 1990 Stock Incentive Plan (the "Plan") for certain key employees of the Company. The Plan permits the grant of stock options to certain key employees of the Company. 1.2 Purposes. The purposes of the Plan are to provide the key management employees selected for participation in the Plan with added incentives to continue in the long-term service of the Company and to create in such employees a more direct interest in the future success of the operations of the Company by relating incentive compensation to increases in shareholder value, so that the income of the key management employees is more closely aligned with the income of the Company's shareholders. The Plan is also designed to attract key employees and to retain and motivate participating employees by providing an opportunity for investment in the Company. 1.3 Effective Date. The Effective Date of the Plan (the "Effective Date") is September 19, 1990. This Plan and each option granted hereunder is conditioned on and shall be of no force or effect until approval of the Plan by the holders of the shares of voting stock of the Company unless the Company, on the advice of counsel, determines that shareholder approval is not necessary. SECTION 2 DEFINITIONS 2.1 Definitions. The following terms shall have the meanings set forth below: (a) "Administrative Agent" means any designee or agent that may be appointed by the Committee pursuant to Section 3.1(b) hereof. -1- 3 (b) "Affiliated Corporation" means any corporation or other entity (including but not limited to a partnership) which is affiliated with Apache Corporation through stock ownership or otherwise and is treated as a common employer under the provisions of Sections 414(b) and (c) of the Internal Revenue Code. (c) "Board" means the Board of Directors of the Company. (d) "Committee" means the Stock Option Plan Committee of the Board which is empowered hereunder to take actions in the administration of the Plan. The Committee shall be constituted at all times as to permit the Plan to comply with Rule 16b-3 or any successor rule promulgated under the Securities Exchange Act of 1934 (the "1934 Act"). Members of the Committee shall be appointed from time to time by the Board, shall serve at the pleasure of the Board and may resign at any time upon written notice to the Board. (e) "Deferred Delivery Plan" means the Company's Deferred Delivery Plan, effective as of February 10, 2000 and as it may be amended from time to time, or any successor plan. (f) "Depositary Shares" means the Depositary shares representing the Company's preferred stock convertible into Stock. (g) "Effective Date" means the effective date of the Plan, September 19, 1990. (h) "Eligible Employees" means those full-time key employees (including, without limitation, officers and directors who are also employees) of the Company or any division thereof, upon whose judgment, initiative and efforts the Company is, or will become, largely dependent for the successful conduct of its business. (i) "Fair Market Value" means the per share closing price of the Stock or Depositary Shares, as applicable, on the composite tape on a particular date. If on such date there are no transactions in the Stock or Depositary Shares, as applicable, the Fair Market Value shall be determined as of the immediately preceding date on which there were transactions in the Stock or Depositary Shares, as applicable. (j) "Internal Revenue Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. (k) "Option" means a right to purchase shares of Stock at a stated price for a specified period of time. All Options granted under the Plan shall be Options which are not "incentive stock options" as described in Section 422A of the Internal Revenue Code. -2- 4 (l) "Option Price" means the price at which shares of Stock subject to an Option may be purchased, determined in accordance with subsection 7.2(b). (m) "Participant" means an Eligible Employee designated by the Committee from time to time during the term of the Plan to receive one or more Options under the Plan. (n) "Stock" means the $1.25 par value Common Stock of the Company. (o) "Stock Units" means investment units under the Deferred Delivery Plan, each of which is deemed to be equivalent to one share of Stock. 2.2 Gender and Number. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. SECTION 3 PLAN ADMINISTRATION 3.1 Administration by the Committee. (a) The Plan shall also be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, select the Participants from among the Eligible Employees, determine the Options to be granted pursuant to the Plan, the number of shares of Stock to be issued thereunder and the time at which such Options are to be granted, fix the Option Price, and establish such other terms and requirements as the Committee may deem necessary or desirable and consistent with the terms of the Plan. The Committee shall determine the form or forms of the agreements with Participants which shall evidence the particular provisions, terms, conditions, rights and duties of the Company and the Participants with respect to Options granted pursuant to the Plan, which provisions need not be identical except as may be provided herein. (b) The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Committee may appoint an Administrative Agent, who need not be a member of the Committee or an employee of the Company, to assist the Committee in administration of the Plan and to whom it may delegate such powers as the Committee deems appropriate, except that the Committee shall determine any dispute. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any agreement entered into hereunder in the manner and to the extent it -3- 5 shall deem expedient and it shall be the sole and final judge of such expediency. No member of the Committee shall be liable for any action or determination made in good faith. The determination, interpretations and other actions of the committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons. SECTION 4 STOCK SUBJECT TO THE PLAN 4.1 Number of Shares. Two Million Fifty Thousand (2,050,000) shares of Stock are authorized for issuance under the Plan in accordance with the provisions of the Plan and subject to such restrictions or other provisions as the Committee may from time to time deem necessary. This authorization may be increased from time to time by approval of the Board and by the shareholders of the Company if, on the advice of counsel for the Company, such shareholder approval is required. Shares of Stock which may be issued upon exercise of Options shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Options are outstanding retain as authorized and unissued Stock, or as treasury Stock, at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder. 4.2 Other Shares of Stock. Any shares of Stock that are subject to an Option which expires or for any reason is terminated unexercised, and any shares of Stock that for any other reason are not issued to an Eligible Employee or are forfeited shall automatically become available for use under the Plan. 4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall at any time increase or decrease the number of its outstanding shares of Stock or change in any way the rights and privileges of such shares by means of the payment of a stock dividend or any other distribution upon such shares payable in Stock, or through a stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock, then in relation to the Stock that is affected by one or more of the above events, the numbers, rights and privileges of the following shall be increased, decreased or changed in like manner as if they had been issued and outstanding, fully paid in nonassessable at the time of such occurrence: (i) the shares of Stock as to which Options may be granted under the Plan; and (ii) the shares of the Stock then included in each outstanding Option granted hereunder. -4- 6 4.4 Dividend Payable in Stock of Another Corporation, Etc. If the Company shall at any time pay or make any dividend or other distribution upon the Stock payable in securities or other property (except money or Stock), a proportionate part of such securities or other property shall be set aside and delivered to any Participant then holding an Option for the particular type of Stock for which the dividend or other distribution was made, upon exercise thereof. Prior to the time that any such securities or other property are delivered to a Participant in accordance with the foregoing, the Company shall be the owner of such securities or other property and shall have the right to vote the securities, receive any dividends payable on such securities, and in all other respects shall be treated as the owner. If securities or other property which have been set aside by the Company in accordance with this Section are not delivered to a Participant because an Option is not exercised, then such securities or other property shall remain the property of the Company and shall be dealt with by the Company as it shall determine in its sole discretion. 4.5 Other Changes in Stock. In the event there shall be any change, other than as specified in Sections 4.3 and 4.4, in the number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Committee shall in its discretion determine that such change equitably requires an adjustment in the number or kind of shares subject to outstanding Options or which have been reserved for issuance pursuant to the Plan but are not then subject to an Option, then such adjustments shall be made by the Committee and shall be effective for all purposes of the Plan and on each outstanding Option that involves the particular type of stock for which a change was effected. 4.6 Rights to Subscribe. If the Company shall at any time grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of the Company or of any other corporation, there shall be reserved with respect to the shares then under Option to any Participant of the particular class of Stock involved the Stock or other securities which the Participant would have been entitled to subscribe for if immediately prior to such grant the Participant had exercised his entire Option. If, upon exercise of any such Option, the Participant subscribes for the additional shares of other securities, the aggregate Option Price shall be increased by the amount of the price that is payable by the Participant for such Stock or other securities. 4.7 General Adjustment Rules. No adjustment or substitution provided for in this Section 4 shall require the Company to sell a fractional share of Stock under any Option, or otherwise issue a fractional share of Stock, and the total substitution or adjustment with respect to each Option shall be limited by deleting any fractional share. In the case of any such substitution or adjustment, the aggregate Option Price for the shares of Stock then subject to the Option shall remain unchanged but the Option Price per share under each such Option shall be equitably adjusted by the Committee to reflect the greater or lesser -5- 7 number of shares of Stock or other securities into which the Stock subject to the Option may have been changed. 4.8 Determination by the Committee, Etc. Adjustments under this Section 4 shall be made by the Committee, whose determinations with regard thereto shall be final and binding upon all parties. SECTION 5 REORGANIZATION OR LIQUIDATION In the event that the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if all or substantially all of the assets or more than 20 percent of the outstanding voting stock of the Company is acquired by any other corporation, business entity or person, or in case of a reorganization (other than a reorganization under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of Section 9 do not apply, the Committee, or the board of directors of any corporation assuming the obligations of the Company, shall, as to the Plan and outstanding Options either (i) make appropriate provision for the adoption and continuation of the Plan by the acquiring or successor corporation and for the protection of any such outstanding Options by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable with respect to the Stock, provided that no additional benefits shall be conferred upon the Participants holding such Options as a result of such substitution, and the excess of the aggregate Fair Market Value of the shares subject to the Options immediately after such substitution over the aggregate Option Price thereof is not more than the excess of the aggregate Fair Market Value of the shares subject to such Options immediately before such substitution over the aggregate Option Price thereof, or (ii) upon written notice to the Participants, provide that all unexercised Options must be exercised within a specified number of days of the date of such notice or they will be terminated. In the latter event, the Committee shall accelerate the vesting dates of outstanding Options so that all Options become fully vested and exercisable prior to any such event. SECTION 6 PARTICIPATION Participants in the Plan shall be those Eligible Employees who, in the judgment of the Committee, are performing, or during the term of their incentive arrangement will perform, vital services in the management, operation and development of the Company or -6- 8 an Affiliated Corporation, and significantly contribute, or are expected to significantly contribute, to the achievement of long-term corporate economic objectives. Participants may be granted from time to time one or more Options; provided, however, that the grant of each such Option shall be separately approved by the Committee, and receipt of one such Option shall not result in automatic receipt of any other Option. Upon determination by the Committee that an Option is to be granted to a Participant, written notice shall be given to such person, specifying the terms, conditions, rights and duties related thereto. Each Participant shall, if required by the Committee, enter into an agreement with the Company, in such form as the Committee shall determine and which is consistent with the provisions of the Plan, specifying such terms, conditions, rights and duties. Options shall be deemed to be granted as of the date specified in the grant resolution of the Committee, which date shall be the date of any related agreement with the Participant. In the event of any inconsistency between the provisions of the Plan and any such agreement entered into hereunder, the provisions of the Plan shall govern. SECTION 7 STOCK OPTIONS 7.1 Grant of Stock Options. Coincident with or following designation for participation in the Plan, a Participant may be granted one or more Options. In no event shall the exercise of one Option affect the right to exercise any other Option or affect the number of shares of Stock for which any other Option may be exercised, except as provided in subsection 7.2(j). 7.2 Stock Option Agreements. Each Option granted under the Plan shall be evidenced by a written stock option agreement which shall be entered into by the Company and the Participant to whom the Option is granted (the "Option Holder"), and which shall contain the following terms and conditions, as well as such other terms and conditions, not inconsistent therewith, as the Committee may consider appropriate in each case. (a) Number of Shares. Each stock option agreement shall state that it covers a specified number of shares of the Stock, as determined by the Committee. (b) Price. The price at which each share of Stock covered by an Option may be purchased shall be determined in each case by the Committee and set forth in the stock option agreement, but in no event shall the price be less than the Fair Market Value of the Stock on the date the Option is granted. (c) Duration of Options; Employment Required For Exercise. Each stock option agreement shall state the period of time, determined by the Committee, within -7- 9 which the Option may be exercised by the Option Holder (the "Option Period"). The Option Period must end, in all cases, not more than ten years from the date an Option is granted. Except as otherwise provided in Sections 5 and 8 and subsection 7.2(d)(iv) hereof, each Option granted under the Plan shall become exercisable in increments such that 25 percent of the Option will become exercisable on each of the four subsequent one-year anniversaries of the date the Option is granted, but each such additional 25 percent increment shall become exercisable only if the Option Holder has been continuously employed by the Company from the date the Option is granted through the date on which each such additional 25 percent increment becomes exercisable. (d) Termination of Employment, Death, Disability, Etc. Each stock option agreement shall provide as follows with respect to the exercise of the Option upon termination of the employment or the death of the Option Holder: (i) If the employment of the Option Holder is terminated within the Option Period for cause, as determined by the Company, the Option shall thereafter be void for all purposes. As used in this subsection 7.2(d), "cause" shall mean a gross violation, as determined by the Company, of the Company's established policies and procedures, provided that the effect of this subsection 7.2(d) (i) shall be limited to determining the consequences of a termination and that nothing in this subsection 7.2(d) (i) shall restrict or otherwise interfere with the Company's discretion with respect to the termination of any employee. (ii) If the Option Holder retires from employment by the Company or its affiliates on or after attaining age 65, the Option may be exercised by the Option Holder within 36 months following his or her retirement (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Option Holder's death during such 36-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Option Holder's retirement. (iii) If the Option Holder becomes disabled (as determined pursuant to the Company's Long-Term Disability Plan), during the Option Period while still employed, or within the three-month period referred to in (v) below, or within the 36-month period referred to in (ii) above, the Option may be exercised by the Option Holder or by his or her guardian or legal representative, within twelve months following the Option Holder's disability, or within the 36-month period referred to in (ii) if applicable and if longer (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Option Holder's death during such twelve-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any -8- 10 such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Option Holder's disability. (iv) In the event of the Option Holder's death while still employed by the Company, each Option of the deceased Option Holder may be exercised by those entitled to do so under the Option Holder's will or under the laws of descent and distribution within twelve months following the Option Holder's death (provided that in any event such exercise must occur within the Option Period), but not thereafter, as to all shares of Stock which are subject to such Option, including each 25 percent increment of the Option, if any, which has not yet become exercisable at the time of the Option Holder's death. In the event of the Option Holder's death within the 36-month period referred to in (ii) above or within the twelve-month period referred to in (iii) above, each Option of the deceased Option Holder that is exercisable at the time of death may be exercised by those entitled to do so under the Option Holder's will or under the laws of descent and distribution within twelve months following the Option Holder's death or within the 36-month period referred to in (ii), if applicable and if longer (provided that in any event such exercise must occur within the Option Period). The provisions of this paragraph (iv) of subsection 7.2(d) shall be applicable to each Stock Option Agreement as if set forth therein word for word. Each Stock Option Agreement executed by the Company prior to the adoption of this provision shall be deemed amended to include the provisions of this paragraph and all Options granted pursuant to such Stock Option Agreements shall be exercisable as provided herein. (v) If the employment of the Option Holder by the Company is terminated (which for this purpose means that the Option Holder is no longer employed by the Company or by an Affiliated Corporation) within the Option Period for any reason other than cause, retirement on or after attaining age 65, disability or the Option Holder's death, the Option may be exercised by the Option Holder within three months following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of termination of employment. (e) Transferability. Each stock option agreement shall provide that the Option granted therein is not transferable by the Option Holder except by will or pursuant to the laws of descent and distribution, and that such Option is exercisable during the Option Holder's lifetime only by him or her, or in the event of disability or incapacity, by his or her guardian or legal representative. (f) Agreement to Continue in Employment. Each stock option agreement shall contain the Option Holder's agreement to remain in the employment of the Company, at -9- 11 the pleasure of the Company, for a continuous period of at least one year after the date of such stock option agreement, at the salary rate in effect on the date of such agreement or at such changed rate as may be fixed, from time to time, by the Company. (g) Exercise, Payments, Etc. (i) Each stock option agreement shall provide that the method for exercising the Option granted therein shall be by delivery to the Office of the Secretary of the Company or to the Administrative Agent of written notice specifying the number of shares of Stock with respect to which such Option is exercised and payment to the Company of the aggregate Option Price. Such notice shall be in a form satisfactory to the Committee and shall specify the particular Option (or portion thereof) which is being exercised and the number of shares of Stock with respect to which the Option is being exercised. The exercise of the Option shall be deemed effective upon receipt of such notice by the Office of the Secretary or by the Administrative Agent and payment is made to the Company of the aggregate Option Price (the "Exercise Date"); however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(g)(iii)(F) below, the Exercise Date shall be deemed to be the date of such sale. If requested by the Company, such notice shall contain the Participant's representation that he or she is purchasing the Stock for investment purposes only and his or her agreement not to sell any stock so purchased in any manner that is in violation of the Securities Act of 1933, as amended, or any applicable state law, and such restriction, or notice thereof, shall be placed on the certificates representing the Stock so purchased. The purchase of such Stock shall take place upon delivery of such notice to the Office of the Secretary of the Company or to the Administrative Agent, at which time the aggregate Option Price shall be paid in full to the Company by any of the methods or any combination of the methods set forth in 7.2(g)(iii) below. (ii) Except as referenced below in connection with the Deferred Delivery Plan, the shares of Stock to which the Participant is entitled as a result of the exercise of the Option shall be issued by the Company and (A) delivered by electronic means to an account designated by the Participant, or (B) delivered to the Participant in the form of a properly executed certificate or certificates representing such shares of Stock. If shares of Stock and/or Depositary Shares are used to pay all or part of the aggregate Option Price, the Company shall issue and deliver to the Participant the additional shares of Stock, in excess of the aggregate Option Price or portion thereof paid using shares of Stock or Depositary Shares, to which the Participant is entitled as a result of the Option exercise. If the Participant exercising an Option (x) is eligible for participation in the Deferred Delivery Plan, (y) pays the aggregate Option Price pursuant to 7(g)(iii)(A), (B), (C), (D) or (E) below, and (z) has made an irrevocable election at least six months prior to the Exercise Date as required under the Deferred Delivery Plan, the income resulting from -10- 12 the Option exercise shall be deferred into the Participant's Deferred Delivery Plan account and no additional shares of Stock shall be delivered to the Participant. (iii) the aggregate Option Price shall be paid by any of the following methods or any combination of the following methods: (A) in cash, including the wire transfer of funds in U.S. dollars to one of the Company's bank accounts located in the United States, with such bank account to be designated from time to time by the Company; (B) by personal, certified or cashier's check payable in U.S. dollars to the order of the Company; (C) by delivery to the Company or the Administrative Agent of certificates representing a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, properly endorsed for transfer to the Company; provided that the shares of Stock used for this purpose must have been owned by the Participant for a period of at least six months; (D) by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise Date) of the number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, provided that the shares of Stock and/or Depositary Shares used for this purpose have been owned by the Participant for a period of at least six months; (E) if the income resulting from the Option exercise is to be deferred into the Participant's Deferred Delivery Plan account, by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise Date) of a number of vested Stock Units held in the Participant's Deferred Delivery Plan account, the equivalent aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, provided that the Stock Units used for this purpose were vested as of the Exercise Date; or (F) by delivery to the Company or the Administrative Agent of a properly executed notice of exercise together with irrevocable instructions to a broker to promptly deliver to the Company, by wire transfer or check as noted in (A) and (B) above, the amount of the proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Option Holder necessary to pay the aggregate Option Price. -11- 13 (iv) For purposes of the Plan, the income resulting from an Option exercise shall be based on the Fair Market Value of the Stock for the Exercise Date; however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(g)(iii)(F) hereof, the Fair Market Value shall be deemed to be the per share sale price and the Exercise Date shall be deemed to be the date of such sale. (h) Date of Grant. An option shall be considered as having been granted on the date specified in the grant resolution of the Committee. (i) Tax Withholding. Each Stock Option Agreement shall provide that, upon exercise of the Option, the Participant shall make appropriate arrangements with the Company to provide for the amount of tax withholding required by Sections 3102 and 3402 or any successor section(s) of the Internal Revenue Code and applicable state and local income tax laws, including payment of such taxes in cash, by check or as provided in Section 13.2 hereof. (j) Adjustment of Options. Subject to the provisions of Sections 4, 5, 7, 8 and 12, the Committee may make any adjustment in the number of shares covered by, or the terms of an outstanding Option and a subsequent granting of an Option, by amendment or by substitution of an outstanding Option; however, except as provided in Sections 4, 5, 8 and 12 hereof, the Committee may not adjust the exercise price of any outstanding Option. Such amendment or substitution may result in terms and conditions (including the number of shares covered, vesting schedule or exercise period) that differ from the terms and conditions of the original Option. The Committee may not, however, adversely affect the rights of any Participant to previously granted Options without the consent of such Participant. If such action is effected by amendment, the effective date of such amendment will be the date of the original grant. 7.3 Shareholder Privileges. No Option Holder shall have any rights as a shareholder with respect to any shares of Stock covered by an Option until the Option Holder becomes the holder of record of such Stock, and no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date such Option Holder becomes the holder of record of such Stock, except as provided in Section 4. -12- 14 SECTION 8 CHANGE IN CONTROL 8.1 In General. In the event of a change in control of the Company as defined in Section 8.3, then the Committee may, in its sole discretion, without obtaining shareholder approval, to the extent permitted in Section 12, take any or all of the following actions: (a) accelerate the exercise dates of any outstanding Options or make all such Options fully vested and exercisable; (b) grant a cash bonus award to any Option Holder in an amount necessary to pay the aggregate Option Price of all or any portion of the Options then held by such Option Holder; (c) pay cash to any or all Option Holders in exchange for the cancellation of their outstanding Options in an amount equal to the difference between the exercise price of such Options and the greater of the tender offer price for the underlying Stock or the Fair Market Value of the Stock on the date of the cancellation of the Options; and (d) make any other adjustments or amendments to the outstanding Options. 8.2 Limitation on Payments. If the provisions of this Section 8 would result in the receipt by any Participant of a payment within the meaning of Section 280G of the Internal Revenue Code and the regulations promulgated thereunder and if the receipt of such payment by any Participant would, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the payment by such Participant of any excise tax provided for in Sections 280G and 4999 of the Internal Revenue Code, then the amount of such payment shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax; provided, however, that the Committee, in its sole discretion, may authorize the payment of all or any portion of the amount of such reduction to the Participant. 8.3 Definition. For purposes of the Plan, a "change in control" shall mean any of the events specified in the Company's Income Continuance Plan which constitute a change in control within the meaning of that Plan. SECTION 9 RIGHTS OF EMPLOYEES, PARTICIPANTS 9.1 Employment. Nothing contained in the Plan or in any Option granted under the Plan shall confer upon any Participant any right with respect to the continuation of his or her employment by the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such -13- 15 employment or to increase or decrease the compensation of the Participant from the rate in existence at the time of the grant of an Option. Whether an authorized leave of absence, or absence in military or government service, shall constitute a termination of employment shall be determined by the Committee at the time. 9.2 Nontransferability. No right or interest of any Participant in an Option granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant's death, a Participant's rights and interests in Options shall, to the extent provided in Section 7, be transferable by testamentary will or the laws of descent and distribution, and payment of any amounts due under the Plan shall be made to, and exercise of any Options may be made by, the Participant's legal representatives, heirs or legatees. If, in the opinion of the Committee, a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person's guardian, conservator or other legal personal representative upon furnishing the Committee with evidence of such status satisfactory to the Committee. SECTION 10 GENERAL RESTRICTIONS 10.1 Investment Representations. The Company may require any person to whom an Option is granted, as a condition of exercising such Option, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Stock subject to the Option for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with Federal and applicable state securities laws. 10.2 Compliance with Securities Laws. Each Option shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares subject to such Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of shares thereunder, such Option may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be -14- 16 deemed to require the Company to apply for or to obtain such listing, registration or qualification. SECTION 11 OTHER EMPLOYEE BENEFITS The amount of any income deemed to be received by a Participant as a result of an Option exercise shall not constitute "earnings" or "compensation" with respect to which any other employee benefits of such employee are determined including, without limitation benefits under any pension, profit sharing, life insurance or salary continuation plan. SECTION 12 PLAN AMENDMENT, MODIFICATION AND TERMINATION The Board may at any time terminate, and from time to time may amend or modify the Plan provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the shareholders if shareholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements unless the Company, on the advice of counsel, determines that shareholder approval is otherwise necessary or desirable. No amendment, modification or termination of the Plan shall in any manner adversely affect any Options theretofore granted under the Plan, without the consent of the Participant holding such Options. The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with the provisions of the laws (including, but not limited to, tax laws and regulations) of countries other than the United States in which the Company may operate, so as to assure the viability of the benefits of the Plan to Participants employed in such countries. SECTION 13 WITHHOLDING 13.1 Withholding Requirement. The Company's obligations to deliver shares of Stock upon the exercise of an Option, or to defer income resulting from an Option exercise into the Deferred Delivery Plan, shall be subject to the Participant's satisfaction of all applicable federal, state and local income and other tax withholding requirements. -15- 17 13.2 Satisfaction of Required Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay all such amounts of required tax withholding, or any part thereof: (a) by the delivery to the Company or the Administrative Agent of a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such shares have been held by the Participant for a period of at least six months; (b) by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise Date) of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such shares of Stock and/or Depositary Shares have been owned by the Participant for a period of at least six months; (c) if the income resulting from the Option exercise is to be deferred into the Participant's Deferred Delivery Plan account, by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise Date) of a number of vested Stock Units held in the Participant's Deferred Delivery Plan account, the equivalent aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such Stock Units were vested as of the Exercise Date; or (d) by the Company or the Administrative Agent withholding from the shares of Stock otherwise issuable to the Participant upon exercise of the Option, a number of shares of Stock, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld. Any such elections by Participants to have shares of Stock withheld for this purpose will be subject to the following restrictions: (i) all elections shall be made on or prior to the Exercise Date; and (ii) all elections shall be irrevocable. 13.3 Excess Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay additional or excess amounts of tax withholding, beyond the required amounts and up to the Participant's marginal tax rate: -16- 18 (a) by delivery to the Company or the Administrative Agent of a number of Shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than such excess withholding amount, provided that such shares of Stock have been owned by the Participant for a period of at least six month; or (b) by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise Date) of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than such excess withholding amount, provided that such shares of Stock and/or Depositary Shares have been owned by the Participant for a period of at least six months. 13.4 Section 16 Requirements. If the Participant is an officer or director of the Company within the meaning of Section 16 or any successor section(s) of the 1934 Act ("Section 16"), the Participant must satisfy the requirements of such Section 16 and any applicable rules and regulations thereunder with respect to the use of shares of Stock, Depositary Shares and/or Stock Units to satisfy such tax withholding obligation. SECTION 14 REQUIREMENTS OF LAW 14.1 Requirements of Law. The issuance of stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations. 14.2 Federal Securities Law Requirements. If a Participant is an officer or director of the Company within the meaning of Section 16, Options granted hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule promulgated under the 1934 Act, to qualify the Option for any exception from the provisions of Section 16(b) of the 1934 Act available under that Rule. Such conditions are hereby incorporated herein by reference and shall be set forth in the Stock Option Agreement with the Participant which describes the Option. 14.3 Governing Law. The Plan and all agreements hereunder shall be construed in accordance with and governed by the laws of the State of Texas. -17- 19 SECTION 15 DURATION OF THE PLAN The Plan shall terminate at such time as may be determined by the Board of Directors, and no Option shall be granted after such termination. If not sooner terminated under the preceding sentence, the Plan shall fully cease and expire at midnight on September 18, 1995. Options outstanding at the time of the Plan termination may continue to be exercisable in accordance with the Stock Option Agreement pertaining to each such Option. Dated: December 14, 2000 APACHE CORPORATION ATTEST: /s/ Cheri L. Peper By: /s/ Jeffrey M. Bender - --------------------------------- -------------------------------- Cheri L. Peper Jeffrey M. Bender Corporate Secretary Vice President, Human Resources -18- EX-10.21 3 h84997ex10-21.txt 1995 STOCK OPTION PLAN 1 EXHIBIT 10.21 APACHE CORPORATION 1995 STOCK OPTION PLAN (AS AMENDED AND RESTATED DECEMBER 14, 2000; EFFECTIVE AS OF MARCH 1, 2001) 2 APACHE CORPORATION 1995 STOCK OPTION PLAN (AS AMENDED AND RESTATED DECEMBER 14, 2000; EFFECTIVE AS OF MARCH 1, 2001) SECTION 1 INTRODUCTION 1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter referred to, together with its Affiliated Corporations (as defined in Section 2.1 hereof) as the "Company" except where the context otherwise requires), hereby establishes the Apache Corporation 1995 Stock Option Plan (the "Plan") for certain key employees of the Company. The Plan permits the grant of stock options to certain key employees of the Company. 1.2 Purposes. The purposes of the Plan are to provide the key management employees selected for participation in the Plan with added incentives to continue in the long-term service of the Company and to create in such employees a more direct interest in the future success of the operations of the Company by relating incentive compensation to increases in stockholder value, so that the income of the key management employees is more closely aligned with the interests of the Company's stockholders. The Plan is also designed to attract key employees and to retain and motivate participating employees by providing an opportunity for investment in the Company. 1.3 Effective Date. The Effective Date of the Plan (the "Effective Date") is May 4, 1995. This Plan and each option granted hereunder is conditioned on and shall be of no force or effect until approval of the Plan by the holders of the shares of voting stock of the Company unless the Company, on the advice of counsel, determines that stockholder approval is not necessary. The Committee (as defined in Section 2.1 hereof) may grant options the exercise of which shall be expressly subject to the condition that the Plan shall have been approved by the stockholders of the Company. SECTION 2 DEFINITIONS 2.1 Definitions. The following terms shall have the meanings set forth below: 1 3 (a) "Administrative Agent" means any designee or agent that may be appointed by the Committee pursuant to Section 3.1(b) hereof. (b) "Affiliated Corporation" means any corporation or other entity (including but not limited to a partnership) which is affiliated with Apache Corporation through stock ownership or otherwise and is treated as a common employer under the provisions of Sections 414(b) and (c) or any successor section(s) of the Internal Revenue Code. (c) "Board" means the Board of Directors of the Company. (d) "Committee" means the Stock Option Plan Committee of the Board, which is empowered hereunder to take actions in the administration of the Plan. The Committee shall be constituted at all times as to permit the Plan to comply with: (i) Rule 16b-3 or any successor rule(s) promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and (ii) Section 162(m) or any successor section(s) of the Internal Revenue Code and the regulations promulgated thereunder. (e) "Deferred Delivery Plan" means the Company's Deferred Delivery Plan, effective as of February 10, 2000 and as it may be amended from time to time, or any successor plan. (f) "Depositary Shares" means the depositary shares representing the Company's preferred stock convertible into Stock. (g) "Eligible Employees" means those full-time key employees (including, without limitation, officers and directors who are also employees) of the Company or any division thereof, upon whose judgment, initiative and efforts the Company is, or will become, largely dependent for the successful conduct of its business. (h) "Fair Market Value" means the per share closing price of the Stock or Depositary Shares, as applicable, as reported on the New York Stock Exchange, Inc. Composite Transactions Reporting System for a particular date. If on such date there are no transactions in the Stock or Depositary Shares, as applicable, the Fair Market Value shall be determined as of the immediately preceding date on which there were transactions in the Stock or Depositary Shares, as applicable. (i) "Internal Revenue Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. (j) "Option" means a right to purchase shares of Stock at a stated price for a specified period of time. All Options granted under the Plan shall be Options which are 2 4 not "incentive stock options" as described in Section 422 or any successor section(s) of the Internal Revenue Code. (k) "Option Price" means the price at which shares of Stock subject to an Option may be purchased, determined in accordance with subsection 7.2(b) hereof. (l) "Participant" means an Eligible Employee designated by the Committee from time to time during the term of the Plan to receive one or more Options under the Plan. (m) "Stock" means the $1.25 par value Common Stock of the Company. (n) "Stock Units" means investment units under the Deferred Delivery Plan, each of which is deemed to be equivalent to one share of Stock. 2.2 Headings; Gender and Number. The headings contained in the Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of the Plan. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. SECTION 3 PLAN ADMINISTRATION 3.1 Administration by the Committee. (a) The Plan shall be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, select the Participants from among the Eligible Employees, determine the Options to be granted pursuant to the Plan, the number of shares of Stock to be issued thereunder, the time at which such Options are to be granted, fix the Option Price, and establish such other terms and requirements as the Committee may deem necessary, or desirable and consistent with the terms of the Plan. The Committee shall determine the form or forms of the agreements with Participants which shall evidence the particular provisions, terms, conditions, rights and duties of the Company and the Participants with respect to Options granted pursuant to the Plan, which provisions need not be identical except as may be provided herein. (b) The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Committee may appoint an Administrative Agent, who need not be a member of the Committee or an employee of the Company, to assist the Committee in 3 5 administration of the Plan and to whom it may delegate such powers as the Committee deems appropriate, except that the Committee shall determine any dispute. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan, or in any agreement entered into hereunder, in the manner and to the extent it shall deem expedient and it shall be the sole and final judge of such expediency. No member of the Committee shall be liable for any action or determination made in good faith. The determination, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons. 3.2 Compliance with Section 162(m). The Plan is intended to comply with the requirements of Section 162 or any successor section(s) of the Internal Revenue Code ("Section 162") as to any "covered employee" as defined in Section 162, and shall be administered, interpreted and construed consistently therewith. In accordance with this intent, the amount of income a Participant may receive from Options granted under the Plan shall be based solely on an increase in the value of the Stock after the date of the grant of the Option, or such other bases as may be permitted by applicable law. The Committee is authorized to take such additional action, if any, that may be required to ensure that the Plan satisfies the requirements of Section 162 and the regulations promulgated or revenue rulings published thereunder. SECTION 4 STOCK SUBJECT TO THE PLAN 4.1 Number of Shares. Subject to Section 7.1 and to adjustment pursuant to Section 4.3 hereof, two million five hundred thousand (2,500,000) shares of Stock are authorized for issuance under the Plan in accordance with the provisions of the Plan and subject to such restrictions or other provisions as the Committee may from time to time deem necessary. This authorization may be increased from time to time by approval of the Board and the stockholders of the Company if, on the advice of counsel for the Company, such stockholder approval is required. Shares of Stock which may be issued upon exercise of Options shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Options are outstanding retain as authorized and unissued Stock, or as Stock in the Company's treasury, at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder. 4.2 Other Shares of Stock. Any shares of Stock that are subject to an Option which expires, is forfeited, is cancelled, or for any reason is terminated unexercised, and any 4 6 shares of Stock that for any other reason are not issued to a Participant or are forfeited shall automatically become available for use under the Plan. 4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall at any time increase or decrease the number of its outstanding shares of Stock or change in any way the rights and privileges of such shares by means of the payment of a Stock dividend or any other distribution upon such shares payable in Stock, or through a Stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock, then in relation to the Stock that is affected by one or more of the above events, the numbers, rights and privileges of the following shall be increased, decreased or changed in like manner as if they had been issued and outstanding, fully paid and nonassessable at the time of such occurrence: (i) the shares of Stock as to which Options may be granted under the Plan; and (ii) the shares of the Stock then included in each outstanding Option granted hereunder. 4.4 Dividend Payable in Stock of Another Corporation, Etc. If the Company shall at any time pay or make any dividend or other distribution upon the Stock payable in securities or other property (except money or Stock), a proportionate part of such securities or other property shall be set aside and delivered to any Participant then holding an Option for the particular type of Stock for which the dividend or other distribution was made, upon exercise thereof. Prior to the time that any such securities or other property are delivered to a Participant in accordance with the foregoing, the Company shall be the owner of such securities or other property and shall have the right to vote the securities, receive any dividends payable on such securities, and in all other respects shall be treated as the owner. If securities or other property which have been set aside by the Company in accordance with this Section are not delivered to a Participant because an Option is not exercised, then such securities or other property shall remain the property of the Company and shall be dealt with by the Company as it shall determine in its sole discretion. 4.5 Other Changes in Stock. In the event there shall be any change, other than as specified in Sections 4.3 and 4.4 hereof, in the number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Committee shall in its discretion determine that such change equitably requires an adjustment in the number or kind of shares subject to outstanding Options or which have been reserved for issuance pursuant to the Plan but are not then subject to an Option, then such adjustments shall be made by the Committee and shall be effective for all purposes of the Plan and on each outstanding Option that involves the particular type of stock for which a change was effected. 4.6 Rights to Subscribe. If the Company shall at any time grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of the Company or of any other corporation, there shall be reserved with respect to the 5 7 shares then under Option to any Participant of the particular class of Stock involved the Stock or other securities which the Participant would have been entitled to subscribe for if immediately prior to such grant the Participant had exercised his entire Option. If, upon exercise of any such Option, the Participant subscribes for the additional shares or other securities, the aggregate Option Price shall be increased by the amount of the price that is payable by the Participant for such additional shares or other securities. 4.7 General Adjustment Rules. No adjustment or substitution provided for in this Section 4 shall require the Company to sell a fractional share of Stock under any Option, or otherwise issue a fractional share of Stock, and the total substitution or adjustment with respect to each Option shall be limited by deleting any fractional share. In the case of any such substitution or adjustment, the aggregate Option Price for the shares of Stock then subject to the Option shall remain unchanged but the Option Price per share under each such Option shall be equitably adjusted by the Committee to reflect the greater or lesser number of shares of Stock or other securities into which the Stock subject to the Option may have been changed. 4.8 Determination by the Committee, Etc. Adjustments under this Section 4 shall be made by the Committee, whose determinations with regard thereto shall be final and binding upon all parties. SECTION 5 REORGANIZATION OR LIQUIDATION In the event that the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if all or substantially all of the assets or more than 20 percent of the outstanding voting stock of the Company is acquired by any other corporation, business entity or person, or in case of a reorganization (other than a reorganization under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of Section 8 hereof do not apply, the Committee, or the board of directors of any corporation assuming the obligations of the Company, shall, as to the Plan and outstanding Options either (i) make appropriate provision for the adoption and continuation of the Plan by the acquiring or successor corporation and for the protection of any such outstanding Options by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable with respect to the Stock, provided that no additional benefits shall be conferred upon the Participants holding such Options as a result of such substitution, and the excess of the aggregate Fair Market Value of the shares subject to the Options immediately after such substitution over the aggregate Option Price thereof is not more than the excess of the aggregate Fair Market Value of the shares subject to such Options immediately before such substitution over the aggregate Option Price thereof, or 6 8 (ii) upon written notice to the Participants, provide that all unexercised Options shall be exercised within a specified number of days of the date of such notice or such Options will be terminated. In the latter event, the Committee shall accelerate the vesting dates of outstanding Options so that all Options become fully vested and exercisable prior to any such event. SECTION 6 PARTICIPATION Participants in the Plan shall be those Eligible Employees who, in the judgment of the Committee, are performing, or during the term of their incentive arrangement will perform, vital services in the management, operation and development of the Company or an Affiliated Corporation, and significantly contribute, or are expected to significantly contribute, to the achievement of the Company's long-term corporate economic objectives. Participants may be granted from time to time one or more Options; provided, however, that the grant of each such Option shall be separately approved by the Committee, and receipt of one such Option shall not result in automatic receipt of any other Option. Upon determination by the Committee that an Option is to be granted to a Participant, written notice shall be given to such person, specifying the terms, conditions, rights and duties related thereto. Each Participant shall, if required by the Committee, enter into an agreement with the Company, in such form as the Committee shall determine and which is consistent with the provisions of the Plan, specifying such terms, conditions, rights and duties. Options shall be deemed to be granted as of the date specified in the grant resolution of the Committee, which date shall be the date of any related agreement with the Participant. In the event of any inconsistency between the provisions of the Plan and any such agreement entered into hereunder, the provisions of the Plan shall govern. SECTION 7 STOCK OPTIONS 7.1 Grant of Stock Options. Coincident with or following designation for participation in the Plan, an Eligible Employee may be granted one or more Options. Grants of Options under the Plan shall be made by the Committee. In no event shall the exercise of one Option affect the right to exercise any other Option or affect the number of shares of Stock for which any other Option may be exercised, except as provided in subsection 7.2(j) hereof. During the life of the Plan, no Eligible Employee may be granted Options which in the aggregate pertain to in excess of 25 percent of the total shares of Stock authorized under the Plan. 7 9 7.2 Stock Option Agreements. Each Option granted under the Plan shall be evidenced by a written stock option agreement which shall be entered into by the Company and the Participant to whom the Option is granted (the "Stock Option Agreement"), and which shall contain the following terms and conditions, as well as such other terms and conditions, not inconsistent therewith, as the Committee may consider appropriate in each case. (a) Number of Shares. Each Stock Option Agreement shall state that it covers a specified number of shares of Stock, as determined by the Committee. (b) Price. The price at which each share of Stock covered by an Option may be purchased shall be determined in each case by the Committee and set forth in the Stock Option Agreement, but in no event shall the price be less than the Fair Market Value of the Stock on the date the Option is granted. (c) Duration of Options; Employment Required For Exercise. Each Stock Option Agreement shall state the period of time, determined by the Committee, within which the Option may be exercised by the Participant (the "Option Period"). The Option Period must end, in all cases, not more than ten years from the date an Option is granted. Except as otherwise provided in Sections 5 and 8 and subsection 7.2(d)(iv) hereof, each Option granted under the Plan shall become exercisable in increments such that 25 percent of the Option will become exercisable on each of the four subsequent one-year anniversaries of the date the Option is granted, but each such additional 25-percent increment shall become exercisable only if the Participant has been continuously employed by the Company from the date the Option is granted through the date on which each such additional 25-percent increment becomes exercisable. (d) Termination of Employment, Death, Disability, Etc. Each Stock Option Agreement shall provide as follows with respect to the exercise of the Option upon termination of the employment or the death of the Participant: (i) If the employment of the Participant by the Company is terminated within the Option Period for cause, as determined by the Company, the Option shall thereafter be void for all purposes. As used in this subsection 7.2(d), "cause" shall mean a gross violation, as determined by the Company, of the Company's established policies and procedures, provided that the effect of this subsection 7.2(d) shall be limited to determining the consequences of a termination and that nothing in this subsection 7.2(d) shall restrict or otherwise interfere with the Company's discretion with respect to the termination of any employee. (ii) If the Participant retires from employment by the Company on or after attaining age 65, the Option may be exercised by the Participant within 36 months 8 10 following his or her retirement (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant's death during such 36-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Participant's retirement. (iii) If the Participant becomes disabled (as determined pursuant to the Company's Long-Term Disability Plan or any successor plan), during the Option Period while still employed, or within the three-month period referred to in (v) below, or within the 36-month period referred to in (ii) above, the Option may be exercised by the Participant or by his or her guardian or legal representative, within twelve months following the Participant's disability, or within the 36-month period referred to in (ii) if applicable and if longer (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant's death during such twelve-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case, the Option may be exercised only as to the shares of Stock as to which the Option had become exercisable on or before the date of the Participant's disability. (iv) In the event of the Participant's death while still employed by the Company, each Option of the deceased Participant may be exercised by those entitled to do so under the Participant's will or under the laws of descent and distribution within twelve months following the Participant's death (provided that in any event such exercise must occur within the Option Period), but not thereafter, as to all shares of Stock which are subject to such Option, including each 25-percent increment of the Option, if any, which has not yet become exercisable at the time of the Participant's death. In the event of the Participant's death within the 36-month period referred to in (ii) above or within the twelve-month period referred to in (iii) above, each Option of the deceased Participant that is exercisable at the time of death may be exercised by those entitled to do so under the Participant's will or under the laws of descent and distribution within twelve months following the Participant's death or within the 36-month period referred to in (ii), if applicable and if longer (provided that in any event such exercise must occur within the Option Period). The provisions of this paragraph (iv) of subsection 7.2(d) shall be applicable to each Stock Option Agreement as if set forth therein word for word. Each Stock Option Agreement executed by the Company prior to the adoption of this provision shall be deemed amended to include the provisions of this paragraph and all Options granted pursuant to such Stock Option Agreements shall be exercisable as provided herein. (v) If the employment of the Participant by the Company is terminated (which for this purpose means that the Participant is no longer employed by the Company 9 11 or by an Affiliated Corporation) within the Option Period for any reason other than cause, the Participant's retirement on or after attaining age 65, the Participant's disability or death, the Option may be exercised by the Participant within three months following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of termination of the Participant's employment. (e) Transferability. Each Stock Option Agreement shall provide that the Option granted therein is not transferable by the Participant except by will or pursuant to the laws of descent and distribution, and that such Option is exercisable during the Participant's lifetime only by him or her, or in the event of the Participant's disability or incapacity, by his or her guardian or legal representative. (f) Agreement to Continue in Employment. Each Stock Option Agreement shall contain the Participant's agreement to remain in the employment of the Company, at the pleasure of the Company, for a continuous period of at least one year after the date of such Stock Option Agreement, at the salary rate in effect on the date of such agreement or at such changed rate as may be fixed, from time to time, by the Company. (g) Exercise, Payments, Etc. (i) Each Stock Option Agreement shall provide that the method for exercising the Option granted therein shall be by delivery to the Office of the Secretary of the Company or to the Administrative Agent of written notice specifying the number of shares of Stock with respect to which such Option is exercised and payment to the Company of the aggregate Option Price. Such notice shall be in a form satisfactory to the Committee and shall specify the particular Options (or portions thereof) which are being exercised and the number of shares of Stock with respect to which the Options are being exercised. The exercise of the Option shall be deemed effective on the date such notice is received by the Office of the Secretary or by the Administrative Agent and payment is made to the Company of the aggregate Option Price (the "Exercise Date"); however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(g)(iii)(F) below, the Exercise Date shall be deemed to be the date of such sale. If requested by the Company, such notice shall contain the Participant's representation that he or she is purchasing the Stock for investment purposes only and his or her agreement not to sell any Stock so purchased in any manner that is in violation of the Securities Act of 1933, as amended, or any applicable state law, and such restriction, or notice thereof, shall be placed on the certificates representing the Stock so purchased. The purchase of such Stock shall take place upon delivery of such notice to the Office of the Secretary of the Company or to the Administrative Agent, at which time 10 12 the aggregate Option Price shall be paid in full to the Company by any of the methods or any combination of the methods set forth in 7.2(g)(iii) below. (ii) Except as referenced below in connection with the Deferred Delivery Plan, the shares of Stock to which the Participant is entitled as a result of the exercise of the Option shall be issued by the Company and (A) delivered by electronic means to an account designated by the Participant, or (B) delivered to the Participant in the form of a properly executed certificate or certificates representing such shares of Stock. If shares of Stock and/or Depositary Shares are used to pay all or part of the aggregate Option Price, the Company shall issue and deliver to the Participant the additional shares of Stock, in excess of the aggregate Option Price or portion thereof paid using shares of Stock or Depositary Shares, to which the Participant is entitled as a result of the Option exercise. If the Participant exercising an Option (x) is eligible for participation in the Deferred Delivery Plan, (y) pays the aggregate Option Price pursuant to 7.2(g)(iii)(A), (B), (C), (D) or (E) below, and (z) has made an irrevocable election at least six months prior to the Exercise Date as required under the Deferred Delivery Plan, the income resulting from the Option exercise shall be deferred into the Participant's Deferred Delivery Plan account and no additional shares of Stock shall be delivered to the Participant. (iii) the aggregate Option Price shall be paid by any of the following methods or any combination of the following methods: (A) in cash, including the wire transfer of funds in U.S. dollars to one of the Company's bank accounts located in the United States, with such bank account to be designated from time to time by the Company; (B) by personal, certified or cashier's check payable in U.S. dollars to the order of the Company; (C) by delivery to the Company or the Administrative Agent of certificates representing a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, properly endorsed for transfer to the Company; provided that the shares of Stock used for this purpose must have been owned by the Participant for a period of at least six months; (D) by certification or attestation to the Company or the Administrative Agent of the Participant's ownership as of the Exercise Date of the number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, provided that the shares of Stock and/or Depositary Shares used for this purpose have been owned by the Participant for a period of at least six months; 11 13 (E) if the income resulting from the Option exercise is to be deferred into the Participant's Deferred Delivery Plan account, by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise Date) of a number of vested Stock Units held in the Participant's Deferred Delivery Plan account, the equivalent aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, provided that the Stock Units used for this purpose were vested as of the Exercise Date; or (F) by delivery to the Company or the Administrative Agent of a properly executed notice of exercise together with irrevocable instructions to a broker to promptly deliver to the Company, by wire transfer or check as noted in (A) and (B) above, the amount of the proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Participant necessary to pay the aggregate Option Price. (iv) For purposes of the Plan, the income resulting from an Option exercise shall be based on the Fair Market Value of the Stock for the Exercise Date; however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(g)(iii)(F) hereof, the Fair Market Value shall be deemed to be the per share sale price and the Exercise Date shall be deemed to be the date of such sale. (h) Date of Grant. An Option shall be considered as having been granted on the date specified in the grant resolution of the Committee. (i) Tax Withholding. Each Stock Option Agreement shall provide that, upon exercise of the Option, the Participant shall make appropriate arrangements with the Company to provide for the amount of tax withholding required by Sections 3102 and 3402 or any successor section(s) of the Internal Revenue Code and applicable state and local income tax laws, including payment of such taxes in cash, by check or as provided in Section 13.2 hereof. (j) Adjustment of Options. Subject to the provisions of Sections 4, 5, 7, 8 and 12 hereof, the Committee may make any adjustment in the number of shares of Stock covered by, or the terms of an outstanding Option and a subsequent granting of an Option, by amendment or by substitution for an outstanding Option; however, except as provided in Sections 4, 5, 8 and 12 hereof, the Committee may not adjust the Option Price of any outstanding Option. Such amendment or substitution may result in terms and conditions (including the number of shares of Stock covered, vesting schedule or Option Period) that differ from the terms and conditions of the original Option. The Committee may not, however, adversely affect the rights of any Participant to previously granted 12 14 Options without the consent of such Participant. If such action is effected by amendment, the effective date of such amendment will be the date of grant of the original Option. 7.3 Stockholder Privileges. No Participant shall have any rights as a stockholder with respect to any shares of Stock covered by an Option until the Participant becomes the holder of record of such Stock. Except as provided in Section 4 hereof, no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date on which such Participant becomes the holder of record of such Stock. SECTION 8 CHANGE IN CONTROL 8.1 In General. In the event of a change in control of the Company as defined in Section 8.3 hereof, then the Committee may, in its sole discretion, without obtaining stockholder approval, to the extent permitted in Section 12 hereof, take any or all of the following actions: (a) accelerate the dates on which any outstanding Options become exercisable or make all such Options fully vested and exercisable; (b) grant a cash bonus award to any Participant in an amount necessary to pay the aggregate Option Price of all or any portion of the Options then held by such Participant; (c) pay cash to any or all Participants in exchange for the cancellation of their outstanding Options in an amount equal to the difference between the Option Price of such Options and the greater of the tender offer price for the underlying Stock or the Fair Market Value of the Stock on the date of the cancellation of the Options; and (d) make any other adjustments or amendments to the outstanding Options. 8.2 Limitation on Payments. If the provisions of this Section 8 would result in the receipt by any Participant of a payment within the meaning of Section 280G or any successor section(s) of the Internal Revenue Code, and the regulations promulgated thereunder, and if the receipt of such payment by any Participant would, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the payment by such Participant of any excise tax provided for in Sections 280G and 4999 or any successor section(s) of the Internal Revenue Code, then the amount of such payment shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax; provided, however, that the Committee, in its sole discretion, may authorize the payment of all or any portion of the amount of such reduction to the Participant. 8.3 Definition. For purposes of the Plan, a "change in control" shall mean any of the events specified in the Company's Income Continuance Plan or any successor plan which constitute a change in control within the meaning of such plan. 13 15 SECTION 9 RIGHTS OF EMPLOYEES, PARTICIPANTS 9.1 Employment. Nothing contained in the Plan or in any Option granted under the Plan shall confer upon any Participant any right with respect to the continuation of his or her employment by the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the level of the Participant's compensation from the level in existence at the time of the grant of an Option. Whether an authorized leave of absence, or absence in military or government service, shall constitute a termination of employment shall be determined by the Committee at the time. 9.2 Nontransferability. No right or interest of any Participant in an Option granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant's death, a Participant's rights and interests in Options shall, to the extent provided in Section 7 hereof, be transferable by testamentary will or the laws of descent and distribution, and payment of any amounts due under the Plan shall be made to, and exercise of any Options may be made by, the Participant's legal representatives, heirs or legatees. If in the opinion of the Committee, a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his or her affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person's guardian, conservator or other legal personal representative upon furnishing the Committee with evidence of such status satisfactory to the Committee. SECTION 10 GENERAL RESTRICTIONS 10.1 Investment Representations. The Company may require a Participant, as a condition of exercising an Option, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Stock subject to the Option for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws. 14 16 10.2 Compliance with Securities Laws. Each Option shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares of Stock subject to such Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of shares of Stock thereunder, such Option may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration, qualification, consent or approval. SECTION 11 OTHER EMPLOYEE BENEFITS The amount of any income deemed to be received by a Participant as a result of an Option exercise shall not constitute "earnings" or "compensation" with respect to which any other employee benefits of such Participant are determined including, without limitation benefits under any pension, profit sharing, life insurance or salary continuation plan. SECTION 12 PLAN AMENDMENT, MODIFICATION AND TERMINATION The Board may at any time terminate, and from time to time may amend or modify the Plan provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the Company's stockholders if stockholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements unless the Company, on the advice of counsel, determines that stockholder approval is otherwise necessary or desirable. No amendment, modification or termination of the Plan shall in any manner adversely affect any Option theretofore granted under the Plan, without the consent of the Participant holding such Option. The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with the provisions of the laws (including, but not limited to, tax laws and regulations) of countries other than the United States in which the Company may operate, so as to assure the viability of the benefits of the Plan to Participants employed in such countries. 15 17 SECTION 13 WITHHOLDING 13.1 Withholding Requirement. The Company's obligations to deliver shares of Stock upon the exercise of an Option, or to defer income resulting from an Option exercise into the Deferred Delivery Plan, shall be subject to the Participant's satisfaction of all applicable federal, state and local income and other tax withholding requirements. 13.2 Satisfaction of Required Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay all such amounts of required tax withholding, or any part thereof: (a) by the delivery to the Company or the Administrative Agent of a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such shares have been held by the Participant for a period of at least six months; (b) by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise Date) of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such shares of Stock and/or Depositary Shares have been owned by the Participant for a period of at least six months; (c) if the income resulting from the Option exercise is to be deferred into the Participant's Deferred Delivery Plan account, by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise Date) of a number of vested Stock Units held in the Participant's Deferred Delivery Plan account, the equivalent aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such Stock Units were vested as of the Exercise Date; or (d) by the Company or the Administrative Agent withholding from the shares of Stock otherwise issuable to the Participant upon exercise of the Option, a number of shares of Stock, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld. Any such elections by Participants to have shares of Stock withheld for this purpose will be subject to the following restrictions: 16 18 (i) all elections shall be made on or prior to the Exercise Date; and (ii) all elections shall be irrevocable. 13.3 Excess Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay additional or excess amounts of tax withholding, beyond the required amounts and up to the Participant's marginal tax rate: (a) by delivery to the Company or the Administrative Agent of a number of Shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than such excess withholding amount, provided that such shares of Stock have been owned by the Participant for a period of at least six months; or (b) by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise Date) of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than such excess withholding amount, provided that such shares of Stock and/or Depositary Shares have been owned by the Participant for a period of at least six months. 13.4 Section 16 Requirements. If the Participant is an officer or director of the Company within the meaning of Section 16 or any successor section(s) of the 1934 Act ("Section 16"), the Participant must satisfy the requirements of such Section 16 and any applicable rules and regulations thereunder with respect to the use of shares of Stock, Depositary Shares and/or Stock Units to satisfy such tax withholding obligation. SECTION 14 REQUIREMENTS OF LAW 14.1 Requirements of Law. The issuance of Stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations. 14.2 Federal Securities Laws Requirements. If a Participant is an officer or director of the Company within the meaning of Section 16, Options granted hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule(s) promulgated under the 1934 Act, to qualify the Option for any exception from the provisions of Section 16 available under such Rule. Such conditions are hereby incorporated herein by reference and shall be set forth in the Stock Option Agreement with the Participant which describes the Option. 17 19 14.3 Governing Law. The Plan and all Stock Option Agreements hereunder shall be construed in accordance with and governed by the laws of the State of Texas. SECTION 15 DURATION OF THE PLAN The Plan shall terminate at such time as may be determined by the Board, and no Option shall be granted after such termination. If not sooner terminated under the preceding sentence, the Plan shall fully cease and expire at midnight on May 4, 2000. Options outstanding at the time of the Plan termination shall continue to be exercisable in accordance with the Stock Option Agreement pertaining to each such Option. Dated: December 14, 2000 APACHE CORPORATION ATTEST: /s/ Cheri L. Peper By: /s/ Jeffrey M. Bender - ----------------------------------- -------------------------------- Cheri L. Peper Jeffrey M. Bender Corporate Secretary Vice President, Human Resources 18 EX-10.22 4 h84997ex10-22.txt 2000 SHARE APPRECIATION PLAN 1 EXHIBIT 10.22 APACHE CORPORATION 2000 SHARE APPRECIATION PLAN 120 BY '04 2 TABLE OF CONTENTS
PAGE ---- Section 1 - Introduction......................................................1 1.1 Establishment....................................................1 1.2 Purposes.........................................................1 Section 2 - Definitions.....................................................1-6 2.1 Definitions....................................................1-6 2.2 Headings; Gender and Number......................................6 Section 3 - Plan Administration...............................................6 Section 4 - Stock Subject to the Plan.........................................7 4.1 Number of Shares.................................................7 4.2 Other Shares of Stock............................................7 4.3 Certain Adjustments..............................................7 Section 5 - Reorganization or Liquidation.....................................8 Section 6 - Grant of Plan Units............................................8-12 6.1 Grants...........................................................8 6.2 Grant Agreements.................................................9 6.2.1 Grant Terms.............................................9 6.2.2 Payment of Payout Amounts............................9-10 6.3 Termination of Employment, Death, Disability, etc...............10 6.4 Payment and Tax Withholding..................................11-12 6.5 Subsequent Grant Agreements.....................................12 6.6 Stockholder Privileges..........................................12 6.7 Limitations on Stock Issuable to Officers and Directors.........12 6.8 Deferral of Income..............................................12
3 Section 7 - Change in Control.................................................13 7.1 In General......................................................13 7.2 Limitation on Payments..........................................13 7.3 Definition......................................................13 Section 8 - Rights of Employees, Participants.................................14 8.1 Employment......................................................14 8.2 Non-transferability.............................................14 Section 9 - Other Employee Benefits...........................................14 Section 10 - Plan Amendment, Modification and Termination.....................15 Section 11 - Requirements of Law..............................................15 11.1 Requirements of Law.............................................15 11.2 Section 16 Requirements.........................................15 11.3 Governing Law...................................................15 Section 12 - Duration of the Plan.............................................16
4 APACHE CORPORATION 2000 SHARE APPRECIATION PLAN SECTION 1 INTRODUCTION 1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter referred to, together with its Affiliated Corporations (as defined below) as the "Company" except where the context otherwise requires), hereby establishes the Apache Corporation 2000 Share Appreciation Plan (the "Plan"), effective as of October 12, 2000. 1.2 Purposes. The primary purpose of this Plan is to focus the energies of the Company's employees on significantly increasing shareholder wealth through stock price appreciation to share prices of $100, $120 and $180 and a doubling of the Company's currently projected oil and gas production per share for calendar year 2000. The share price goals of this Plan seek to increase shareholder wealth by approximately $5.2 to $7.8 billion dollars with the Company's employees sharing in approximately three percent of the additional shareholder value created. The production goal is designed to inspire the Company's employees to significantly improve the one factor that is most within the control of the Company, production, and that is involved in determining the Company's earnings per share and cash flow per share. Additional purposes of this Plan include the retention of existing key employees and as an additional inducement in the recruitment of talented personnel in a competitive environment. SECTION 2 DEFINITIONS 2.1 Definitions. The following terms shall have the meanings set forth below: "Affiliated Corporation" means any corporation or other entity (including but not limited to a partnership) which is affiliated with Apache Corporation through stock ownership or otherwise and is treated as a common employer under the provisions of Sections 414(b) and (c) or any successor section(s) of the Internal Revenue Code. 1 5 "Base Salary" means, with regard to any Participant, such Participant's base compensation as an employee of the Company at the date of award of a Plan Unit (except for the calculation of the Independent Production Goal Amount, in which case the date shall be the Independent Production Goal Date), without regard to any bonus, pension, profit sharing, stock option, life insurance or salary continuation plan which the Participant either receives or is otherwise entitled to have paid on his behalf. "Board" means the Board of Directors of the Company. "Category" means one of the three groupings of Participants in the Plan whose Plan Units represent the right to receive the same multiple of their base salary for each Payout Amount. "Committee" means the Stock Option Plan Committee of the Board or such other Committee of the Board that is empowered hereunder to administer the Plan. The Committee shall be constituted at all times so as to permit the Plan to be administered by "non-employee directors" (as defined in Rule 16b-3 of the Securities Exchange Act of 1934, as amended). "Deferred Delivery Plan" means the Company's Deferred Delivery Plan, effective as of February 10, 2000, as it may be amended from time to time, or any successor plan. "Eligible Employees" means those full-time employees (including, without limitation, the Company's executive officers), and certain part-time employees, of the Company. "Fair Market Value" means the closing price of the Stock as reported on The New York Stock Exchange, Inc. Composite Transactions Reporting System ("Composite Tape") for a particular date. If there are no Stock transactions on such date, the Fair Market Value shall be determined as of the immediately preceding date on which there were Stock transactions. "Final Amount" means with regard to any: (a) Category I Participant, such number of shares of Stock (rounded down to the nearest full share) which equals two (2) times such Participant's Base Salary divided by $180; (b) Category II Participant, such number of shares of Stock (rounded down to the nearest full share) which equals one (1) times such Participant's Base Salary divided by $180; and 2 6 (c) Category III Participant, such number of shares of Stock (rounded down to the nearest full share) which equals 50 percent (.50) times such Participant's Base Salary divided by $180; which amount, in each case, shall be fixed and not subject to adjustment due to market fluctuation. "Final Price Threshold Date" means the last of any 10 trading days (which need not be consecutive) during any period of 30 consecutive trading days occurring prior to January 1, 2005, but not thereafter, on each of which 10 days the closing price of the Stock as reported on the Composite Tape equaled or exceeded $180 per share. If the above trading criteria are met more than once, the first occurrence shall be deemed to be the Final Price Threshold Date. "Final Plan Unit" means an investment unit convertible into the applicable Final Amount for a Participant upon occurrence of the Final Price Threshold Date. "Grant" has the meaning set forth in Section 6 hereof. "Grant Agreement" has the meaning set forth in Section 6 hereof. "Independent Production Goal Amount" means with regard to any: (a) Category I Participant, such number of shares of Stock (rounded down to the nearest full share) which equals one and one half (1.5) times such Participant's Base Salary divided by the Independent Production Goal Price; (b) Category II Participant, such number of shares of Stock (rounded down to the nearest full share) which equals 75 percent (.75) times such Participant's Base Salary divided by the Independent Production Goal Price; and (c) Category III Participant, such number of shares of Stock (rounded down to the nearest full share) which equals 37.5 percent (.375) times such Participant's Base Salary divided by the Independent Production Goal Price; which amount, in each case, shall be fixed and not subject to adjustment due to market fluctuation. 3 7 "Independent Production Goal Date" means the last day of any fiscal quarter ending on or before December 31, 2004 during which fiscal quarter the Company's average daily production (calculated on an annualized basis) equals or exceeds 1.54 barrels of oil equivalent per outstanding share of Stock (calculated on a fully diluted basis), as confirmed by the Company's independent auditors. If the above production criterion is met more than once, the first occurrence shall be deemed to be the Independent Production Goal Date. "Independent Production Goal Price" means the average daily closing price of the Stock as reported on the Composite Tape for the quarter ending on the Independent Production Goal Date. "Independent Production Goal Plan Unit" means an investment unit convertible into the applicable Independent Production Goal Amount for a Participant upon occurrence of the Independent Production Goal Date. "Initial Amount" means with regard to any: (a) Category I Participant, such number of shares of Stock (rounded down to the nearest full share) which equals one (1) times such Participant's Base Salary divided by $100; (b) Category II Participant, such number of shares of Stock (rounded down to the nearest full share) which equals 50 percent (.50) times such Participant's Base Salary divided by $100; and (c) Category III Participant, such number of shares of Stock (rounded down to the nearest full share) which equals 25 percent (.25) times such Participant's Base Salary divided by $100; which amount, in each case, shall be fixed and not subject to adjustment due to market fluctuation. "Initial Price Threshold Date" means the last of any 10 trading days (which need not be consecutive) during any period of 30 consecutive trading days occurring prior to January 1, 2005, but not thereafter, on each of which 10 days the closing price of the Stock as reported on the Composite Tape equaled or exceeded $100 per share. If the above trading criteria are met more than once, the first occurrence shall be deemed to be the Final Price Threshold Date. 4 8 "Initial Plan Unit" means an investment unit convertible into the applicable Initial Amount for a Participant upon occurrence of the Initial Price Threshold Date. "Internal Revenue Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. "Participant" means an Eligible Employee designated by the Committee from time to time during the term of the Plan to receive one or more grants of Plan Units under the Plan. "Payout Amounts" means the Initial Amount, the Secondary Amount, the Final Amount and/or the Independent Production Goal Amount. "Plan Units" means each of the Initial Plan Units, Secondary Plan Units, Final Plan Units and/or Independent Production Goal Plan Units. "Price Threshold Date" means the Initial Price Threshold Date, the Secondary Price Threshold Date, the Final Price Threshold Date and/or the Independent Production Goal Date, as the context may require. "Secondary Amount" means with regard to any: (a) Category I Participant, such number of shares of Stock (rounded down to the nearest full share) which equals three (3) times such Participant's Base Salary divided by $120; (b) Category II Participant, such number of shares of Stock (rounded down to the nearest full share) which equals one and one half (1.5) times such Participant's Base Salary divided by $120; and (c) Category III Participant, such number of shares of Stock (rounded down to the nearest full share) which equals 75 percent (.75) times such Participant's Base Salary divided by $120; which amount, in each case, shall be fixed and not subject to adjustment due to market fluctuation. 5 9 "Secondary Price Threshold Date" means the last of any 10 trading days (which need not be consecutive) during any period of 30 consecutive trading days occurring prior to January 1, 2005, but not thereafter, on each of which 10 days the closing price of the Stock as reported on the Composite Tape equaled or exceeded $120 per share. If the above trading criteria are met more than once, the first occurrence shall be deemed to be the Secondary Price Threshold Date. "Secondary Plan Unit" means an investment unit convertible into the applicable Secondary Amount for a Participant upon occurrence of the Secondary Price Threshold Date. "Stock" means the $1.25 par value Common Stock of the Company. "Stock Units" means investment units under the Deferred Delivery Plan, each of which is deemed to be equivalent to one share of Stock. 2.2 Headings; Gender and Number. The headings contained in the Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of the Plan. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. SECTION 3 PLAN ADMINISTRATION The Plan shall be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, adopt rules and regulations for carrying out the purposes of the Plan, including, without limitation, selecting the Participants from among the Eligible Employees and the Category of participation for each Participant, appointing designees or agents (who need not be members of the Committee or employees of the Company) to assist the Committee with the administration of the Plan, and establish such other terms and requirements as the Committee may deem necessary or desirable and consistent with the terms of the Plan. No member of the Committee shall be liable for any action or determination made in good faith. The determinations, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons. 6 10 SECTION 4 STOCK SUBJECT TO THE PLAN 4.1 Number of Shares. Subject to Sections 4.3 and Section 6.1 hereof, up to three million five hundred thousand (3,500,000) shares of Stock are authorized for issuance under the Plan upon conversion of any Plan Units in accordance with the Plan's terms and subject to such restrictions or other provisions as the Committee may from time to time deem necessary. Shares of Stock which may be issued pursuant to the conversion of any Plan Units awarded hereunder shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Plan Units are outstanding retain as authorized and unissued Stock and/or Stock in the Company's treasury, at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder. 4.2 Other Shares of Stock. Any shares of Stock that are subject to issuance upon conversion of a Plan Unit which expires, is forfeited, is cancelled, or for any reason is terminated, and any shares of Stock that for any other reason are not issued to a Participant or are forfeited shall automatically become available for use under the Plan. 4.3 Certain Adjustments. If the Company shall at any time increase or decrease the number of its outstanding shares of Stock (other than by way of issuing Stock in a public or private offering for cash or property) or change in any way the rights and privileges of such shares by means of a Stock dividend or any other distribution upon such shares payable in Stock, or through a Stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock or a subscription for shares of Stock that has the effect of diluting the Company's capital (hereinafter a "capital restructuring"), then for purposes of determining the entitlement to payments under Section 6, (i) the number of shares authorized for issuance under this Section 4, and (ii) the $100 per share amount, $120 per share amount and $180 per share amount referenced in Section 1 and contained in the definitions set forth in Section 2 hereof and the amount of production required to attain the Independent Production Goal shall be, in each case, equitably and proportionally adjusted to take into account any capital restructuring. Any adjustment under this Section shall be made by the Committee, whose determination with regard thereto, including whether any adjustment is needed, shall be final and binding upon all parties. 7 11 SECTION 5 REORGANIZATION OR LIQUIDATION In the event that the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if all or substantially all of the assets or more than 20 percent of the outstanding voting stock of the Company is acquired by any other corporation, business entity or person, or in case of a reorganization (other than a reorganization under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of Section 7 hereof do not apply, the Committee, or the board of directors of any corporation assuming the obligations of the Company, shall, as to the Plan and outstanding Plan Units either (i) make appropriate provision for the adoption and continuation of the Plan by the acquiring or successor corporation and for the protection of any holders of such outstanding Plan Units by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable with respect to the Stock, provided that no additional benefits shall be conferred upon the Participants holding such Plan Units as a result of such substitution, or (ii) provided that a Price Threshold Date has occurred, upon written notice to the Participants, the Committee may accelerate the vesting and payment dates of the entitlement to receive cash and Stock under outstanding Plan Units so that all such existing entitlements are paid prior to any such event. In the latter event, such acceleration shall only apply to entitlements to cash and Stock payable as the result of the occurrence of the most recent Price Threshold Date and shall not by such acceleration, deem the occurrence of a Price Threshold Date that has not occurred by the date of the notice. SECTION 6 GRANT OF PLAN UNITS 6.1 Grants. Each Participant may be awarded an initial grant (a "Grant") of Plan Units under this Plan by the Committee, which Grant shall be composed of one Initial Plan Unit, Secondary Plan Unit, Final Plan Unit and Independent Production Goal Unit. The Committee, in its sole discretion, may award additional Grants to any Participant in connection with such Participant's receiving a significant increase in salary and/or a promotion within the Company. Each Grant awarded by the Committee shall be evidenced by a written agreement entered into by the Company and the Participant to whom the Grant is awarded (the "Grant Agreement"), which shall contain the terms and conditions set out in this Section 6, as well as such other terms and conditions as the Committee may consider appropriate. 8 12 6.2 Grant Agreements. Each Grant Agreement entered into by the Company and each Participant shall specify which Category applies for such Participant and contain at least the following terms and conditions. In the event of any inconsistency between the provisions of the Plan and any Grant Agreement, the provisions of the Plan shall govern. 6.2.1 Grant Terms. Each Grant Agreement shall evidence the Grant of Plan Units and entitle the Participant to receive the indicated Plan Units which shall convert into the right to receive a conditional payment of cash and issuance of Stock upon the occurrence of one or more of the Price Threshold Dates, all as set forth below. (a) If at any time prior to January 1, 2005, the Initial Price Threshold Date occurs, the Participant may become entitled to receive a portion or all of the Initial Amount payable to Participants in such Category, as specified in the applicable Grant Agreement, in accordance with the payment schedule and as otherwise set out in Section 6.2.2. (b) If at any time prior to January 1, 2005, the Secondary Price Threshold Date occurs, the Participant may become entitled to receive a portion or all of the Secondary Amount payable to Participants in such Category, as specified in the applicable Grant Agreement, in accordance with the payment schedule and as otherwise set out in Section 6.2.2. (c) If at any time prior to January 1, 2005, the Final Price Threshold Date occurs, the Participant may become entitled to receive a portion or all of the Final Amount payable to Participants in such Category, as specified in the applicable Grant Agreement, in accordance with the payment schedule and as otherwise set out in Section 6.2.2. (d) If at any time prior to January 1, 2005, the Independent Production Goal Date occurs, the Participant may become entitled to receive a portion or all of the Independent Production Goal Amount payable to Participants in the same Category, as specified in the applicable Grant Agreement, in accordance with the payment schedule and as otherwise set out in Section 6.2.2. 6.2.2 Payment of Payout Amounts. Subject to the provisions of Section 6.3, the Payout Amounts shall be payable in increments strictly in accordance with the following schedule: 9 13 (a) The entitlement to receive the first one-third (1/3) of any Payout Amount shall vest on the applicable Price Threshold Date and shall be paid by the Company to the Participant within thirty (30) days of the applicable Price Threshold Date in the manner set out in Section 6.4 below. (b) The entitlement to receive the remainder of any Payout Amount shall vest and become payable in equal parts on the dates occurring, respectively, 12 months and 24 months after the applicable Price Threshold Date, in the same proportions and amounts as set forth in Section 6.4 below, and shall be paid by the Company to the Participant within thirty (30) days of such date. If any of the above dates is not a business day during which the Company is open for business, such date of vesting or payment shall be the first business date occurring immediately thereafter. (c) No Payout Amount or portion thereof shall be payable under this Section 6.2.2 if the applicable Price Threshold Date has not occurred prior to January 1, 2005. 6.3 Termination of Employment, Death, Disability, etc. Except as set forth below, each Grant Agreement shall state that each Grant, the Plan Units received thereunder and the right to receive any payment thereunder upon conversion of the Plan Units shall be subject to the condition that the Participant has remained a full-time employee of the Company from the initial award of a Grant until the applicable vesting date as follows: (a) If the Participant voluntarily leaves the employment of the Company, or if the employment of the Participant is terminated by the Company for cause or otherwise, any Plan Units not previously converted and the right to receive any Payout Amounts not yet paid in accordance with Section 6.2.2 shall thereafter be void and forfeited for all purposes. (b) If the Participant retires from employment with the Company on or after attaining age 60, the retired Participant shall be entitled to receive the payments in Stock and cash in accordance with Section 6.2.2, provided that (i) such Participant has certified in writing to the Committee his commitment not to enter into full-time employment or a consulting arrangement with a competitor of the Company, and (ii) the applicable Price Threshold Date has occurred prior to the Participant's last day of employment with the Company. Such retired Participant shall not be entitled to any payment which may arise due to the occurrence of a Price Threshold Date after the effective date of such Participant's retirement. A failure of the Participant to comply with the undertaking of clause (i) above shall void such Participant's right to payments hereunder. 10 14 (c) If the Participant dies, or if the Participant becomes disabled (as determined pursuant to the Company's Long-Term Disability Plan or any successor plan), while still employed, payment in Stock and cash in accordance with Section 6.2.2 shall be made to the disabled Participant or to those entitled under the Participant's will or by the laws of descent and distribution, provided that the applicable Price Threshold Date has occurred prior to the earlier of such Participant's disability or death. There shall be no entitlement to any payment, which may arise due to the occurrence of a Price Threshold Date after the earlier of such Participant's disability or death. 6.4 Payment and Tax Withholding. Each Grant Agreement shall provide that, upon payment of any entitlement upon conversion of any Plan Units, the Participant shall make appropriate arrangements with the Company to provide for the amount of minimum tax withholding required by Sections 3102 and 3402 or any successor section(s) of the Internal Revenue Code and applicable state and local income and other tax laws, as follows: (a) If upon the achievement of a Threshold Date the credit rating of the Company's long term, unsecured debt is at or above investment grade, then each payment of the related Payout Amount shall be made in a proportion of cash and shares of Stock, determined by the Committee, such that the cash portion shall be sufficient to cover the withholding amount required by this Section. The cash portion of any payment of a Payout Amount shall be based on the Fair Market Value of the shares of Stock on the business day immediately preceding the payment date. Such cash portion shall be withheld by the Company to satisfy applicable tax withholding requirements. (b) If upon the achievement of a Threshold Date the Company's long term, unsecured debt has a credit rating below investment grade, the Committee, in its sole discretion, may either (i) provide for the payment of the withholding amount required by this Section as set forth in Subsection (a) above or (ii) specify that each payment of the related Payout Amount to a Participant be made only after the Participant has made funds available to the Company sufficient to cover the withholding amount required by this Section. The funds required by this Subsection (b) may be obtained by the Participant by means of a loan from a securities broker or dealer, in which case the Participant may satisfy the requirements hereof by delivering to the Company an irrevocable instruction to such broker or dealer to promptly deliver to the Company, by wire transfer or certified or cashier's check, the funds necessary to meet the Participant's obligations hereunder and such delivery instructions for the shares issuable to the Participant as the broker or dealer may require. The calculation of the funds to be provided by the Participant under this paragraph shall be based on the Fair Market Value of the shares of Stock to be issued to the Participant, on the business day immediately preceding the payment date. 11 15 (c) Upon a request made to the Committee by a Participant, the proportion of cash and Stock as set forth in Subsection (a) above may be, but need not be, changed by the Committee, in its sole discretion, to provide for, among other things, special or additional tax burdens on a Participant but, in no event, shall the cash portion of any payment exceed fifty percent (50%). 6.5 Subsequent Grant Agreements. Following the award of Grants in 2000, additional Participants may be designated by the Committee for grants of Plan Units thereafter subject to the same terms and conditions set forth above for initial grants except that the Committee, in its sole discretion, may reduce the value of the Initial Amount, Secondary Amount, Final Amount or Independent Production Goal Amount to which subsequent Participants may become entitled and the applicable Grant Agreement shall be modified to reflect such reduction. 6.6 Stockholder Privileges. No Participant shall have any rights as a stockholder with respect to any shares of Stock into which a Plan Unit is convertible until the Participant becomes the holder of record of such Stock. 6.7 Limitations on Stock Issuable to Officers and Directors. Any provision of the Plan notwithstanding, the total number of shares of Stock issuable to Participants who are directors or officers of the Company (as defined for the purposes of Section 16 of the Securities Exchange Act of 1934, as amended) shall not exceed 49 percent of the total shares issuable under the Plan (the "D&O Limitation"). If the total number of shares of Stock issuable to all of the Company's directors and officers who are Participants in the Plan shall exceed the D&O Limitation, then the total number of shares of Stock issuable to such Participants shall be reduced to a number equal to the D&O Limitation and the number of shares of Stock issuable to each such Participant upon conversion of any Plan Unit shall be reduced pro rata. 6.8 Deferral of Income. For Participants eligible for participation in the Deferred Delivery Plan, all or a portion of the income resulting from the conversion of Plan Units into Payout Amounts is subject to deferral into the Participant's Deferred Delivery Plan account, if the Participant has made an irrevocable election to make such a deferral, as follows: (a) with respect to the first payment to be made upon the occurrence of a Price Threshold Date, no more than 30 days after the Participant executes the applicable Grant Agreement and/or (b) with respect to any other payment to be made after the occurrence of a Price Threshold Date, at least six months prior to the date such payment is to be made by the Company. If the Participant has complied with the above requirements, all or a portion of the income resulting from any payment upon the conversion of Plan Units into Payout Amounts shall be deferred into the Participant's Deferred Delivery Plan account and no additional cash or shares of Stock shall be delivered to the Participant. 12 16 SECTION 7 CHANGE IN CONTROL 7.1 In General. In the event of a change in control of the Company as defined in Section 7.3 hereof, then the Committee may, in its sole discretion, without obtaining stockholder approval, take any or all of the following actions assuming the occurrence of a Price Threshold Date: (a) accelerate the vesting and payment dates of the entitlement to receive cash and Stock upon conversion of any Plan Units so that all existing entitlements become fully payable, which acceleration may be conditional upon the occurrence of subsequent events including, without limitation, a change in control, and may be made irrevocable, either conditionally or unconditionally; (b) pay cash to all Participants in exchange for the cancellation of their outstanding Plan Units in an amount equal to the cash and the Fair Market Value of the Stock to which Participants have a conditional entitlement under such Plan Units at the date of the cancellation of the Plan Units; and (c) make any other adjustments or amendments to terms of the outstanding Plan Units as the Committee deems appropriate. 7.2 Limitation on Payments. If the provisions of this Section 7 would result in the receipt by any Participant of a payment within the meaning of Section 280G or any successor section(s) of the Internal Revenue Code, and the regulations promulgated thereunder, and if the receipt of such payment by any Participant would, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the payment by such Participant of any excise tax provided for in Sections 280G and 4999 or any successor section(s) of the Internal Revenue Code, then the amount of such payment shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax; provided, however, that the Committee, in its sole discretion, may authorize the payment of all or any portion of the amount of such reduction to the Participant. 7.3 Definition. For purposes of the Plan, a "change in control" shall mean any of the events specified in the Company's Income Continuance Plan or any successor plan which constitute a change in control within the meaning of such plan. 13 17 SECTION 8 RIGHTS OF EMPLOYEES, PARTICIPANTS 8.1 Employment. Neither anything contained in the Plan or any Grant Agreement nor the granting of any Plan Units under the Plan shall confer upon any Participant any right with respect to the continuation of his or her employment by the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation, at any time to terminate such employment or to increase or decrease the level of the Participant's compensation from the level in existence at the time of the award of Plan Units. 8.2 Non-transferability. No right or interest of any Participant in a Plan Unit granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant's death, a Participant's rights and interests in any Plan Unit shall, to the extent provided in Section 6.3 hereof, be transferable by testamentary will or the laws of descent and distribution, and payment of any entitlements due under the Plan shall be made to the Participant's legal representatives, heirs or legatees. If in the opinion of the Committee a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his or her affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person's guardian, conservator or other legal personal representative upon furnishing the Committee with evidence satisfactory to the Committee of such status. SECTION 9 OTHER EMPLOYEE BENEFITS The amount of any income deemed to be received by a Participant as a result of the payment upon conversion of a Plan Unit shall not constitute "earnings" or "compensation" with respect to which any other employee benefits of such Participant are determined, including without limitation benefits under any pension, profit sharing, life insurance or salary continuation plan. 14 18 SECTION 10 PLAN AMENDMENT, MODIFICATION AND TERMINATION The Committee or the Board may at any time terminate, and from time to time may amend or modify the Plan. No amendment, modification or termination of the Plan shall in any manner adversely affect any Plan Unit theretofore awarded under the Plan, without the consent of the Participant holding such Plan Unit. The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with the provisions of the laws (including, but not limited to, tax laws and regulations) of countries other than the United States in which the Company may operate, so as to assure the viability of the benefits of the Plan to Participants employed in such countries. SECTION 11 REQUIREMENTS OF LAW 11.1 Requirements of Law. The issuance of Stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations, including applicable federal and state securities laws. The Company may require a Participant, as a condition of receiving payment upon conversion of a Plan Unit, to give written assurances in substance and form satisfactory to the Company and its counsel to such effect as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws. 11.2 Section 16 Requirements. If a Participant is an officer or director of the Company within the meaning of Section 16, Grants awarded hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule(s) promulgated under the Securities Exchange Act of 1934, as amended, to qualify the Plan Units for any exemption from the provisions of Section 16 available under such Rule. Such conditions are hereby incorporated herein by reference and shall be set forth in the agreement with the Participant, which describes the Grant. 11.3 Governing Law. The Plan and all Grant Agreements hereunder shall be construed in accordance with and governed by the laws of the State of Texas. 15 19 SECTION 12 DURATION OF THE PLAN The Plan shall terminate at such time as may be determined by the Committee, and no Plan Units shall be awarded after such termination. If not sooner terminated under the preceding sentence, the Plan shall fully cease and expire at midnight on December 31, 2004. Payout Amounts for which one or more of the Price Threshold Dates has occurred and which remain outstanding at the time of the Plan termination shall continue in accordance with the Grant Agreement pertaining to such Plan Units. Dated: December 19, 2000 APACHE CORPORATION ATTEST: /s/ Cheri L. Peper By: /s/ Jeffrey M. Bender - ------------------------------------ ---------------------- Cheri L. Peper Jeffrey M. Bender Corporate Secretary Vice President 16 EX-10.23 5 h84997ex10-23.txt 1996 PERFORMANCE STOCK PLAN 1 EXHIBIT 10.23 APACHE CORPORATION 1996 PERFORMANCE STOCK OPTION PLAN (AS AMENDED AND RESTATED DECEMBER 14, 2000; EFFECTIVE AS OF MARCH 1, 2001) 2 APACHE CORPORATION 1996 PERFORMANCE STOCK OPTION PLAN (AS AMENDED AND RESTATED DECEMBER 14, 2000; EFFECTIVE AS OF MARCH 1, 2001) SECTION 1 INTRODUCTION 1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter referred to, together with its Affiliated Corporations (as defined in Section 2.1 hereof) as the "Company" except where the context otherwise requires), hereby establishes the Apache Corporation 1996 Performance Stock Option Plan (the "Plan") for certain employees of the Company. 1.2 Purposes. The primary purpose of this Plan is to provide the participating employees of the Company with added incentives to focus their energies on achieving significant stock price appreciation for the balance of the decade by providing a meaningful stock based performance plan which provides accelerated vesting incentives to attain the prices of $50 and $60 per share of Apache Corporation common stock, respectively, before January 1, 2000. Additional purposes of this Plan include the retention of existing valued employees and as an additional inducement in the recruitment of talented personnel in a competitive environment. 1.3 Effective Date. The Effective Date of the Plan (the "Effective Date") is October 31, 1996. SECTION 2 DEFINITIONS 2.1 Definitions. The following terms shall have the meanings set forth below: (a) "Administrative Agent" means any designee or agent that may be appointed by the Committee pursuant to Section 3.1(b) hereof. (b) "Affiliated Corporation" means any corporation or other entity (including but not limited to a partnership) which is affiliated with Apache Corporation through 1 3 stock ownership or otherwise and is treated as a common employer under the provisions of Sections 414(b) and (c) or any successor section(s) of the Internal Revenue Code. (c) "Base Salary" means, with regard to any Participant, such Participant's base compensation as an employee of the Company at the date of grant of an Option, without regard to any bonus, pension, profit sharing, stock option, life insurance or salary continuation plan which the Participant either receives or is otherwise entitled to have paid on his behalf. (d) "Board" means the Board of Directors of the Company. (e) "Committee" means the Stock Option Plan Committee of the Board. (f) "Depositary Shares" means the depositary shares representing the Company's preferred stock convertible into Stock. (g) "Eligible Employees" means any full-time employee of the Company or any division thereof who is not a participant under the Apache Corporation 1996 Share Price Appreciation Plan. (h) "Exercise Date" has the meaning set forth in Section 7.3(i). (i) "Fair Market Value" means the per share closing price of the Stock or Depositary Shares, as applicable, as reported on The New York Stock Exchange, Inc. Composite Transactions Reporting System for a particular date. If on such date there are no transactions in the Stock or Depositary Shares, as applicable, the Fair Market Value shall be determined as of the immediately preceding date on which there were transactions in the Stock or Depositary Shares, as applicable. (j) "Final Amount" has the meaning set forth in Section 7.2. (k) "Final Price Threshold Date" means the last of any 10 trading days (which need not be consecutive) during any period of 30 consecutive trading days occurring prior to January 1, 2000, but not thereafter, on each of which 10 days the closing price of the Stock as reported on The New York Stock Exchange, Inc. Composite Transactions Reporting System has equaled or exceeded $60 per share. If the above trading criteria is met more than once, the first occurrence shall be deemed to be the Final Price Threshold Date. (l) "First Category" has the meaning set forth in Section 7.2. 2 4 (m) "Initial Amount" has the meaning set forth in Section 7.2. (n) "Initial Price Threshold Date" means the last of any 10 trading days (which need not be consecutive) during any period of 30 consecutive trading days occurring prior to January 1, 2000, but not thereafter, on each of which 10 days the closing price of the Stock as reported on The New York Stock Exchange, Inc. Composite Transactions Reporting System has equaled or exceeded $50 per share. If the above trading criteria is met more than once, the first occurrence shall be deemed to be the Initial Price Threshold Date. (o) "Internal Revenue Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. (p) "Option" means a right to purchase shares of Stock at a stated price for a specified period of time. All Options granted under the Plan shall be Options which are not "incentive stock options" as described in Section 422 or any successor section(s) of the Internal Revenue Code. (q) "Option Agreement" has the meaning set forth in Section 7.1. (r) "Option Period" has the meaning set forth in Section 7.3(c). (s) "Option Price" means the price at which shares of Stock subject to an Option may be purchased, determined in accordance with Section 7.3(b) hereof. (t) "Participant" means an Eligible Employee designated by the Committee from time to time during the term of the Plan to receive an Option under the Plan. (u) "Price Threshold Date" means either the Initial Price Threshold Date or the Final Price Threshold Date, as the context may require. (v) "Second Category" has the meaning set forth in Section 7.2. (w) "Stock" means the $1.25 par value Common Stock of the Company. 2.2 Headings; Gender and Number. The headings contained in the Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of the Plan. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. 3 5 SECTION 3 PLAN ADMINISTRATION 3.1 Administration by the Committee. (a) The Plan shall be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, select the Participants from among the Eligible Employees, determine the Options to be granted pursuant to the Plan, the time at which such Options are to be granted, and establish such other terms and requirements as the Committee may deem necessary or desirable and consistent with the terms of the Plan. The Committee shall determine the form or forms of the Option Agreements with Participants which shall evidence the particular provisions, terms, conditions, rights and duties of the Company and the Participants with respect to Options granted pursuant to the Plan, which provisions need not be identical except as may be provided herein. (b) The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Committee may appoint an Administrative Agent, who need not be a member of the Committee or an employee of the Company, to assist the Committee in administration of the Plan and to whom it may delegate such powers as the Committee deems appropriate, except that the Committee shall determine any dispute. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan, or in any agreement entered into hereunder, in the manner and to the extent it shall deem expedient and it shall be the sole and final judge of such expediency. No member of the Committee shall be liable for any action or determination made in good faith. The determinations, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons. SECTION 4 STOCK SUBJECT TO THE PLAN 4.1 Number of Shares. Subject to Section 7.1 and Section 4.3, one million three hundred thousand (1,300,000) shares of Stock are authorized for issuance under the Plan in accordance with its terms and subject to such restrictions or other provisions as the Committee may from time to time deem necessary. This authorization may be increased from time to time by approval of the Board and the stockholders of the Company if, on 4 6 the advice of counsel for the Company, such stockholder approval is required. Shares of Stock which may be issued pursuant to the terms of the Options granted hereunder shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Options are outstanding retain as authorized and unissued Stock and/or Stock in the Company's treasury, at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder. 4.2 Other Shares of Stock. Any shares of Stock that are subject to an Option which expires, is forfeited, is canceled, or for any reason is terminated, and any shares of Stock that for any other reason are not issued to a Participant or are forfeited shall automatically become available for use under the Plan. 4.3 Adjustments for Stock Split, Stock Dividend, etc. If the Company shall at any time increase or decrease the number of its outstanding shares of Stock or change in any way the rights and privileges of such shares by means of the payment of a Stock dividend or any other distribution upon such shares payable in Stock, or through a Stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock, then in relation to the Stock that is affected by one or more of the above events, the numbers, rights and privileges of the following shall be increased, decreased or changed in like manner as if they had been issued and outstanding, fully paid and nonassessable at the time of such occurrence: (i) the shares of Stock as to which Options may be granted under the Plan; and (ii) the shares of the Stock then included in each outstanding Option granted hereunder. 4.4 Dividend Payable in Stock of Another Corporation. If the Company shall at any time pay or make any dividend or other distribution upon the Stock payable in securities or other property (except money or Stock), a proportionate part of such securities or other property shall be set aside and delivered to any Participant then holding an Option for the particular type of Stock for which the dividend or other distribution was made, upon exercise thereof. Prior to the time that any such securities or other property are delivered to a Participant in accordance with the foregoing, the Company shall be the owner of such securities or other property, and in all other respects shall be treated as the owner. If securities or other property which have been set aside by the Company in accordance with this Section are not delivered to a Participant because an Option is not exercised, then such securities or other property shall remain the property of the Company and shall be dealt with by the Company as it shall determine in its sole discretion. 4.5 Other Changes in Stock. In the event there shall be any change, other than as specified in Sections 4.3 and 4.4 hereof, in the number or kind of outstanding shares of 5 7 Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Committee shall in its discretion determine that such change equitably requires an adjustment in the number or kind of shares subject to outstanding Options or which have been reserved for issuance pursuant to the Plan but are not then subject to an Option, then such adjustments shall be made by the Committee and shall be effective for all purposes of the Plan and on each outstanding Option that involves that particular type of stock for which a change was effected. 4.6 Rights to Subscribe. If the Company shall at any time grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of the Company or of any other corporation, there shall be reserved with respect to the shares then under Option to any Participant of the particular class of Stock involved the Stock or other securities which the Participant would have been entitled to subscribe for if immediately prior to such grant the Participant had exercised his entire Option. If, upon exercise of any such Option, the Participant subscribes for the additional shares or other securities, the aggregate Option Price shall be increased by the amount of the price that is payable by the Participant for such additional shares or other securities. 4.7 General Adjustment Rules. No adjustment or substitution provided for in this Section 4 shall require the Company to sell a fractional share of Stock under any Option, or otherwise issue a fractional share of Stock, and the total substitution or adjustment with respect to each Option shall be limited by deleting any fractional share. In the case of any such substitution or adjustment, the aggregate Option Price for the shares of Stock then subject to the Option shall remain unchanged but the Option Price per share under each such Option shall be equitably adjusted by the Committee to reflect the greater or lesser number of shares of Stock or other securities into which the Stock subject to the Option may have been changed. 4.8 Determination by the Committee, etc. Adjustments under this Section 4 shall be made by the Committee, whose determinations with regard thereto shall be final and binding upon all parties. SECTION 5 REORGANIZATION OR LIQUIDATION In the event that the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if all or substantially all of the assets or more than 20 percent of the outstanding voting stock of the Company is acquired by any other corporation, business entity or person, or in case of a reorganization (other than a 6 8 reorganization under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of Section 8 hereof do not apply, the Committee, or the board of directors of any corporation assuming the obligations of the Company, shall, as to the Plan and outstanding Options either (i) make appropriate provision for the adoption and continuation of the Plan by the acquiring or successor corporation and for the protection of any such outstanding Options by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable with respect to the Stock, provided that no additional benefits shall be conferred upon the Participants holding such Options as a result of such substitution, and the excess of the aggregate Fair Market Value of the shares subject to such Options immediately after such substitution over the aggregate Option Price thereof is not more than the excess of the aggregate Fair Market Value of the shares subject to such Options immediately before such substitution over the aggregate Option Price thereof, or (ii) upon written notice to the Participants, provide that all unexercised Options shall be exercised within a specified number of days of the date of such notice or such Options will be terminated. In the latter event, the Committee shall accelerate the vesting dates of outstanding Options so that all Options become fully vested and exercisable prior to any such event. SECTION 6 PARTICIPATION Participants in the Plan receiving First Category Options may be any Eligible Employee in the discretion of the Committee. Participants in the Plan receiving Second Category Options shall be those Eligible Employees who, in the judgment of the Committee, are performing, or during the term of their incentive arrangement are expected to perform, important services in the management, operation and development of the Company or an Affiliated Corporation, and contribute, or are expected to contribute, to the achievement of the Company's long-term corporate economic objectives. Upon determination by the Committee that an Option is to be granted to a Participant, written notice shall be given to such person, specifying the terms, conditions, rights and duties related thereto. Options shall be deemed to be granted as of the date specified in the granting resolution of the Committee, which date also shall be the date of the Option Agreement with the Participant. In the event of any inconsistency between the provisions of the Plan and any Option Agreement, the provisions of the Plan shall govern. 7 9 SECTION 7 OPTIONS 7.1 Grants. Each Participant may be granted only one Option under this Plan. Each Option granted by the Committee shall be evidenced by a written agreement entered into by the Company and the Participant to whom the Option is granted (the "Option Agreement"), which shall contain the terms and conditions set out in this Section 7, as well as such other terms and conditions, not inconsistent therewith, as the Committee may consider appropriate. 7.2 Option Agreements. There shall be two categories of Options issued under this Plan as follows: (a) The first category of Option ("First Category") shall have a total of two hundred (200) shares of Stock issuable to a Participant upon exercise; and (b) The second category of Option ("Second Category") shall vary by Participant and, as to any Participant, shall have a total number of shares of Stock issuable upon exercise which equals the sum of the Initial Amount and the Final Amount. For purposes of this Plan, the term "Initial Amount" means such number of shares (rounded to the nearest full share) which equals not more than one (1) times such Participant's Base Salary divided by the difference between $50 and the Option Price. The term "Final Amount" means such number of shares (rounded to the nearest full share) which equals not more than one and one-half (1.5) times such Participant's Base Salary divided by the difference between $60 and the Option Price. 7.3 Common Terms. Subject to Section 7.2 and Section 7.5, each Option Agreement entered into by the Company and the Participants shall contain at least the following terms and conditions: (a) Number of Shares. Each Option Agreement shall set forth a specified number of shares of Stock issuable upon exercise of the Option, as determined by the Committee pursuant to Section 7.2 hereof. (b) Price. The exercise price (the "Option Price") at which each share of Stock covered by an Option may be purchased shall be the price specified in the granting resolution of the Committee. 8 10 (c) Duration. Each Option Agreement shall state the period of time, determined by the Committee, within which the Option may be exercised (the "Option Period"), which in no event may be greater than ten (10) years. (d) Vesting. Subject to the provisions of Section 7.3(e) and Section 7.3(f), each Option shall become exercisable in full on the date occurring nine years and six months from the date of grant or such earlier date as the Committee may determine. (e) Acceleration. Each Option may become exercisable earlier, in increments, upon the occurrence of a Price Threshold Date as follows: (i) If the Initial Price Threshold Date occurs prior to January 1, 2000: (A) One-half of the shares of Stock subject to the First Category Options become immediately exercisable as of such date, and (B) The Initial Amount of shares of Stock subject to each Second Category Option become immediately exercisable as of such date. (ii) If the Final Price Threshold Date occurs prior to January 1, 2000, the remaining portion of shares of Stock under each category of Option becomes immediately exercisable as of such date. (f) Termination of Employment, Death, Disability, etc. Subject to the following provisions, each Option Agreement shall state that each Option and the right to acquire stock thereunder shall be subject to the condition that the Participant has remained a full-time employee of the Company from the date of grant of an Option until the applicable exercise date: (i) If the employment of the Participant by the Company is terminated (which for this purpose means that the Participant is no longer employed by the Company or by an Affiliated Corporation) within the Option Period for any reason other than cause, the Participant's retirement on or after attaining age 60, or the Participant's disability or death, the Option may be exercised by the Participant within three months following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of termination of the Participant's employment. If the employment of the Participant is terminated within the Option Period for cause, as determined by the Company, any portion of any Option not previously exercised in accordance with this Section 7 shall thereafter be void for all purposes. As used in this subsection, "cause" shall mean a gross violation, as 9 11 determined by the Company, of the Company's established policies and procedures, provided that the effect of this subsection 7.3(f) shall be limited to determining the consequences of a termination and that nothing in this subsection shall restrict or otherwise interfere with the Company's discretion with respect to the termination of any employee. (ii) If the Participant retires from employment by the Company on or after attaining age 60, the Option may be exercised by the Participant within 36 months following his or her retirement (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant's death during such 36-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case: (A) If the Participant is holding a First Category Option and the Participant's retirement occurs on or after January 1, 2000, the Option may be exercised as to all shares of Stock which are subject to the Option, including an increment of the Option, if any, which had not otherwise become exercisable on or before the date of the Participant's retirement, or (B) If the Participant is holding a First Category Option and the Participant's retirement occurs prior to January 1, 2000, the Option may be exercised only as to the shares of Stock as to which the Option had become exercisable on or before the date of the Participant's retirement, or (C) If the Participant is holding a Second Category Option, the Option may be exercised only as to the shares of Stock as to which the Option had become exercisable on or before the date of the Participant's retirement. (iii) If the Participant becomes disabled (as determined pursuant to the Company's Long-Term Disability Plan or any successor plan), during the Option Period while still employed, or within the 36-month period referred to in (ii) above, the Option may be exercised by the Participant or by his or her guardian or legal representative, within twelve months following the Participant's disability, or within the 36-month period referred to in (ii) if applicable and if longer (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant's death during such twelve-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case, the Option may be exercised only as to the shares of Stock as to which the Option had become exercisable on or before the date of the Participant's disability. 10 12 (iv) In the event of the Participant's death while still employed by the Company, each Option of the deceased Participant may be exercised by those entitled to do so under the Participant's will or under the laws of descent and distribution within twelve months following the Participant's death (provided that in any event such exercise must occur within the Option Period), but not thereafter, as to all shares of Stock which are subject to such Option, including any increment of the Option, if any, which has not yet become exercisable at the time of the Participant's death. In the event of the Participant's death within the 36-month period referred to in (ii) above or within the twelve-month period referred to (iii) above, each Option of the deceased Participant that is exercisable at the time of death may be exercised by those entitled to do so under the Participant's will or under the laws of descent and distribution within twelve months following the Participant's death or within the 36-month period referred to in (ii), if applicable and if longer (provided that in any event such exercise must occur within the Option Period). (g) Transferability. Each Option Agreement shall state that the Option granted thereunder is not transferable by the Participant, except by will or pursuant to the laws of descent and distribution, and that such Option is exercisable during the Participant's lifetime only by him or her, or in the event of the Participant's disability or incapacity, by his or her guardian or legal representative. (h) Exercise, Payments, etc. (i) Each Option Agreement shall provide that the method for exercising the Option granted therein shall be by delivery to the Office of the Secretary of the Company or the Administrative Agent of written notice specifying the number of shares of Stock with respect to which such Option is exercised and payment to the Company of the aggregate Option Price. Such notice shall be in a form satisfactory to the Committee and shall specify the particular Option (or portion thereof) which is being exercised and the number of shares of Stock with respect to which the Option is being exercised. The exercise of the Option shall be deemed effective on the date such notice is received by the Office of the Secretary or the Administrative Agent and payment is made to the Company of the aggregate Option Price (the "Exercise Date"); however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(b)(iii)(E) below, the Exercise Date shall be deemed to be the date of such sale. If requested by the Company, such notice shall contain the Participant's representation that he or she is purchasing the Stock for investment purposes only and his or her agreement not to sell or otherwise distribute any Stock so purchased in any manner that is in violation of the Securities Act of 1933, as amended, or any applicable state law, and such restriction, or notice thereof, shall be placed on the certificates representing the Stock so purchased. The purchase of such Stock shall take place upon delivery of such notice to 11 13 the Office of the Secretary of the Company or to the Administrative Agent, at which time the Option Price shall be paid in full to the Company by any of the methods or any combination of the methods set forth in 7.2(h)(iii) below. (ii) The shares of Stock to which the Participant is entitled as a result of the exercise of the Option shall be issued by the Company and (A) delivered by electronic means to an account designated by the Participant, or (B) delivered to the Participant in the form of a properly executed certificate or certificates representing such shares of Stock. If shares of Stock and/or Depositary Shares are used to pay all or part of the aggregate Option Price, the Company shall issue and deliver to the Participant the additional shares of Stock, in excess of the aggregate Option Price or portion thereof paid using shares of Stock or Depositary Shares, to which the Participant is entitled as a result of the Option exercise. (iii) The aggregate Option Price shall be paid by any of the following methods or any combination of the following methods: (A) in cash, including the wire transfer of funds in U.S. dollars to one of the Company's bank accounts located in the United States, with such bank account to be designated from time to time by the Company; (B) by personal, certified or cashier's check payable in U.S. dollars to the order of the Company; (C) by delivery to the Company or the Administrative Agent of certificates representing a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value (as of the Exercise Date) of which is not greater than the aggregate Option Price of the Option being exercised, properly endorsed for transfer to the Company; provided that the shares of Stock used for this purpose must have been owned by the Participant for a period of at least six months; (D) by certification or attestation to the Company or the Administrative Agent of the Participant's ownership as of the Exercise Date of the number of (1) shares of Stock and/or (2) Depositary Shares, the aggregate Fair Market Value (as of the Exercise Date) of which is not greater than the aggregate Option Price of the Option being exercised; provided that the shares of Stock and/or Depositary Shares used for this purpose must have been owned by the Participant for a period of at least six months; or 12 14 (E) by delivery to the Company or the Administrative Agent of a properly executed notice of exercise together with irrevocable instructions to a broker to promptly deliver to the Company, by wire transfer or check as noted in (A) and (B) above, the amount of the proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Participant necessary to pay the aggregate Option Price. (iv) For purposes of the Plan, the income resulting from an Option exercise shall be based on the Fair Market Value of the Stock for the Exercise Date; however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(h)(iii)(E) hereof, the Fair Market Value shall be deemed to be the per share sale price and the Exercise Date shall be deemed to be the date of such sale. 7.4 Tax Withholding. Each Option Agreement shall provide that, upon exercise of the Option, the Participant shall make appropriate arrangements with the Company to provide for the amount of additional tax withholding required by Sections 3102 and 3402 or any successor section(s) of the Internal Revenue Code and applicable state and local income tax laws, including payment of such taxes in cash, by check or as provided in Section 13.2 hereof. 7.5 Subsequent Option Agreements. Following the initial grant of Options in 1996, additional Participants may be designated by the Committee for grant of Options substantially in accordance with the above terms and conditions, subject to such changes and modifications to reflect the circumstances of any subsequent grant as the Committee, in its discretion, deems appropriate. 7.6 Stockholder Privileges. No Participant shall have any rights as a stockholder with respect to any shares of Stock covered by an Option until the Participant becomes the holder of record of such Stock. No adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date on which such Participant becomes the holder of record of such Stock. SECTION 8 CHANGE IN CONTROL 8.1 In General. In the event of a change in control of the Company as defined in Section 8.3 hereof, then the Committee may, in its sole discretion, without obtaining stockholder approval, to the extent permitted in Section 12 hereof, take any or all of the following actions: 13 15 (a) accelerate the dates on which any outstanding Options become exercisable or make all such Options fully vested and exercisable; (b) grant a cash bonus award to any Participant in an amount necessary to pay the aggregate Option Price of all or any portion of the Options then held by such Participant; (c) pay cash to any or all Participants in exchange for the cancellation of their outstanding Options in an amount equal to the difference between the Option Price of such Options and the greater of the tender offer price for the underlying Stock or the Fair Market Value of the Stock on the date of the cancellation of the Options; and (d) make any other adjustments to the outstanding Options. 8.2 Limitation on Payments. If the provisions of this Section 8 would result in the receipt by any Participant of a payment within the meaning of Section 280G or any successor section(s) of the Internal Revenue Code, and the regulations promulgated thereunder, and if the receipt of such payment by any Participant would, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the payment by such Participant of any excise tax provided for in Sections 280G and 4999 or any successor section(s) of the Internal Revenue Code, then the amount of such payment shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax; provided, however, that the Committee, in its sole discretion, may authorize the payment of all or any portion of the amount of such reduction to the Participant. 8.3 Definition. For purposes of the Plan, a "change in control" shall mean any of the events specified in the Company's Income Continuance Plan or any successor plan which constitute a change in control within the meaning of such plan. SECTION 9 RIGHTS OF EMPLOYEES, PARTICIPANTS 9.1 Employment. Nothing contained in the Plan or in any Option granted under the Plan shall confer upon any Participant any right with respect to the continuation of his or her employment by the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such 14 16 employment or to increase or decrease the level of the Participant's compensation from the level in existence at the time of the grant of an Option. Whether an authorized leave of absence, or absence in military or government service, shall constitute a termination of employment shall be determined by the Committee at the time. 9.2 Nontransferability. No right or interest of any Participant in an Option granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant's death, a Participant's rights and interests in Options shall, to the extent provided in Section 7 hereof, be transferable by testamentary will or the laws of descent and distribution, and payment of any amounts due under the Plan shall be made to, and exercise of any Options may be made by, the Participant's legal representatives, heirs or legatees. If in the opinion of the Committee, a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his or her affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person's guardian, conservator or other legal personal representative upon furnishing the Committee with evidence of such status satisfactory to the Committee. SECTION 10 GENERAL RESTRICTIONS 10.1 Investment Representations. The Company may require a Participant, as a condition of exercising an Option, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Stock subject to the Option for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws. 10.2 Compliance with Securities Laws. Each Option shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares of Stock subject to such Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of shares of Stock thereunder, such Option may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing 15 17 herein shall be deemed to require the Company to apply for or to obtain such listing, registration, qualification, consent or approval. SECTION 11 OTHER EMPLOYEE BENEFITS The amount of any income deemed to be received by a Participant as a result of an Option exercise shall not constitute "earnings" or "compensation" with respect to which any other employee benefits of such Participant are determined including, without limitation, benefits under any pension, profit sharing, life insurance or salary continuation plan. SECTION 12 PLAN AMENDMENT, MODIFICATION AND TERMINATION The Board may at any time terminate, and from time to time may amend or modify the Plan provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the Company's stockholders if stockholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements, unless the Company, on the advice of counsel, determines that stockholder approval is otherwise necessary. No amendment, modification or termination of the Plan shall in any manner adversely affect any Option theretofore granted under the Plan, without the consent of the Participant holding such Option. The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with the provisions of the laws (including, but not limited to, tax laws and regulations) of countries other than the United States in which the Company may operate, so as to assure the viability of the benefits of the Plan to Participants employed in such countries. 16 18 SECTION 13 WITHHOLDING 13.1 Withholding Requirement. The Company's obligations to deliver shares of Stock upon the exercise of an Option shall be subject to the Participant's satisfaction of all applicable federal, state and local income and other tax withholding requirements. 13.2 Satisfaction of Required Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay all such amounts of required tax withholding, or any part thereof: (a) by the delivery to the Company or the Administrative Agent of a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value (as of the Exercise Date) of which is not greater than the amount required to be withheld, provided that such shares have been held by the Participant for a period of at least six months; (b) by certification or attestation to the Company or the Administrative Agent of the Participant's ownership as of the Exercise Date of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value (as of the Exercise Date) of which is not greater than the amount required to be withheld, provided that such shares of Stock and/or Depositary Shares have been owned by the Participant for a period of at least six months; or (c) by the Company or the Administrative Agent withholding from the shares of Stock otherwise issuable to the Participant upon exercise of the Option, a number of shares of Stock, the aggregate Fair Market Value (as of the Exercise Date) of which is not greater than the amount required to be withheld. Any such elections by Participants to have shares of Stock withheld for this purpose will be subject to the following restrictions: (i) all elections shall be made on or prior to the Exercise Date; and (ii) all elections shall be irrevocable. 13.3 Excess Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay additional or excess amounts of tax withholding, beyond the required amounts and up to the Participant's marginal tax rate: 17 19 (a) by delivery to the Company or the Administrative Agent of a number of Shares of Stock then owned by the Participant, the aggregate Fair Market Value (as of the Exercise Date) of which is not greater than such excess withholding amount, provided that such shares of Stock have been owned by the Participant for a period of at least six months; or (b) by certification or attestation to the Company or the Administrative Agent of the Participant's ownership as of the Exercise Date of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value (as of the Exercise Date) of which is not greater than such excess withholding amount, provided that such shares of Stock and/or Depositary Shares have been owned by the Participant for a period of at least six months. 13.4 Section 16 Requirements. If the Participant is an officer or director of the Company within the meaning of Section 16 or any successor section(s) of the 1934 Act ("Section 16"), the Participant must satisfy the requirements of such Section 16 and any applicable rules and regulations thereunder with respect to the use of shares of Stock and/or Depositary Shares to satisfy such tax withholding obligation. SECTION 14 REQUIREMENTS OF LAW 14.1 Requirements of Law. The issuance of Stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations. 14.2 Federal Securities Laws Requirements. If, subsequent to the date of grant, a Participant becomes an officer or director of the Company within the meaning of Section 16, Options granted hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule(s) promulgated under the 1934 Act, to qualify the Option for any exemptions from the provisions of Section 16 available under such Rule. Such conditions are hereby incorporated herein by reference and shall be set forth in the Stock Option Agreement with the Participant which describes the Option. 14.3 Governing Law. The Plan and all Stock Option Agreements hereunder shall be construed in accordance with and governed by the laws of the State of Texas. 18 20 SECTION 15 DURATION OF THE PLAN The Plan shall terminate at such time as may be determined by the Board, and no Option shall be granted after such termination. If not sooner terminated under the preceding sentence, the Plan shall fully cease and expire at midnight on December 31, 1998. Any Options outstanding at the time of the Plan termination shall continue to be exercisable in accordance with the Stock Option Agreement pertaining to each such Option. Dated: December 14, 2000 APACHE CORPORATION ATTEST: /s/ Cheri L. Peper By: /s/ Jeffrey M. Bender - --------------------------------- --------------------- Cheri L. Peper Jeffrey M. Bender Corporate Secretary Vice President, Human Resources 19 EX-10.24 6 h84997ex10-24.txt 1998 STOCK OPTION PLAN 1 EXHIBIT 10.24 APACHE CORPORATION 1998 STOCK OPTION PLAN (AS AMENDED AND RESTATED DECEMBER 14, 2000; EFFECTIVE AS OF MARCH 1, 2001) 2 APACHE CORPORATION 1998 STOCK OPTION PLAN (AS AMENDED AND RESTATED DECEMBER 14, 2000; EFFECTIVE AS OF MARCH 1, 2001) SECTION 1 INTRODUCTION 1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter referred to, together with its Affiliated Corporations (as defined in Section 2.1 hereof) as the "Company" except where the context otherwise requires), hereby establishes the Apache Corporation 1998 Stock Option Plan (the "Plan") for Eligible Employees (as defined in Section 2.1 hereof). The Plan permits the grant of stock options to Eligible Employees selected by the Committee (as defined in Section 2.1 hereof). 1.2 Purposes. The purposes of the Plan are to provide the Eligible Employees designated by the Committee for participation in the Plan with added incentives to continue in the long-term service of the Company and to create in such employees a more direct interest in the future success of the operations of the Company by relating incentive compensation to increases in stockholder value, so that the income of those employees is more closely aligned with the interests of the Company's stockholders. The Plan is also designed to attract outstanding individuals and to retain and motivate Eligible Employees by providing an opportunity for investment in the Company. 1.3 Effective Date. The Effective Date of the Plan (the "Effective Date") is February 6, 1998. This Plan and each option granted hereunder is conditioned on and shall be of no force or effect until approval of the Plan by the holders of the shares of voting stock of the Company unless the Company, on the advice of counsel, determines that stockholder approval is not necessary. The Committee may grant options the exercise of which shall be expressly subject to the condition that the Plan shall have been approved by the stockholders of the Company. SECTION 2 DEFINITIONS 2.1 Definitions. The following terms shall have the meanings set forth below: 1 3 (a) "Administrative Agent" means any designee or agent that may be appointed by the Committee pursuant to Section 3.1(b) hereof. (b) "Affiliated Corporation" means any corporation or other entity (including but not limited to a partnership) which is affiliated with Apache Corporation through stock ownership or otherwise and is treated as a common employer under the provisions of Sections 414(b) and (c) or any successor section(s) of the Internal Revenue Code. (c) "Board" means the Board of Directors of the Company. (d) "Committee" means the Stock Option Plan Committee of the Board, which is empowered hereunder to take actions in the administration of the Plan. The Committee shall be constituted at all times as to permit the Plan to comply with: (i) Rule 16b-3 or any successor rule(s) promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and (ii) Section 162(m) or any successor sections(s) of the Internal Revenue Code and the regulations promulgated thereunder. (e) "Deferred Delivery Plan" means the Company's Deferred Delivery Plan, effective as of February 10, 2000 and as it may be amended from time to time, or any successor plan. (f) "Depositary Shares" means the Depositary shares representing the Company's preferred stock convertible into Stock. (g) "Eligible Employees" means full-time employees (including, without limitation, officers and directors who are also employees), and certain part-time employees, of the Company or any division thereof. (h) "Fair Market Value" means the per share closing price of the Stock or Depositary Shares, as applicable, as reported on the New York Stock Exchange, Inc. Composite Transactions Reporting System for a particular date. If on such date there are no transactions in the Stock or Depositary Shares, as applicable, the Fair Market Value shall be determined as of the immediately preceding date on which there were transactions in the Stock or Depositary Shares, as applicable. (i) "Internal Revenue Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. (j) "Option" means a right to purchase shares of Stock at a stated price for a specified period of time. All Options granted under the Plan shall be Options which are 2 4 not "incentive stock options" as described in Section 422 or any successor section(s) of the Internal Revenue Code. (k) "Option Price" means the price at which shares of Stock subject to an Option may be purchased, determined in accordance with subsection 7.2(b) hereof. (l) "Participant" means an Eligible Employee designated by the Committee from time to time during the term of the Plan to receive one or more Options under the Plan. (m) "Stock" means the $1.25 par value Common Stock of the Company. (n) "Stock Units" means investment units under the Deferred Delivery Plan, each of which is deemed to be equivalent to one share of Stock. 2.2 Headings; Gender and Number. The headings contained in the Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of the Plan. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. SECTION 3 PLAN ADMINISTRATION 3.1 Administration by the Committee. (a) The Plan shall be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, select the Participants from among the Eligible Employees, determine the Options to be granted pursuant to the Plan, the number of shares of Stock to be issued thereunder, the time at which such Options are to be granted, fix the Option Price, and establish such other terms and requirements as the Committee may deem necessary or desirable and consistent with the terms of the Plan. The Committee shall determine the form or forms of the agreements with Participants which shall evidence the particular provisions, terms, conditions, rights and duties of the Company and the Participants with respect to Options granted pursuant to the Plan, which provisions need not be identical except as may be provided herein. (b) The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Committee may appoint an Administrative Agent, who need not be a 3 5 member of the Committee or an employee of the Company, to assist the Committee in administration of the Plan and to whom it may delegate such powers as the Committee deems appropriate, except that the Committee shall determine any dispute. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan, or in any agreement entered into hereunder, in the manner and to the extent it shall deem expedient and it shall be the sole and final judge of such expediency. No member of the Committee shall be liable for any action or determination made in good faith. The determination, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons. 3.2 Compliance with Section 162(m). The Plan is intended to comply with the requirements of Section 162(m) or any successor section(s) of the Internal Revenue Code ("Section 162(m)") as to any "covered employee" as defined in Section 162(m), and shall be administered, interpreted and construed consistently therewith. In accordance with this intent, the amount of income a Participant may receive from Options granted under the Plan shall be based solely on an increase in the value of the Stock after the date of the grant of the Option, or such other bases as may be permitted by applicable law. The Committee is authorized to take such additional action, if any, that may be required to ensure that the Plan satisfies the requirements of Section 162(m) and the regulations promulgated or revenue rulings published thereunder. SECTION 4 STOCK SUBJECT TO THE PLAN 4.1 Number of Shares. Subject to Section 7.1 and to adjustment pursuant to Section 4.3 hereof, two million five hundred thousand (2,500,000) shares of Stock are authorized for issuance under the Plan in accordance with the provisions of the Plan and subject to such restrictions or other provisions as the Committee may from time to time deem necessary. This authorization may be increased from time to time by approval of the Board and the stockholders of the Company if, on the advice of counsel for the Company, such stockholder approval is required. Shares of Stock which may be issued upon exercise of Options shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Options are outstanding retain as authorized and unissued Stock, or as Stock in the Company's treasury, at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder. 4 6 4.2 Other Shares of Stock. Any shares of Stock that are subject to an Option which expires, is forfeited, is cancelled, or for any reason is terminated unexercised, and any shares of Stock that for any other reason are not issued to a Participant or are forfeited shall automatically become available for use under the Plan. 4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall at any time increase or decrease the number of its outstanding shares of Stock or change in any way the rights and privileges of such shares by means of the payment of a Stock dividend or any other distribution upon such shares payable in Stock, or through a Stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock, then in relation to the Stock that is affected by one or more of the above events, the numbers, rights and privileges of the following shall be increased, decreased or changed in like manner as if they had been issued and outstanding, fully paid and nonassessable at the time of such occurrence: (i) the shares of Stock as to which Options may be granted under the Plan; and (ii) the shares of the Stock then included in each outstanding Option granted hereunder. 4.4 Dividend Payable in Stock of Another Corporation, Etc. If the Company shall at any time pay or make any dividend or other distribution upon the Stock payable in securities or other property (except money or Stock), a proportionate part of such securities or other property shall be set aside and delivered to any Participant then holding an Option for the particular type of Stock for which the dividend or other distribution was made, upon exercise thereof. Prior to the time that any such securities or other property are delivered to a Participant in accordance with the foregoing, the Company shall be the owner of such securities or other property and shall have the right to vote the securities, receive any dividends payable on such securities, and in all other respects shall be treated as the owner. If securities or other property which have been set aside by the Company in accordance with this Section are not delivered to a Participant because an Option is not exercised, then such securities or other property shall remain the property of the Company and shall be dealt with by the Company as it shall determine in its sole discretion. 4.5 Other Changes in Stock. In the event there shall be any change, other than as specified in Sections 4.3 and 4.4 hereof, in the number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Committee shall in its discretion determine that such change equitably requires an adjustment in the number or kind of shares subject to outstanding Options or which have been reserved for issuance pursuant to the Plan but are not then subject to an Option, then such adjustments shall be made by the Committee and shall be effective for all purposes of the Plan and on each outstanding Option that involves the particular type of stock for which a change was effected. 5 7 4.6 Rights to Subscribe. If the Company shall at any time grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of the Company or of any other corporation, there shall be reserved with respect to the shares then under Option to any Participant of the particular class of Stock involved the Stock or other securities which the Participant would have been entitled to subscribe for if immediately prior to such grant the Participant had exercised his entire Option. If, upon exercise of any such Option, the Participant subscribes for the additional shares or other securities, the aggregate Option Price shall be increased by the amount of the price that is payable by the Participant for such additional shares or other securities. 4.7 General Adjustment Rules. No adjustment or substitution provided for in this Section 4 shall require the Company to sell a fractional share of Stock under any Option, or otherwise issue a fractional share of Stock, and the total substitution or adjustment with respect to each Option shall be limited by deleting any fractional share. In the case of any such substitution or adjustment, the aggregate Option Price for the shares of Stock then subject to the Option shall remain unchanged but the Option Price per share under each such Option shall be equitably adjusted by the Committee to reflect the greater or lesser number of shares of Stock or other securities into which the Stock subject to the Option may have been changed. 4.8 Determination by the Committee, Etc. Adjustments under this Section 4 shall be made by the Committee, whose determinations with regard thereto shall be final and binding upon all parties. SECTION 5 REORGANIZATION OR LIQUIDATION In the event that the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if all or substantially all of the assets or more than 20 percent of the outstanding voting stock of the Company is acquired by any other corporation, business entity or person, or in case of a reorganization (other than a reorganization under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of Section 8 hereof do not apply, the Committee, or the board of directors of any corporation assuming the obligations of the Company, shall, as to the Plan and outstanding Options either (i) make appropriate provision for the adoption and continuation of the Plan by the acquiring or successor corporation and for the protection of any such outstanding Options by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable with respect to the Stock, provided that no additional benefits shall be conferred upon the Participants holding such Options as a result of such 6 8 substitution, and the excess of the aggregate Fair Market Value of the shares subject to the Options immediately after such substitution over the aggregate Option Price thereof is not more than the excess of the aggregate Fair Market Value of the shares subject to such Options immediately before such substitution over the aggregate Option Price thereof, or (ii) upon written notice to the Participants, provide that all unexercised Options shall be exercised within a specified number of days of the date of such notice or such Options will be terminated. In the latter event, the Committee shall accelerate the vesting dates of outstanding Options so that all Options become fully vested and exercisable prior to any such event. SECTION 6 PARTICIPATION Participants in the Plan shall be those Eligible Employees who, in the judgment of the Committee, are performing, or during the term of their incentive arrangement will perform, vital services in the management, operation and development of the Company or an Affiliated Corporation, and significantly contribute, or are expected to significantly contribute, to the achievement of the Company's long-term corporate economic objectives. Participants may be granted from time to time one or more Options; provided, however, that the grant of each such Option shall be separately approved by the Committee, and receipt of one such Option shall not result in automatic receipt of any other Option. Upon determination by the Committee that an Option is to be granted to a Participant, written notice shall be given to such person, specifying the terms, conditions, rights and duties related thereto. Each Participant shall, if required by the Committee, enter into an agreement with the Company, in such form as the Committee shall determine and which is consistent with the provisions of the Plan, specifying such terms, conditions, rights and duties. Options shall be deemed to be granted as of the date specified in the grant resolution of the Committee, which date shall be the date of any related agreement with the Participant. In the event of any inconsistency between the provisions of the Plan and any such agreement entered into hereunder, the provisions of the Plan shall govern. SECTION 7 STOCK OPTIONS 7.1 Grant of Stock Options. Coincident with or following designation for participation in the Plan, an Eligible Employee may be granted one or more Options. Grants of Options under the Plan shall be made by the Committee. In no event shall the exercise of one Option affect the right to exercise any other Option or affect the number of shares of 7 9 Stock for which any other Option may be exercised, except as provided in subsection 7.2(j) hereof. During the life of the Plan, no Eligible Employee may be granted Options which in the aggregate pertain to in excess of 25 percent of the total shares of Stock authorized under the Plan. 7.2 Stock Option Agreements. Each Option granted under the Plan shall be evidenced by a written stock option agreement which shall be entered into by the Company and the Participant to whom the Option is granted (the "Stock Option Agreement"), and which shall contain the following terms and conditions, as well as such other terms and conditions, not inconsistent therewith, as the Committee may consider appropriate in each case. (a) Number of Shares. Each Stock Option Agreement shall state that it covers a specified number of shares of Stock, as determined by the Committee. (b) Price. The price at which each share of Stock covered by an Option may be purchased shall be determined in each case by the Committee and set forth in the Stock Option Agreement, but in no event shall the price be less than the Fair Market Value of the Stock on the date the Option is granted. (c) Duration of Options; Employment Required For Exercise. Each Stock Option Agreement shall state the period of time, determined by the Committee, within which the Option may be exercised by the Participant (the "Option Period"). The Option Period must end, in all cases, not more than ten years from the date an Option is granted. Except as otherwise provided in Sections 5 and 8 and subsection 7.2(d)(iv) hereof, each Option granted under the Plan shall become exercisable in increments such that 25 percent of the Option will become exercisable on each of the four subsequent one-year anniversaries of the date the Option is granted, but each such additional 25-percent increment shall become exercisable only if the Participant has been continuously employed by the Company from the date the Option is granted through the date on which each such additional 25-percent increment becomes exercisable. (d) Termination of Employment, Death, Disability, Etc. Each Stock Option Agreement shall provide as follows with respect to the exercise of the Option upon termination of the employment or the death of the Participant: (i) If the employment of the Participant by the Company is terminated within the Option Period for cause, as determined by the Company, the Option shall thereafter be void for all purposes. As used in this subsection 7.2(d), "cause" shall mean a gross violation, as determined by the Company, of the Company's established policies and procedures, provided that the effect of this subsection 7.2(d) shall be limited to 8 10 determining the consequences of a termination and that nothing in this subsection 7.2(d) shall restrict or otherwise interfere with the Company's discretion with respect to the termination of any employee. (ii) If the Participant retires from employment by the Company on or after attaining age 65, the Option may be exercised by the Participant within 36 months following his or her retirement (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant's death during such 36-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Participant's retirement. (iii) If the Participant becomes disabled (as determined pursuant to the Company's Long-Term Disability Plan or any successor plan), during the Option Period while still employed, or within the three-month period referred to in (v) below, or within the 36-month period referred to in (ii) above, the Option may be exercised by the Participant or by his or her guardian or legal representative, within twelve months following the Participant's disability, or within the 36-month period referred to in (ii) above if applicable and if longer (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant's death during such twelve-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case, the Option may be exercised only as to the shares of Stock as to which the Option had become exercisable on or before the date of the Participant's disability. (iv) In the event of the Participant's death while still employed by the Company, each Option of the deceased Participant may be exercised by those entitled to do so under the Participant's will or under the laws of descent and distribution within twelve months following the Participant's death (provided that in any event such exercise must occur within the Option Period), but not thereafter, as to all shares of Stock which are subject to such Option, including each 25-percent increment of the Option, if any, which has not yet become exercisable at the time of the Participant's death. In the event of the Participant's death within the 36-month period referred to in (ii) above or within the twelve-month period referred to in (iii) above, each Option of the deceased Participant that is exercisable at the time of death may be exercised by those entitled to do so under the Participant's will or under the laws of descent and distribution within twelve months following the Participant's death or within the 36-month period referred to in (ii) above, if applicable and if longer (provided that in any event such exercise must occur within the Option Period). The provisions of this paragraph (iv) of subsection 7.2(d) shall be applicable to each Stock Option Agreement as if set forth therein word for word. Each 9 11 Stock Option Agreement executed by the Company prior to the adoption of this provision shall be deemed amended to include the provisions of this paragraph and all Options granted pursuant to such Stock Option Agreements shall be exercisable as provided herein. (v) If the employment of the Participant by the Company is terminated (which for this purpose means that the Participant is no longer employed by the Company or by an Affiliated Corporation) within the Option Period for any reason other than cause, the Participant's retirement on or after attaining age 65, the Participant's disability or death, the Option may be exercised by the Participant within three months following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of termination of the Participant's employment. (e) Transferability. Each Stock Option Agreement shall provide that the Option granted therein is not transferable by the Participant except by will or pursuant to the laws of descent and distribution, and that such Option is exercisable during the Participant's lifetime only by him or her, or in the event of the Participant's disability or incapacity, by his or her guardian or legal representative. (f) Agreement to Continue in Employment. Each Stock Option Agreement shall contain the Participant's agreement to remain in the employment of the Company, at the pleasure of the Company, for a continuous period of at least one year after the date of such Stock Option Agreement, at the salary rate in effect on the date of such agreement or at such changed rate as may be fixed, from time to time, by the Company. (g) Exercise, Payments, Etc. (i) Each Stock Option Agreement shall provide that the method for exercising the Option granted therein shall be by delivery to the Office of the Secretary of the Company or to the Administrative Agent of written notice specifying the number of shares of Stock with respect to which such Option is exercised and payment to the Company of the aggregate Option Price. Such notice shall be in a form satisfactory to the Committee and shall specify the particular Options (or portions thereof) which are being exercised and the number of shares of Stock with respect to which the Options are being exercised. The exercise of the Option shall be deemed effective on the date such notice is received by the Office of the Secretary or by the Administrative Agent and payment is made to the Company of the aggregate Option Price (the "Exercise Date"); however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(g)(iii)(F) below, the Exercise Date shall be deemed to be 10 12 the date of such sale. If requested by the Company, such notice shall contain the Participant's representation that he or she is purchasing the Stock for investment purposes only and his or her agreement not to sell any Stock so purchased in any manner that is in violation of the Securities Act of 1933, as amended, or any applicable state law, and such restriction, or notice thereof, shall be placed on the certificates representing the Stock so purchased. The purchase of such Stock shall take place upon delivery of such notice to the Office of the Secretary or to the Administrative Agent, at which time the aggregate Option Price shall be paid in full to the Company by any of the methods or any combination of the methods set forth in 7.2(g)(iii) below. (ii) Except as referenced below in connection with the Deferred Delivery Plan, the shares of Stock to which the Participant is entitled as a result of the exercise of the Option shall be issued by the Company and (A) delivered by electronic means to an account designated by the Participant, or (B) delivered to the Participant in the form of a properly executed certificate or certificates representing such shares of Stock. If shares of Stock and/or Depositary Shares are used to pay all or part of the aggregate Option Price, the Company shall issue and deliver to the Participant the additional shares of Stock, in excess of the aggregate Option Price or portion thereof paid using shares of Stock or Depositary Shares, to which the Participant is entitled as a result of the Option exercise. If the Participant exercising an Option (x) is eligible for participation in the Deferred Delivery Plan, (y) pays the aggregate Option Price pursuant to 7.2(g)(iii)(A), (B), (C), (D) or (E) below, and (z) has made an irrevocable election at least six months prior to the Exercise Date as required under the Deferred Delivery Plan, the income resulting from the Option exercise shall be deferred into the Participant's Deferred Delivery Plan account and no additional shares of Stock shall be delivered to the Participant. (iii) the aggregate Option Price shall be paid by any of the following methods or any combination of the following methods: (A) in cash, including the wire transfer of funds in U.S. dollars to one of the Company's bank accounts located in the United States, with such bank account to be designated from time to time by the Company; (B) by personal, certified or cashier's check payable in U.S. dollars to the order of the Company; (C) by delivery to the Company or the Administrative Agent of certificates representing a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, properly endorsed for transfer to 11 13 the Company; provided that the shares of Stock used for this purpose must have been owned by the Participant for a period of at least six months; (D) by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise Date) of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, provided that the shares of Stock and/or Depositary Shares used for this purpose have been owned by the Participant for a period of at least six months; (E) if the income resulting from the Option Exercise is to be deferred into the Participant's Deferred Delivery Plan account, by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise Date) of a number of vested Stock Units held in the Participant's Deferred Delivery Plan account, the equivalent aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, provided that the Stock Units used for this purpose were vested as of the Exercise Date; or (F) by delivery to the Company or the Administrative Agent of a properly executed notice of exercise together with irrevocable instructions to a broker to promptly deliver to the Company, by wire transfer or check as noted in (A) and (B) above, the amount of the proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Participant necessary to pay the aggregate Option Price. (iv) For purposes of the Plan, the income resulting from an Option exercise shall be based on the Fair Market Value of the Stock for the Exercise Date; however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(g)(iii)(F) hereof, the Fair Market Value shall be deemed to be the per share sale price and the Exercise Date shall be deemed to be the date of such sale. (h) Date of Grant. An Option shall be considered as having been granted on the date specified in the grant resolution of the Committee. (i) Tax Withholding. Each Stock Option Agreement shall provide that, upon exercise of the Option, the Participant shall make appropriate arrangements with the Company to provide for the amount of tax withholding required by Sections 3102 and 3402 or any successor section(s) of the Internal Revenue Code and applicable state and local income tax laws, including payment of such taxes in cash, by check, or as provided in Section 13.2 hereof. 12 14 (j) Adjustment of Options. Subject to the provisions of Sections 4, 5, 7, 8 and 12 hereof, the Committee may make any adjustment in the number of shares of Stock covered by, or the terms of an outstanding Option and a subsequent granting of an Option, by amendment or by substitution for an outstanding Option; however, except as provided in Sections 4, 5, 8 and 12 hereof, the Committee may not adjust the Option Price of any outstanding Option. Such amendment or substitution may result in terms and conditions (including the number of shares of Stock covered, vesting schedule or Option Period) that differ from the terms and conditions of the original Option. The Committee may not, however, adversely affect the rights of any Participant to previously granted Options without the consent of such Participant. If such action is effected by amendment, the effective date of such amendment will be the date of grant of the original Option. 7.3 Stockholder Privileges. No Participant shall have any rights as a stockholder with respect to any shares of Stock covered by an Option until the Participant becomes the holder of record of such Stock. Except as provided in Section 4 hereof, no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date on which such Participant becomes the holder of record of such Stock. SECTION 8 CHANGE IN CONTROL 8.1 In General. In the event of a change in control of the Company as defined in Section 8.3 hereof, then the Committee may, in its sole discretion, without obtaining stockholder approval, to the extent permitted in Section 12 hereof, take any or all of the following actions: (a) accelerate the dates on which any outstanding Options become exercisable or make all such Options fully vested and exercisable; (b) grant a cash bonus award to any Participant in an amount necessary to pay the aggregate Option Price of all or any portion of the Options then held by such Participant; (c) pay cash to any or all Participants in exchange for the cancellation of their outstanding Options in an amount equal to the difference between the Option Price of such Options and the greater of the tender offer price for the underlying Stock or the Fair Market Value of the Stock on the date of the cancellation of the Options; and (d) make any other adjustments or amendments to the outstanding Options. 8.2 Limitation on Payments. If the provisions of this Section 8 would result in the receipt by any Participant of a payment within the meaning of Section 280G or any successor section(s) of the Internal Revenue Code, and the regulations promulgated thereunder, and if the receipt of such payment by any Participant would, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the 13 15 payment by such Participant of any excise tax provided for in Sections 280G and 4999 or any successor section(s) of the Internal Revenue Code, then the amount of such payment shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax; provided, however, that the Committee, in its sole discretion, may authorize the payment of all or any portion of the amount of such reduction to the Participant. 8.3 Definition. For purposes of the Plan, a "change in control" shall mean any of the events specified in the Company's Income Continuance Plan or any successor plan which constitute a change in control within the meaning of such plan. SECTION 9 RIGHTS OF EMPLOYEES, PARTICIPANTS 9.1 Employment. Nothing contained in the Plan or in any Option granted under the Plan shall confer upon any Participant any right with respect to the continuation of his or her employment by the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the level of the Participant's compensation from the level in existence at the time of the grant of an Option. Whether an authorized leave of absence, or absence in military or government service, shall constitute a termination of employment shall be determined by the Committee at the time. 9.2 Nontransferability. No right or interest of any Participant in an Option granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant's death, a Participant's rights and interests in Options shall, to the extent provided in Section 7 hereof, be transferable by testamentary will or the laws of descent and distribution, and payment of any amounts due under the Plan shall be made to, and exercise of any Options may be made by, the Participant's legal representatives, heirs or legatees. If, in the opinion of the Committee, a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his or her affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person's guardian, conservator or other legal personal representative upon furnishing the Committee with evidence of such status satisfactory to the Committee. 14 16 SECTION 10 GENERAL RESTRICTIONS 10.1 Investment Representations. The Company may require a Participant, as a condition of exercising an Option, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Stock subject to the Option for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws. 10.2 Compliance with Securities Laws. Each Option shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares of Stock subject to such Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of shares of Stock thereunder, such Option may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration, qualification, consent or approval. SECTION 11 OTHER EMPLOYEE BENEFITS The amount of any income deemed to be received by a Participant as a result of an Option exercise shall not constitute "earnings" or "compensation" with respect to which any other employee benefits of such Participant are determined including, without limitation benefits under any pension, profit sharing, life insurance or salary continuation plan. SECTION 12 PLAN AMENDMENT, MODIFICATION AND TERMINATION The Board may at any time terminate, and from time to time may amend or modify the Plan provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the Company's stockholders if stockholder approval is required to enable the Plan to satisfy any applicable statutory or 15 17 regulatory requirements unless the Company, on the advice of counsel, determines that stockholder approval is otherwise necessary or desirable. No amendment, modification or termination of the Plan shall in any manner adversely affect any Option theretofore granted under the Plan, without the consent of the Participant holding such Option. The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with the provisions of the laws (including, but not limited to, tax laws and regulations) of countries other than the United States in which the Company may operate, so as to assure the viability of the benefits of the Plan to Participants employed in such countries. SECTION 13 WITHHOLDING 13.1 Withholding Requirement. The Company's obligations to deliver shares of Stock upon the exercise of an Option, or to defer income resulting from an Option exercise into the Deferred Delivery Plan, shall be subject to the Participant's satisfaction of all applicable federal, state and local income and other tax withholding requirements. 13.2 Satisfaction of Required Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay all such amounts of required tax withholding, or any part thereof: (a) by the delivery to the Company or the Administrative Agent of a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such shares have been held by the Participant for a period of at least six months; (b) by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise Date) of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such shares of Stock and/or Depositary Shares have been owned by the Participant for a period of at least six months; (c) if the income resulting from the Option exercise is to be deferred into the Participant's Deferred Delivery Plan account, by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise 16 18 Date) of a number of vested Stock Units held in the Participant's Deferred Delivery Plan account, the equivalent aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such Stock Units were vested as of the Exercise Date; or (d) by the Company or the Administrative Agent withholding from the shares of Stock otherwise issuable to the Participant upon exercise of the Option, a number of shares of Stock, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld. Any such elections by Participants to have shares of Stock withheld for this purpose will be subject to the following restrictions: (i) all elections shall be made on or prior to the Exercise Date; and (ii) all elections shall be irrevocable. 13.3 Excess Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay additional or excess amounts of tax withholding, beyond the required amounts and up to the Participant's marginal tax rate: (a) by delivery to the Company or the Administrative Agent of a number of Shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than such excess withholding amount, provided that such shares of Stock have been owned by the Participant for a period of at least six months; or (b) by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise Date) of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than such excess withholding amount, provided that such shares of Stock and/or Depositary Shares have been owned by the Participant for a period of at least six months. 13.4 Section 16 Requirements. If the Participant is an officer or director of the Company within the meaning of Section 16 or any successor section(s) of the 1934 Act ("Section 16"), the Participant must satisfy the requirements of such Section 16 and any applicable rules and regulations thereunder with respect to the use of shares of Stock, Depositary Shares and/or Stock Units to satisfy such tax withholding obligation. 17 19 SECTION 14 REQUIREMENTS OF LAW 14.1 Requirements of Law. The issuance of Stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations. 14.2 Federal Securities Laws Requirements. If a Participant is an officer or director of the Company within the meaning of Section 16, Options granted hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule(s) promulgated under the 1934 Act, to qualify the Option for any exception from the provisions of Section 16 available under such Rule. Such conditions are hereby incorporated herein by reference and shall be set forth in the Stock Option Agreement with the Participant which describes the Option. 14.3 Governing Law. The Plan and all Stock Option Agreements hereunder shall be construed in accordance with and governed by the laws of the State of Texas. SECTION 15 DURATION OF THE PLAN The Plan shall terminate at such time as may be determined by the Board, and no Option shall be granted after such termination. If not sooner terminated under the preceding sentence, the Plan shall fully cease and expire at midnight on February 6, 2003. Options outstanding at the time of the Plan termination shall continue to be exercisable in accordance with the Stock Option Agreement pertaining to each such Option. Dated: December 14, 2000 APACHE CORPORATION ATTEST: /s/ Cheri L. Peper By: /s/ Jeffrey M. Bender - ------------------- ------------------------------- Cheri L. Peper Jeffrey M. Bender Corporate Secretary Vice President, Human Resources 18 EX-10.25 7 h84997ex10-25.txt 2000 STOCK OPTION PLAN 1 EXHIBIT 10.25 APACHE CORPORATION 2000 STOCK OPTION PLAN (AS AMENDED AND RESTATED DECEMBER 14, 2000; EFFECTIVE AS OF MARCH 1, 2001) 2 APACHE CORPORATION 2000 STOCK OPTION PLAN (AS AMENDED AND RESTATED DECEMBER 14, 2000; EFFECTIVE AS OF MARCH 1, 2001) SECTION 1 INTRODUCTION 1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter referred to, together with its Affiliated Corporations (as defined in Section 2.1 hereof) as the "Company" except where the context otherwise requires), hereby establishes the Apache Corporation 2000 Stock Option Plan (the "Plan") for Eligible Employees (as defined in Section 2.1 hereof). The Plan permits the grant of stock options to Eligible Employees selected by the Committee (as defined in Section 2.1 hereof). 1.2 Purposes. The purposes of the Plan are to provide the Eligible Employees designated by the Committee for participation in the Plan with added incentives to continue in the long-term service of the Company and to create in such employees a more direct interest in the future success of the operations of the Company by relating incentive compensation to increases in stockholder value, so that the income of those employees is more closely aligned with the interests of the Company's stockholders. The Plan is also designed to attract outstanding individuals and to retain and motivate Eligible Employees by providing an opportunity for investment in the Company. 1.3 Effective Date. The Effective Date of the Plan (the "Effective Date") is February 10, 2000. SECTION 2 DEFINITIONS 2.1 Definitions. The following terms shall have the meanings set forth below: (a) "Administrative Agent" means any designee or agent that may be appointed by the Committee pursuant to Section 3.1(b) hereof. (b) "Affiliated Corporation" means any corporation or other entity (including but not limited to a partnership) which is affiliated with Apache Corporation through 1 3 stock ownership or otherwise and is treated as a common employer under the provisions of Sections 414(b) and (c) or any successor section(s) of the Internal Revenue Code. (c) "Board" means the Board of Directors of the Company. (d) "Committee" means the Stock Option Plan Committee of the Board, which is empowered hereunder to take actions in the administration of the Plan. The Committee shall be constituted at all times as to permit the Plan to comply with Rule 16b-3 or any successor rule(s) promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act"). (e) "Deferred Delivery Plan" means the Company's Deferred Delivery Plan, effective as of February 10, 2000, as it may be amended from time to time, or any successor plan. (f) "Depositary Shares" means the Depositary shares representing the Company's preferred stock convertible into Stock. (g) "Eligible Employees" means full-time employees (including, without limitation, officers and directors who are also employees), and certain part-time employees, of the Company or any division thereof. (h) "Expiration Date" means the date on which the Option Period (as defined in subsection 7.2(c) hereof) ends. (i) "Fair Market Value" means the per share closing price of the Stock or Depositary Shares, as applicable, as reported on the New York Stock Exchange, Inc. Composite Transactions Reporting System for a particular date. If on such date there are no transactions in the Stock or Depositary Shares, as applicable, the Fair Market Value shall be determined as of the immediately preceding date on which there were transactions in the Stock or Depositary Shares, as applicable. (j) "Internal Revenue Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. (k) "Option" means a right to purchase shares of Stock at a stated price for a specified period of time. All Options granted under the Plan shall be Options which are not "incentive stock options" as described in Section 422 or any successor section(s) of the Internal Revenue Code. 2 4 (l) "Option Price" means the price at which shares of Stock subject to an Option may be purchased, determined in accordance with subsection 7.2(b) hereof. (m) "Participant" means an Eligible Employee designated by the Committee from time to time during the term of the Plan to receive one or more Options under the Plan. (n) "Reload Option" has the meaning set forth in subsection 7.4 hereof. (o) "Stock" means the U.S. $1.25 par value Common Stock of the Company. (p) "Stock Units" means investment units under the Deferred Delivery Plan, each of which is deemed to be equivalent to one share of Stock. 2.2 Headings; Gender and Number. The headings contained in the Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of the Plan. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. SECTION 3 PLAN ADMINISTRATION 3.1 Administration by the Committee. (a) The Plan shall be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, select the Participants from among the Eligible Employees, determine the Options to be granted pursuant to the Plan, the number of shares of Stock to be issued thereunder, the time at which such Options are to be granted, fix the Option Price, and establish such other terms and requirements as the Committee may deem necessary or desirable and consistent with the terms of the Plan. The Committee shall determine the form or forms of the agreements with Participants which shall evidence the particular provisions, terms, conditions, rights and duties of the Company and the Participants with respect to Options granted pursuant to the Plan, which provisions need not be identical except as may be provided herein. 3 5 (b) The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Committee may appoint an Administrative Agent, who need not be a member of the Committee or an employee of the Company, to assist the Committee in administration of the Plan and to whom it may delegate such powers as the Committee deems appropriate, except that the Committee shall determine any dispute. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan, or in any agreement entered into hereunder, in the manner and to the extent it shall deem expedient and it shall be the sole and final judge of such expediency. No member of the Committee shall be liable for any action or determination made in good faith. The determination, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons. SECTION 4 STOCK SUBJECT TO THE PLAN 4.1 Number of Shares. Subject to Sections 7.1 and 7.4 hereof and to adjustment pursuant to Section 4.3 hereof, one million (1,000,000) shares of Stock are authorized for issuance under the Plan in accordance with the provisions of the Plan and subject to such restrictions or other provisions as the Committee may from time to time deem necessary. This authorization may be increased from time to time by approval of the Board and the stockholders of the Company if, on the advice of counsel for the Company, such stockholder approval is required. Shares of Stock which may be issued upon exercise of Options shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Options are outstanding retain as authorized and unissued Stock, or as Stock in the Company's treasury, at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder. 4.2 Other Shares of Stock. Any shares of Stock that are subject to an Option which expires, is forfeited, is cancelled, or for any reason is terminated unexercised, and any shares of Stock that for any other reason are not issued to a Participant or are forfeited shall automatically become available for use under the Plan. 4 6 4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall at any time increase or decrease the number of its outstanding shares of Stock or change in any way the rights and privileges of such shares by means of the payment of a Stock dividend or any other distribution upon such shares payable in Stock, or through a Stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock, then in relation to the Stock that is affected by one or more of the above events, the numbers, rights and privileges of the following shall be increased, decreased or changed in like manner as if they had been issued and outstanding, fully paid and nonassessable at the time of such occurrence: (i) the shares of Stock as to which Options may be granted under the Plan; and (ii) the shares of the Stock then included in each outstanding Option granted hereunder. 4.4 Dividend Payable in Stock of Another Corporation, Etc. If the Company shall at any time pay or make any dividend or other distribution upon the Stock payable in securities or other property (except money or Stock), a proportionate part of such securities or other property shall be set aside and delivered to any Participant then holding an Option for the particular type of Stock for which the dividend or other distribution was made, upon exercise thereof. Prior to the time that any such securities or other property are delivered to a Participant in accordance with the foregoing, the Company shall be the owner of such securities or other property and shall have the right to vote the securities, receive any dividends payable on such securities, and in all other respects shall be treated as the owner. If securities or other property which have been set aside by the Company in accordance with this Section are not delivered to a Participant because an Option is not exercised, then such securities or other property shall remain the property of the Company and shall be dealt with by the Company as it shall determine in its sole discretion. 4.5 Other Changes in Stock. In the event there shall be any change, other than as specified in Sections 4.3 and 4.4 hereof, in the number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Committee shall in its discretion determine that such change equitably requires an adjustment in the number or kind of shares subject to outstanding Options or which have been reserved for issuance pursuant to the Plan but are not then subject to an Option, then such adjustments shall be made by the Committee and shall be effective for all purposes of the Plan and on each outstanding Option that involves the particular type of stock for which a change was effected. 4.6 Rights to Subscribe. If the Company shall at any time grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of the Company or of any other corporation, there shall be reserved with respect to the shares then under Option to any Participant of the particular class of Stock involved the 5 7 Stock or other securities which the Participant would have been entitled to subscribe for if immediately prior to such grant the Participant had exercised his entire Option. If, upon exercise of any such Option, the Participant subscribes for the additional shares or other securities, the aggregate Option Price shall be increased by the amount of the price that is payable by the Participant for such additional shares or other securities. 4.7 General Adjustment Rules. No adjustment or substitution provided for in this Section 4 shall require the Company to sell a fractional share of Stock under any Option, or otherwise issue a fractional share of Stock, and the total substitution or adjustment with respect to each Option shall be limited by deleting any fractional share. In the case of any such substitution or adjustment, the aggregate Option Price for the shares of Stock then subject to the Option shall remain unchanged but the Option Price per share under each such Option shall be equitably adjusted by the Committee to reflect the greater or lesser number of shares of Stock or other securities into which the Stock subject to the Option may have been changed. 4.8 Determination by the Committee, Etc. Adjustments under this Section 4 shall be made by the Committee, whose determinations with regard thereto shall be final and binding upon all parties. SECTION 5 REORGANIZATION OR LIQUIDATION In the event that the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if all or substantially all of the assets or more than 20 percent of the outstanding voting stock of the Company is acquired by any other corporation, business entity or person, or in case of a reorganization (other than a reorganization under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of Section 8 hereof do not apply, the Committee, or the board of directors of any corporation assuming the obligations of the Company, shall, as to the Plan and outstanding Options either (i) make appropriate provision for the adoption and continuation of the Plan by the acquiring or successor corporation and for the protection of any such outstanding Options by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable with respect to the Stock, provided that no additional benefits shall be conferred upon the Participants holding such Options as a result of such substitution, and the excess of the aggregate Fair Market Value of the shares subject to the Options immediately after such substitution over the aggregate Option Price thereof is 6 8 not more than the excess of the aggregate Fair Market Value of the shares subject to such Options immediately before such substitution over the aggregate Option Price thereof, or (ii) upon written notice to the Participants, provide that all unexercised Options shall be exercised within a specified number of days of the date of such notice or such Options will be terminated. In the latter event, the Committee shall accelerate the vesting dates of outstanding Options so that all Options become fully vested and exercisable prior to any such event. SECTION 6 PARTICIPATION Participants in the Plan shall be those Eligible Employees who, in the judgment of the Committee, are performing, or during the term of their incentive arrangement will perform, vital services in the management, operation and development of the Company or an Affiliated Corporation, and significantly contribute, or are expected to significantly contribute, to the achievement of the Company's long-term corporate economic objectives. Participants may be granted from time to time one or more Options; provided, however, that the grant of each such Option shall be separately approved by the Committee, and receipt of one such Option shall not result in automatic receipt of any other Option. Upon determination by the Committee that an Option is to be granted to a Participant, written notice shall be given to such person, specifying the terms, conditions, rights and duties related thereto. Each Participant shall, if required by the Committee, enter into an agreement with the Company, in such form as the Committee shall determine and which is consistent with the provisions of the Plan, specifying such terms, conditions, rights and duties. Options shall be deemed to be granted as of the date specified in the grant resolution of the Committee, which date shall be the date of any related agreement with the Participant. In the event of any inconsistency between the provisions of the Plan and any such agreement entered into hereunder, the provisions of the Plan shall govern. SECTION 7 STOCK OPTIONS 7.1 Grant of Stock Options. Coincident with or following designation for participation in the Plan, an Eligible Employee may be granted one or more Options. Grants of Options under the Plan shall be made by the Committee. In no event shall the exercise of 7 9 one Option affect the right to exercise any other Option or affect the number of shares of Stock for which any other Option may be exercised, except as provided in subsection 7.2(j) hereof. During the duration of the Plan, no Eligible Employee may be granted Options which in the aggregate cover in excess of 25 percent of the total shares of Stock authorized under the Plan. 7.2 Stock Option Agreements. Each Option granted under the Plan shall be evidenced by a written stock option agreement which shall be entered into by the Company and the Participant to whom the Option is granted (the "Stock Option Agreement"), and which shall contain the following terms and conditions, as well as such other terms and conditions, not inconsistent therewith, as the Committee may consider appropriate in each case: (a) Number of Shares. Each Stock Option Agreement shall state that it covers a specified number of shares of Stock, as determined by the Committee. (b) Price. The price at which each share of Stock covered by an Option may be purchased shall be determined in each case by the Committee and set forth in the Stock Option Agreement, but in no event shall the price be less than the Fair Market Value of the Stock on the date the Option is granted. (c) Duration of Options; Employment Required For Exercise. Each Stock Option Agreement shall state the period of time, determined by the Committee, within which the Option may be exercised by the Participant (the "Option Period"). The Option Period must end, in all cases, not more than ten years from the date an Option is granted. Except as otherwise provided in Sections 5 and 8 and subsections 7.2(d)(iv) and 7.4(a) hereof, each Option granted under the Plan shall become exercisable in increments such that 25 percent of the Option becomes exercisable on each of the four subsequent one-year anniversaries of the date the Option is granted, provided that each such additional 25-percent increment shall become exercisable only if the Participant has been continuously employed by the Company from the date the Option is granted through the date on which each such additional 25-percent increment becomes exercisable. (d) Termination of Employment, Death, Disability, Etc. Each Stock Option Agreement shall provide as follows with respect to the exercise of the Option upon termination of the employment or the death of the Participant: (i) If the employment of the Participant by the Company is terminated within the Option Period for cause, as determined by the Company, the Option shall thereafter be void for all purposes. As used in this subsection 7.2(d), "cause" shall mean 8 10 a gross violation, as determined by the Company, of the Company's established policies and procedures, provided that the effect of this subsection 7.2(d) shall be limited to determining the consequences of a termination and that nothing in this subsection 7.2(d) shall restrict or otherwise interfere with the Company's discretion with respect to the termination of any employee. (ii) If the Participant retires from employment by the Company on or after attaining age 65, the Option may be exercised by the Participant within 36 months following his or her retirement (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant's death during such 36-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Participant's retirement. (iii) If the Participant becomes disabled (as determined pursuant to the Company's Long-Term Disability Plan or any successor plan), during the Option Period while still employed, or within the three-month period referred to in subsection 7.2(d)(v) below, or within the 36-month period referred to in subsection 7.2(d)(ii) above, the Option may be exercised by the Participant or by his or her guardian or legal representative, within twelve months following the Participant's disability, or within the 36-month period referred to in subsection 7.2(d)(ii) above if applicable and if longer (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant's death during such twelve-month period, each Option may be exercised by those entitled to do so in the manner referred to in subsection 7.2(d)(iv) below. In any such case, the Option may be exercised only as to the shares of Stock as to which the Option had become exercisable on or before the date of the Participant's disability. (iv) In the event of the Participant's death while still employed by the Company, each Option of the deceased Participant may be exercised by those entitled to do so under the Participant's will or under the laws of descent and distribution within twelve months following the Participant's death (provided that in any event such exercise must occur within the Option Period), but not thereafter, as to all shares of Stock which are subject to such Option, including each 25-percent increment of the Option, if any, which has not yet become exercisable at the time of the Participant's death. In the event of the Participant's death within the 36-month period referred to in subsection 7.2(d)(ii) above or within the twelve-month period referred to in subsection 7.2(d)(iii) above, each Option of the deceased Participant that is exercisable at the time of death may be exercised by those entitled to do so under the Participant's will or under the laws of 9 11 descent and distribution within twelve months following the Participant's death or within the 36-month period referred to in subsection 7.2(d)(ii) above, if applicable and if longer (provided that in any event such exercise must occur within the Option Period). The provisions of this paragraph (iv) of subsection 7.2(d) shall be applicable to each Stock Option Agreement as if set forth therein word for word. Each Stock Option Agreement executed by the Company prior to the adoption of this provision shall be deemed amended to include the provisions of this paragraph and all Options granted pursuant to such Stock Option Agreements shall be exercisable as provided herein. (v) If the employment of the Participant by the Company is terminated (which for this purpose means that the Participant is no longer employed by the Company or by an Affiliated Corporation) within the Option Period for any reason other than cause, the Participant's retirement on or after attaining age 65, the Participant's disability or death, the Option may be exercised by the Participant within three months following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of termination of the Participant's employment. (e) Transferability. Each Stock Option Agreement shall provide that the Option granted therein is not transferable by the Participant except by will or pursuant to the laws of descent and distribution, and that such Option is exercisable during the Participant's lifetime only by him or her, or in the event of the Participant's disability or incapacity, by his or her guardian or legal representative. (f) Agreement to Continue in Employment. Each Stock Option Agreement shall contain the Participant's agreement to remain in the employment of the Company, at the pleasure of the Company, for a continuous period of at least one year after the date of such Stock Option Agreement, at the salary rate in effect on the date of such agreement or at such changed rate as may be fixed, from time to time, by the Company. 10 12 (g) Exercise, Payments, Etc. (i) Each Stock Option Agreement shall provide that the method for exercising the Option granted therein shall be by delivery to the Office of the Secretary of the Company or to the Administrative Agent of written notice specifying the number of shares of Stock with respect to which such Option is exercised and payment to the Company of the aggregate Option Price. Such notice shall be in a form satisfactory to the Committee and shall specify the particular Options (or portions thereof) which are being exercised and the number of shares of Stock with respect to which the Options are being exercised. The exercise of the Option shall be deemed effective on the date such notice is received by the Office of the Secretary or by the Administrative Agent and payment is made to the Company of the aggregate Option Price (the "Exercise Date"); however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(g)(iii)(F) below, the Exercise Date shall be deemed to be the date of such sale. If requested by the Company, such notice shall contain the Participant's representation that he or she is purchasing the Stock for investment purposes only and his or her agreement not to sell any Stock so purchased in any manner that is in violation of the Securities Act of 1933, as amended, or any applicable state law, and such restriction, or notice thereof, shall be placed on the certificates representing the Stock so purchased. The purchase of such Stock shall take place upon delivery of such notice to the Office of the Secretary of the Company or to the Administrative Agent, at which time the aggregate Option Price shall be paid in full to the Company by any of the methods or any combination of the methods set forth in subsection 7.2(g)(iii) below. (ii) Except as referenced below in connection with the Deferred Delivery Plan, the shares of Stock to which the Participant is entitled as a result of the exercise of the Option shall be issued by the Company and (A) delivered by electronic means to an account designated by the Participant, or (B) delivered to the Participant in the form of a properly executed certificate or certificates representing such shares of Stock. If shares of Stock and/or Depositary Shares are used to pay all or part of the aggregate Option Price, the Company shall issue and deliver to the Participant the additional shares of Stock, in excess of the aggregate Option Price or portion thereof paid using shares of Stock or Depositary Shares, to which the Participant is entitled as a result of the Option exercise. If the Participant exercising an Option (x) is eligible for participation in the Deferred Delivery Plan, (y) pays the aggregate Option Price pursuant to subsection 7.2(g)(iii)(A), (B), (C), (D) or (E) below, and (z) has made an irrevocable election at least six months prior to the Exercise Date as required under the Deferred Delivery Plan, the income resulting from the Option exercise shall be deferred into the Participant's Deferred Delivery Plan account and no additional shares of Stock shall be delivered to the Participant. 11 13 (iii) the aggregate Option Price shall be paid by any of the following methods or any combination of the following methods: (A) in cash, including the wire transfer of funds in U.S. dollars to one of the Company's bank accounts located in the United States, with such bank account to be designated from time to time by the Company; (B) by personal, certified or cashier's check payable in U.S. dollars to the order of the Company; (C) by delivery to the Company or the Administrative Agent of certificates representing a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, properly endorsed for transfer to the Company, provided that the shares of Stock used for this purpose must have been owned by the Participant for a period of at least six months; (D) by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise Date) of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, provided that the shares of Stock and/or Depositary Shares used for this purpose have been owned by the Participant for a period of at least six months; (E) if the income resulting from the Option exercise is to be deferred into the Participant's Deferred Delivery Plan account, by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise Date) of a number of vested Stock Units held in the Participant's Deferred Delivery Plan account, the equivalent aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, provided that the Stock Units used for this purpose were vested as of the Exercise Date; or (F) by delivery to the Company or the Administrative Agent of a properly executed notice of exercise together with irrevocable instructions to a broker to promptly deliver to the Company, by wire transfer or check as noted in subsection 7.2(g)(iii)(A) and (B) above, the amount of the proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Participant necessary to pay the aggregate Option Price. 12 14 (iv) For purposes of the Plan, the income resulting from an Option exercise shall be based on the Fair Market Value of the Stock for the Exercise Date; however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(g)(iii)(F) hereof, the Fair Market Value shall be deemed to be the per share sale price and the Exercise Date shall be deemed to be the date of such sale. (h) Date of Grant. An Option shall be considered as having been granted on the date specified in the grant resolution of the Committee. (i) Tax Withholding. Each Stock Option Agreement shall provide that, upon exercise of the Option, the Participant shall make appropriate arrangements with the Company to provide for the amount of tax withholding required by Sections 3102 and 3402 or any successor section(s) of the Internal Revenue Code and applicable state and local income and other tax laws, including payment of such taxes in cash, by check, or as provided in Section 13.2 hereof. (j) Adjustment of Options. Subject to the provisions of Sections 4, 5, 7, 8 and 12 hereof, the Committee may make any adjustment in the number of shares of Stock covered by, or the terms of an outstanding Option and a subsequent granting of an Option, by amendment or by substitution for an outstanding Option; however, except as provided in Sections 4, 5, 8 and 12 hereof, the Committee may not adjust the Option Price of any outstanding Option. Such amendment or substitution may result in terms and conditions (including the number of shares of Stock covered, vesting schedule or Option Period) that differ from the terms and conditions of the original Option. The Committee may not, however, adversely affect the rights of any Participant to previously granted Options without the consent of such Participant. If such action is effected by amendment, the effective date of such amendment will be the date of grant of the original Option. 7.3 Stockholder Privileges. No Participant shall have any rights as a stockholder with respect to any shares of Stock covered by an Option until the Participant becomes the holder of record of such Stock. Except as provided in Section 4 hereof, no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date on which such Participant becomes the holder of record of such Stock. 7.4 Reload Provisions. (a) The Committee shall have the authority, but not an obligation, to include as a part of any Stock Option Agreement provisions under which the Participant shall be 13 15 granted a further option (a "Reload Option") when the Participant exercises all or part of the Option represented by such Stock Option Agreement and pays all or part of the aggregate Option Price and/or required or excess tax withholding pursuant to subsections 7.2(g)(iii)(C), (D) or (E) and/or subsections 13.2(a), (b) or (c) and/or subsections 13.3(a) or (b) hereof. Any Option including such reload provisions shall become exercisable in increments such that 25 percent of the Option becomes exercisable on the dates six months, 12 months, 18 months and 24 months following the date the Option is granted, provided that each such additional 25-percent increment shall become exercisable only if the Participant has been continuously employed by the Company from the date the Option is granted through the date on which such additional 25-percent increment becomes exercisable. (b) Any shares of Stock issued to a Participant as a result of an Option exercise which resulted in the grant of a Reload Option, may not be sold or otherwise disposed of until the term of the original Option has expired or the Participant is no longer employed by the Company or by an Affiliated Corporation. Any Stock Units acquired by a Participant as a result of the deferral of income (pursuant to subsection 7.2(g)(ii) hereof) in connection with an Option exercise which resulted in the grant of a Reload Option, may not be sold or otherwise disposed of until the shares of Stock relating to such Stock Units are distributed under the terms of the Deferred Delivery Plan. (c) A Reload Option shall be granted, without further action of the Committee or the Participant, if one or more of the payment provisions referenced in subsection 7.4(a) above are used and if all of the following are satisfied as of the date of exercise of the underlying Option: (i) the Participant has not previously been granted a Reload Option or there has been a period of more than six months since the Participant was last granted a Reload Option; (ii) no shares of Stock have been sold or otherwise disposed of in breach of the provisions of subsection 7.4(b) above; (iii) the Fair Market Value of the shares of Stock covered by the original Option being exercised is at least ten percent greater than the Option Price for such shares; and (iv) there is a period of more than six months remaining in the term of the original Option. 14 16 (d) Each Reload Option: (i) shall cover that certain number of shares of Stock equal to the shares or equivalent shares of Stock actually or constructively delivered to the Company as referenced in subsection 7.4(a) above; (ii) shall be deemed to be granted as of the date on which the original Option is exercised and shall have an Option Price of 100 percent of Fair Market Value on such date; (iii) shall become exercisable six months after the date of grant and shall have the same Expiration Date as the original Option; and (iv) except as set forth in subsections 7.4(d)(i), (ii) and (iii) above, shall have the same terms and conditions as those of the original Option. SECTION 8 CHANGE IN CONTROL 8.1 In General. In the event of a change in control of the Company as defined in Section 8.3 hereof, then the Committee may, in its sole discretion, without obtaining stockholder approval, to the extent permitted in Section 12 hereof, take any or all of the following actions: (a) accelerate the dates on which any outstanding Options become exercisable or make all such Options fully vested and exercisable; (b) grant a cash bonus award to any Participant in an amount necessary to pay the aggregate Option Price of all or any portion of the Options then held by such Participant; (c) pay cash to any or all Participants in exchange for the cancellation of their outstanding Options in an amount equal to the difference between the Option Price of such Options and the greater of the tender offer price for the underlying Stock or the Fair Market Value of the Stock on the date of the cancellation of the Options; and (d) make any other adjustments or amendments to the outstanding Options. 8.2 Limitation on Payments. If the provisions of this Section 8 would result in the receipt by any Participant of a payment within the meaning of Section 280G or any successor section(s) of the Internal Revenue Code, and the regulations promulgated thereunder, and if the receipt of such payment by any Participant would, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the payment by such Participant of any excise tax provided for in Sections 280G and 4999 or any successor section(s) of the Internal Revenue Code, then the amount of such payment 15 17 shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax; provided, however, that the Committee, in its sole discretion, may authorize the payment of all or any portion of the amount of such reduction to the Participant. 8.3 Definition. For purposes of the Plan, a "change in control" shall mean any of the events specified in the Company's Income Continuance Plan or any successor plan which constitute a change in control within the meaning of such plan. SECTION 9 RIGHTS OF EMPLOYEES, PARTICIPANTS 9.1 Employment. Nothing contained in the Plan or in any Option granted under the Plan shall confer upon any Participant any right with respect to the continuation of his or her employment by the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the level of the Participant's compensation from the level in existence at the time of the grant of an Option. Whether an authorized leave of absence, or absence in military or government service, shall constitute a termination of employment shall be determined by the Committee at the time. 9.2 Nontransferability. No right or interest of any Participant in an Option granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant's death, a Participant's rights and interests in Options shall, to the extent provided in Section 7 hereof, be transferable by testamentary will or the laws of descent and distribution, and payment of any amounts due under the Plan shall be made to, and exercise of any Options may be made by, the Participant's legal representatives, heirs or legatees. If, in the opinion of the Committee, a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his or her affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person's guardian, conservator or other legal personal representative upon furnishing the Committee with evidence of such status satisfactory to the Committee. 16 18 SECTION 10 GENERAL RESTRICTIONS 10.1 Investment Representations. The Company may require a Participant, as a condition of exercising an Option, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Stock subject to the Option for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws. 10.2 Compliance with Securities Laws. Each Option shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares of Stock subject to such Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of shares of Stock thereunder, such Option may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration, qualification, consent or approval. SECTION 11 OTHER EMPLOYEE BENEFITS The amount of any income deemed to be received by a Participant as a result of an Option exercise shall not constitute "earnings" or "compensation" with respect to which any other employee benefits of such Participant are determined including, without limitation, benefits under any pension, profit sharing, life insurance or salary continuation plan. 17 19 SECTION 12 PLAN AMENDMENT, MODIFICATION AND TERMINATION The Board may at any time terminate, and from time to time may amend or modify the Plan provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the Company's stockholders if stockholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements unless the Company, on the advice of counsel, determines that stockholder approval is otherwise necessary or desirable. No amendment, modification or termination of the Plan shall in any manner adversely affect any Option theretofore granted under the Plan, without the consent of the Participant holding such Option. The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with the provisions of the laws (including, but not limited to, tax laws and regulations) of countries other than the United States in which the Company may operate, so as to assure the viability of the benefits of the Plan to Participants employed in such countries. SECTION 13 WITHHOLDING 13.1 Withholding Requirement. The Company's obligations to deliver shares of Stock upon the exercise of an Option, or to defer income resulting from an Option exercise into the Deferred Delivery Plan, shall be subject to the Participant's satisfaction of all applicable federal, state and local income and other tax withholding requirements. 13.2 Satisfaction of Required Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay all such amounts of required tax withholding, or any part thereof: (a) by the delivery to the Company or the Administrative Agent of a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such shares have been held by the Participant for a period of at least six months; 18 20 (b) by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise Date) of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such shares of Stock and/or Depositary Shares have been owned by the Participant for a period of at least six months; (c) if the income resulting from the Option exercise is to be deferred into the Participant's Deferred Delivery Plan account, by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise Date) of a number of vested Stock Units held in the Participant's Deferred Delivery Plan account, the equivalent aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such Stock Units were vested as of the Exercise Date; or (d) by the Company or the Administrative Agent withholding from the shares of Stock otherwise issuable to the Participant upon exercise of the Option, a number of shares of Stock, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld. Any such elections by Participants to have shares of Stock withheld for this purpose will be subject to the following restrictions: (i) all elections shall be made on or prior to the Exercise Date; and (ii) all elections shall be irrevocable. 13.3 Excess Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay additional or excess amounts of tax withholding, beyond the required amounts and up to the Participant's marginal tax rate: (a) by delivery to the Company or the Administrative Agent of a number of Shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than such excess withholding amount, provided that such shares of Stock have been owned by the Participant for a period of at least six months; or 19 21 (b) by certification or attestation to the Company or the Administrative Agent of the Participant's ownership (as of the Exercise Date) of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than such excess withholding amount, provided that such shares of Stock and/or Depositary Shares have been owned by the Participant for a period of at least six months. 13.4 Section 16 Requirements. If the Participant is an officer or director of the Company within the meaning of Section 16 or any successor section(s) of the 1934 Act ("Section 16"), the Participant must satisfy the requirements of such Section 16 and any applicable rules and regulations thereunder with respect to the use of shares of Stock, Depositary Shares and/or Stock Units to satisfy such tax withholding obligation. SECTION 14 REQUIREMENTS OF LAW 14.1 Requirements of Law. The issuance of Stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations. 14.2 Federal Securities Laws Requirements. If a Participant is an officer or director of the Company within the meaning of Section 16, Options granted hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule(s) promulgated under the 1934 Act, to qualify the Option for any exception from the provisions of Section 16 available under such Rule. Such conditions are hereby incorporated herein by reference and shall be set forth in the Stock Option Agreement with the Participant which describes the Option. 14.3 Governing Law. The Plan and all Stock Option Agreements hereunder shall be construed in accordance with and governed by the laws of the State of Texas. 20 22 SECTION 15 DURATION OF THE PLAN The Plan shall terminate at such time as may be determined by the Board, and no Option shall be granted after such termination. If not sooner terminated under the preceding sentence, the Plan shall fully cease and expire at midnight on February 10, 2005. Any Options outstanding at the time of the Plan termination shall continue to be exercisable in accordance with the Stock Option Agreement pertaining to each such Option. Dated: December 14, 2000 APACHE CORPORATION ATTEST: /s/ Cheri L. Peper By: /s/ Jeffrey M. Bender - ---------------------------------- ------------------------------- Cheri L. Peper Jeffrey M. Bender Corporate Secretary Vice President, Human Resources 21 EX-10.28 8 h84997ex10-28.txt DEFERRED DELIVERY PLAN 1 EXHIBIT 10.28 APACHE CORPORATION DEFERRED DELIVERY PLAN As Amended and Restated December 14, 2000 2 APACHE CORPORATION DEFERRED DELIVERY PLAN AS AMENDED AND RESTATED DECEMBER 14, 2000 Apache Corporation ("Apache"), a Delaware corporation (hereinafter referred to, together with its Affiliated Entities (as defined below), as the "Company" except where the context otherwise requires), established the Apache Corporation Deferred Delivery Plan effective as of February 10, 2000. The Plan (as defined below) provides Participants (as defined below) with an opportunity to defer income and permits the grant of Stock Bonus Awards (as defined below) to Participants selected by the Committee (as defined below), in consideration of the valuable past services provided by Participants to the Company. The Plan is intended to provide Participants with added incentives and to induce them to remain in the employ of the Company. The Company intends that the Plan shall not be treated as a "funded" plan for purposes of either the Code or the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ARTICLE I DEFINITIONS Defined terms used in this Plan shall have the meanings set forth below: 1.01 Account "Account" means the memorandum account maintained for each Participant to which shall be credited all Deferred Amounts (including any Stock Bonus Award), all Company Match made on behalf of a Participant, and all adjustments thereto. 1.02 Affiliated Entity "Affiliated Entity" means any corporation or other legal entity (including but not limited to a partnership) which is affiliated with Apache through stock ownership or otherwise and is treated as a common employer under the provisions of Sections 414(b) and (c) or any successor sections of the Code. 1.03 Code "Code" means the Internal Revenue Code of 1986, as amended. 1 3 1.04 Committee "Committee" means the Stock Option Plan Committee of Apache's Board of Directors. 1.05 Company Match "Company Match" means the allocations to a Participant's Account made pursuant to Section 3.02. 1.06 Compensation "Compensation" shall mean the one-time 1999 discretionary award and/or income from (a) any Stock Bonus Award, (b) exercises of non-qualified employee stock options granted to the Participants pursuant to Apache's 1990 Stock Incentive Plan, 1995 Stock Option Plan, 1998 Stock Option Plan, 2000 Stock Option Plan or any future plan under which employee stock options may be granted, and/or (c) any Other Approved Plan. The Committee and/or the Board of Directors may from time to time designate other forms of remuneration that are available for deferral into the Plan. 1.07 Deferred Amounts "Deferred Amounts" means the amounts of a Participant's Compensation, which are deferred and credited to the Participant's Account pursuant to Section 3.01. 1.08 Election Agreement "Election Agreement" means an application for participation in the Plan, execution of which by an eligible employee is required under Article II for the Participant to elect or acknowledge Deferred Amounts. 1.09 Fair Market Value "Fair Market Value" means the per share closing price of the Stock as reported on The New York Stock Exchange, Inc. Composite Transactions Reporting System for a particular date. If there are no Stock transactions on such date, the Fair Market Value shall be determined as of the immediately preceding date on which there were Stock transactions. 1.10 Other Approved Plan "Other Approved Plan" means the 2000 Share Appreciation Plan and any other compensation or benefit plan which may from time to time be designated by the Committee and/or the Board of Directors. 2 4 1.11 Participant "Participant" means any eligible employee selected to participate in this Plan pursuant to Section 2.01. 1.12 Plan "Plan" means the Apache Corporation Deferred Delivery Plan as set forth herein, including Annex A. 1.13 Plan Year "Plan Year" means the period during which the Plan records are kept. The Plan Year shall be the calendar year. 1.14 Stock "Stock" means the $1.25 par value common stock of Apache. 1.15 Stock Bonus Award "Stock Bonus Award" means any grant of Stock Units made pursuant to Annex A. 1.16 Stock Units "Stock Units" means investment units, each of which is deemed to be equivalent to one share of Stock. 1.17 Trust "Trust" means the trust or trusts, if any, created by the Company to provide funding for the distribution of benefits in accordance with the provisions of the Plan. The assets of any such Trust shall remain subject to the claims of the Company's general creditors in the event of the Company's insolvency. 1.18 Trust Agreement "Trust Agreement" means the written instrument pursuant to which each separate Trust is created. 3 5 1.19 Trustee "Trustee" means one or more banks, trust companies or insurance companies designated by the Company to hold the Trust fund and to pay benefits and expenses as authorized by the Committee in accordance with the terms and provisions of the Trust Agreement. 1.20 Headings; Gender and Number The headings contained in the Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of the Plan. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. ARTICLE II ELIGIBILITY AND PARTICIPATION 2.01 Eligibility and Participation The Committee shall from time to time in its sole discretion select those employees of the Company who are eligible to participate in the Plan from among a select group of key employees. 2.02 Election Employees who have been selected by the Committee to participate in the Plan shall complete the election procedure specified by the Committee. The election procedure may include form(s) for the employee to (a) designate a beneficiary (pursuant to Article V), (b) elect or acknowledge Deferred Amounts by entering into an Election Agreement with the Company (pursuant to Section 3.01), (c) select a payment option for the eventual distribution of his Account (pursuant to Article V), and (d) provide such other information as the Committee may reasonably require. 2.03 Failure of Eligibility The Committee shall have the authority to determine that a Participant is no longer eligible to participate in the Plan. No Company Match or Stock Bonus Award shall be made, no Deferred Amounts withheld from a Participant's Compensation, and no dividend amounts credited to a Participant's Account after he ceases to be eligible to participate in the Plan. The determination of the Committee with respect to the termination of participation in the Plan shall be final and binding on all parties affected thereby. Except as provided in Section 5.01, any benefits vested hereunder, at the time the Participant becomes ineligible to continue participation, shall be distributable in accordance with the provisions of the Plan. 4 6 ARTICLE III CONTRIBUTION DEFERRALS 3.01 Participant Deferrals (a) General. A Participant may elect to defer a portion of his Compensation and/or acknowledge the deferral of income from the grant of a Stock Bonus Award by filing the appropriate Election Agreement with the Committee's designee. Deferred Amounts related to the one-time 1999 discretionary award, and to such other remuneration as may be designated from time to time, shall be deducted through payroll withholding from the Participant's cash Compensation payable by the Company, and shall be credited to the Participant's Account on or about the date the amounts are deducted. Deferred Amounts from the deferral of income from the exercise of non-qualified stock option grants, from the grant of a Stock Bonus Award or from any Other Approved Plan shall be credited to the Participant's Account on or about the date of the stock option exercise, the grant date of the Stock Bonus Award or the date the income would have been otherwise paid or distributed from such Other Approved Plan, respectively. (b) Initial Enrollment. When an employee first is selected to participate in the Plan, pursuant to Section 2.01, the Committee's designee shall provide him with an election form, which, when properly completed and timely returned to the Committee's designee shall constitute an Election Agreement. To be effective, the Election Agreement must be completed and returned to the Committee's designee by the deadline established by the Committee. The employee may elect to defer (i) up to 100 percent of the one-time 1999 discretionary award, and (ii) such percentage up to 100 percent of income from stock options exercised in the Plan Year indicated or from any Other Approved Plan, divisible into such increments as may be designated by the Committee; however, 100 percent of income from the grant of any Stock Bonus Award shall be deferred. The Election Agreement shall be effective immediately upon receipt by the Committee's designee; however, (i) Election Agreements related to the deferral of income from stock option exercises must be completed and returned not less than six months in advance of the Participant's intended exercise date on which income is to be deferred, and (ii) Election Agreements related to the deferral of income from any Other Approved Plan must be completed and returned pursuant to the provisions of such Other Approved Plan. Each Election Agreement shall be irrevocable for the deferral of the one-time 1999 discretionary award, or the deferral of income (i) from stock options exercised in the Plan Year indicated, (ii) from the grant of any Stock Bonus Award, or (iii) from any Other Approved Plan. 5 7 (c) Continuing Election. A Participant shall enter into a separate Election Agreement for (i) the deferral of income from stock options exercises in the Plan Year indicated, (ii) the deferral of income from the grant of any Stock Bonus Award (iii) the deferral of income from any Other Approved Plan, or (iv) any other deferral opportunity offered by the Committee. To be effective, the Election Agreement must be completed and returned to the Committee's designee by the deadline established by the Committee; however, (i) Election Agreements related to the deferral of income from stock option exercises must be completed and returned not less than six months in advance of the Participant's intended exercise date on which income is to be deferred, and (ii) Election Agreements related to the deferral of income from any Other Approved Plan must be completed and returned pursuant to the provisions of such Other Approved Plan. Each Election Agreement shall be irrevocable. (d) Participant Becomes Ineligible. A Participant's Election Agreement(s) shall be canceled immediately if and when the Participant becomes ineligible to participate in the Plan. 3.02 Company Match The Company shall credit to a Participant's Account matching contributions equal to the Participant's Deferred Amount related to the 1999 one-time discretionary award. The Committee may from time to time in its sole discretion designate such other forms of remuneration that are available for deferral into the Plan, as well as such other matching contributions as the Committee deems appropriate. The Company Match shall be invested as specified in Article IV. ARTICLE IV INVESTMENT OF DEFERRALS AND ACCOUNTING; VOTING 4.01 Investments (a) All amounts credited to a Participant's Account shall be invested in Stock Units, with the number of Stock Units determined using the Fair Market Value of the Stock for the date on which the amount is credited to the Participant's Account. Amounts equal to any cash dividends declared on the Stock shall be credited to the Participant's Account as of the payment date for such dividend in proportion to the number of Stock Units in the Participant's Account as of the record date for such dividend. Such dividend amounts shall be invested in Stock Units, with the number of Stock Units determined using the Fair Market Value of the Stock on the dividend payment date, and such Stock Units shall vest pursuant to Section 5.01. 6 8 (b) Nothing contained in this Section shall be construed to give any Participant any power or control to make investment decisions or otherwise influence in any manner the investment and reinvestment of assets contained within any investment alternative, such control being at all times retained in the full discretion of the Committee. Nothing contained in this Section shall be construed to require the Company or the Committee to fund any Participant's Account. 4.02 Voting Participants shall have no right to vote any Stock Units prior to the date on which such Stock Units are subject to distribution and shares of Stock are issued therefor. ARTICLE V DISTRIBUTIONS 5.01 Vesting (a) The portion of a Participant's Account attributable to Deferred Amounts from the one-time 1999 discretionary award and/or related to the deferral of income from stock option exercises shall be fully vested; however, the portion of a Participant's Account (i) attributable to Deferred Amounts related to the grant of any Stock Bonus Award or to such other remuneration as may be designated from time to time and/or (ii) related to the deferral of income from any Other Approved Plan, shall vest on such terms as may be determined by the Committee. (b) A Participant shall vest in the portion of his Account that is attributable to the Company Match for the 1999 one-time discretionary award as follows: 50 percent on the date six months following the date of deferral and the remaining 50 percent on the date twelve months following the date of deferral. (c) If a Participant retires or becomes disabled (as defined by the Company's Long Term Disability Plan) while still employed by the Company, no vesting occurs subsequent to the date of retirement or disability and all unvested portions of the Participant's Account shall be forfeited immediately. (d) If a Participant dies while still employed by the Company, any unvested portion of the Participant's Account shall be immediately vested. (e) If a Participant's employment is terminated other than for cause as defined herein, no further vesting of unvested portions of the Participant's Account shall occur and all unvested portions thereof shall be forfeited immediately. 7 9 (f) If the employment of the Participant is terminated for cause as determined by the Company, the Participant's entire Account balance (including any Deferred Amounts) shall be forfeited immediately. As used in this subsection, "cause" shall mean a gross violation, as determined by the Company, of the Company's established policies and procedures. The effect of this subsection shall be limited to determining the consequences of a termination and nothing in this subsection shall restrict or otherwise interfere with Company's discretion with respect to termination of any employee. (g) Stock Units attributable to dividend amounts credited to a Participant's Account pursuant to Section 4.01 shall vest as the corresponding Stock Units vest. As used in this subsection, "corresponding Stock Units" shall mean those Stock Units on which the dividend amounts are calculated. 5.02 Distribution During Employment (a) While a Participant is employed by the Company, the only available distribution is a distribution pursuant to the terms of the applicable Election Agreement beginning five years after the date of deferral pursuant to the Election Agreement(s) on file for the Participant. Any distribution shall be paid in whole shares of Stock, delivered in the number of installments designated by the Participant in the applicable Election Agreement and, coincident with delivery of the last such installment, any fractional shares shall be paid in cash. (b) If a Participant has elected to take his distribution in installments, the first installment shall be delivered within 90 days after the corresponding date five years after the date of deferral, and each subsequent installment shall be delivered not later than March 31st of the following calendar year. (c) If a Participant remains employed by the Company, a Participant may elect to further defer for an additional five years his distribution by executing a new Election Agreement at least six months prior to the first installment due pursuant to the Participant's previous election. 5.03 Distributions After Employment Distributions after the Participant's death are discussed in Section 5.04. All other distributions after employment shall be made as set forth below: (a) Timing. The Participant's vested Account shall be distributed after the Participant terminates employment with the Company and the distribution shall be made pursuant to the Participant's Election Agreement(s). If a Participant has elected to take his distribution in installments, the first installment shall be delivered within 8 10 90 days after the Participant's termination date and each subsequent installment shall be delivered not later than March 31st of the following calendar year. (b) Form of Distribution. The Participant's entire vested Account shall be paid in whole shares of Stock, delivered in the number of installments designated pursuant to the Election Agreement(s) executed by the Participant and, coincident with delivery of the last such installment, any fractional shares shall be paid in cash. (c) Minimum Distribution. If, as of the Participant's termination date, the value of his entire vested Account is $50,000 or less, the Participant's vested Account balance shall be distributed in one lump sum and such distribution shall be made within 90 days of the Participant's termination date. (d) Reemployment. If a Participant is reemployed by the Company before his entire vested Account balance is paid, installments from the Plan shall be suspended. Installments will resume after the Participant again terminates employment. The number of remaining installments shall be the number of annual installments originally designated pursuant to the Election Agreement(s) executed by the Participant, less the number of installments received before the Participant was re-employed. If the Participant dies before receiving all installments, Section 5.04 shall apply. 5.04 Distributions After Participant's Death (a) Each Participant shall designate one or more persons, trusts or other entities as his beneficiary (the "Beneficiary") to receive any amounts distributable hereunder at the time of the Participant's death. In the absence of an effective Beneficiary designation as to part or all of a Participant's interest in the Plan, such amount shall be distributed to the Participant's surviving spouse, if any, otherwise to the personal representative of the Participant's estate. (b) A Beneficiary designation may be changed by the Participant at any time and without the consent of any previously designated Beneficiary. However, if the Participant is married, his spouse shall be his Beneficiary unless such spouse has consented to the designation of a different Beneficiary. To be effective, the spouse's consent must be in writing, witnessed by a notary public, and filed with the Committee's designee. If a Participant has designated his spouse as a Beneficiary or as a contingent Beneficiary, and the Participant and that spouse subsequently divorce, then such Beneficiary designation shall be void and of no effect with respect to such spouse on and after the day such divorce is final. (c) When a Participant dies, his remaining vested Account balance shall be distributed to his Beneficiary in one lump sum as soon as administratively possible after his death, regardless of the payment schedule the Participant 9 11 elected, and regardless of whether installment payments had begun. Such distribution shall be paid in whole shares of Stock, with any fractional shares paid in cash. 5.05 Withholding At the time of distribution, the Plan shall withhold from such distribution any taxes or other amounts that are required to be withheld pursuant to any applicable law or such greater amount as requested by the Participant. The Committee may direct the Company to withhold additional amounts from any payment to repay the Participant's debt or obligation to the Company or at the request of the Participant. ARTICLE VI ADMINISTRATION 6.01 Committee to Administer and Interpret Plan The Plan shall be administered by the Committee. The Committee shall have all discretion and powers necessary for administering the Plan, including, but not by way of limitation, full discretion and power to interpret the Plan, to determine the eligibility, status and rights of all persons under the Plan and, in general, to decide any dispute. The Committee shall direct the Company, the Trustee, or both, as the case may be, concerning distributions in accordance with the provisions of the Plan. The Committee's designee shall maintain all Plan records except records of any Trust. 6.02 Organization of Committee The Committee shall adopt such rules as it deems desirable for the conduct of its affairs and for the administration of the Plan. The Committee may appoint a designee and/or agent (who need not be a member of the Committee or an employee of the Company) to assist the Committee in administration of the Plan and to whom it may delegate such powers as the Committee deems appropriate, except that the Committee shall determine any dispute. The Committee may make its determinations with or without meetings. The Committee may authorize one or more of its members, designees or agents to sign instructions, notices and determinations on its behalf. The action of a majority of the Committee's members shall constitute the action of the Committee. 6.03 Agent for Process Apache's Vice President and General Counsel and Apache's Corporate Secretary shall each be an agent of the Plan for service of all process. 10 12 6.04 Determination of Committee Final The decisions made by the Committee shall be final and conclusive on all persons. ARTICLE VII TRUST 7.01 Trust Agreement The Company may, but shall not be required to, adopt a separate Trust Agreement for the holding and administration of the funds contributed to Accounts under the Plan. The Trustee shall maintain and allocate assets to a separate account for each Participant under the Plan. The assets of any such Trust shall remain subject to the claims of the Company's general creditors in the event of the Company's insolvency. 7.02 Expenses of Trust The parties expect that any Trust created pursuant to Section 7.01 will be treated as a "grantor" trust for federal and state income tax purposes and that, as a consequence, such Trust will not be subject to income tax with respect to its income. However, if the Trust should be taxable, the Trustee shall pay all such taxes out of the Trust. All expenses of administering any such Trust shall be a charge against and shall be paid from the assets of such Trust. ARTICLE VIII AMENDMENT AND TERMINATION 8.01 Amendment (a) The Plan may be amended at any time and from time to time, retroactively or otherwise; however, no amendment shall reduce any vested benefit that has accrued on the effective date of such amendment. Each Plan amendment shall be in writing and shall be approved by the Committee and/or Apache's Board of Directors. An officer of Apache to whom the Committee and/or Apache's Board of Directors has delegated the authority to execute Plan amendments shall execute each such amendment or the Plan document restated to include all such Plan amendment(s). (b) The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with the provisions of the laws (including, but not limited to, tax laws and regulations) of countries other than the United States in which the Company may operate, so as to assure the viability of the benefits of the Plan to Participants employed in such countries. 11 13 8.02 Successors and Assigns; Termination of Plan The Plan is binding upon Apache and its successors and assigns. The Plan shall continue in effect from year to year unless and until terminated by Apache's Board of Directors. Any such termination shall operate only prospectively and shall not reduce any vested benefit that has accrued on the effective date of such termination. ARTICLE IX STOCK SUBJECT TO THE PLAN 9.01 Number of Shares Subject to Section 4.01 and Annex A, and to adjustment pursuant to Section 9.03 hereof, one million (1,000,000) shares of Stock are authorized for issuance under the Plan in accordance with the provisions of the Plan and subject to such restrictions or other provisions as the Committee may from time to time deem necessary. This authorization may be increased from time to time by approval of the Board and the stockholders of Apache if, in the opinion of counsel for the Company, such stockholder approval is required. Shares of Stock distributed under the terms of the Plan and shares of Stock equal to the number of Stock Units credited to Participants' Accounts maintained under the Plan shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan; however, shares of Stock represented by any Stock Units related to the deferral of income (i) from the exercise of stock options and/or (ii) from any Other Approved Plan shall retain their authorization under the applicable stock option plan or under such Other Approved Plan, and shall not be applied to reduce the number of shares of Stock remaining available for use under the Plan. Apache, at all times during the existence of the Plan and while any Stock Units are credited to Participants' Accounts maintained under the Plan, shall retain as Stock in Apache's treasury at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder. 9.02 Other Shares of Stock The shares of Stock represented by any Stock Units that are forfeited, and any shares of Stock that for any other reason are not issued to a Participant or are forfeited, shall automatically become available for use under the Plan. 9.03 Adjustments for Stock Split, Stock Dividend, Etc. If Apache shall at any time increase or decrease the number of its outstanding shares of Stock or change in any way the rights and privileges of such shares by means of the payment of a Stock dividend or any other distribution upon such shares payable in Stock, or through a Stock split, subdivision, consolidation, combination, reclassification or 12 14 recapitalization involving the Stock, then in relation to the Stock that is affected by one or more of the above events, the numbers, rights and privileges of the following shall be increased, decreased or changed in like manner as if they had been issued and outstanding, fully paid and nonassessable at the time of such occurrence: (i) the shares of Stock remaining available for use under the Plan; and (ii) the shares of Stock then represented by Stock Units credited to Participants' Accounts maintained under the Plan. 9.04 Dividend Payable in Stock of Another Corporation, Etc. If Apache shall at any time pay or make any dividend or other distribution upon the Stock payable in securities or other property (except cash or Stock), a proportionate part of such securities or other property shall be set aside for Stock Units credited to Participants' Accounts maintained under the Plan and delivered to any Participant upon distribution pursuant to the terms of the Plan. Prior to the time that any such securities or other property are delivered to a Participant in accordance with the foregoing, Apache shall be the owner of such securities or other property and shall have the right to vote the securities, receive any dividends payable on such securities, and in all other respects shall be treated as the owner. If securities or other property which have been set aside by Apache in accordance with this Section are not delivered to a Participant because all or part of his Stock Units are forfeited pursuant to the terms of the Plan, then the applicable portion of such securities or other property shall remain the property of Apache and shall be dealt with by Apache as it shall determine in its sole discretion. 9.05 Other Changes in Stock In the event there shall be any change, other than as specified in Sections 9.03 and 9.04 hereof, in the number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Committee shall in its discretion determine that such change equitably requires an adjustment in the number or kind of shares (i) remaining available for use under the Plan and/or (ii) represented by Stock Units credited to Participants' Accounts maintained under the Plan, then such adjustments shall be made by the Committee and shall be effective for all purposes of the Plan. 9.06 Rights to Subscribe If Apache shall at any time grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of Apache or of any other corporation, there shall be reserved with respect to the Stock Units credited to Participants' Accounts maintained under the Plan the Stock or other securities which the Participant would have been entitled to subscribe for if immediately prior to such grant the shares of Stock represented by such Stock Units had been issued and outstanding. If, at the time of distribution under the terms of the Plan, the Participant subscribes for the additional shares or other securities, the price that is payable by the Participant for such additional 13 15 shares or other securities shall be withheld from such distribution pursuant to Section 5.05 hereof. 9.07 Change in Control (a) In the event of a change in control of Apache as defined below, then the Committee may, in its sole discretion, if it so elects, take any of the following actions: (i) accelerate the vesting of all unvested Stock Units credited to Participants' Accounts so that such unvested Stock Units become fully vested and payable, which acceleration may be conditional upon the occurrence of subsequent events including, without limitation, a change in control, and may be irrevocable, either conditionally or unconditionally; and (ii) make any other adjustments or amendments to the unvested Stock Units as the Committee deems appropriate. (b) For purposes of this Plan, a "change in control" shall mean any of the events specified in Apache's Income Continuance Plan or any successor plan which constitute a change in control within the meaning of such plan. 9.08 General Adjustment Rules No adjustment or substitution provided for in this Article IX shall require Apache to sell or otherwise issue a fractional share of Stock. All benefits payable under the Plan shall be distributed in whole shares of Stock, with any fractional shares paid in cash. 9.09 Determination by the Committee, Etc. Adjustments under this Article IX shall be made by the Committee, whose determinations with regard thereto shall be final and binding upon all parties thereto. ARTICLE X REORGANIZATION OR LIQUIDATION In the event that Apache is merged or consolidated with another corporation and Apache is not the surviving corporation, or if all or substantially all of the assets or more than 20 percent of the outstanding voting stock of Apache is acquired by any other corporation, business entity or person, or in case of a reorganization (other than a reorganization under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of Section 9.07 hereof do not apply, the Committee, or the board of directors of any corporation assuming the obligations of the Company, shall, as to the Plan and any Stock Units credited to Participants' Accounts maintained under the Plan, either (i) make appropriate provision for the adoption and continuation of the Plan by the acquiring or successor corporation and for the protection of any Stock Units credited to Participants' Accounts maintained under the Plan by the substitution on a equitable basis of appropriate stock of Apache or of the merged, consolidated or otherwise 14 16 reorganized corporation which will be issuable with respect to the Stock, provided that no additional benefits shall be conferred upon the Participants with respect to such Stock Units as a result of such substitution or (ii) upon written notice to the Participants, provide that all distributions from the Plan shall be made within a specified number of days of the date of such notice. In the latter event, the Committee shall accelerate the vesting of all unvested Stock Units credited to Participants' Accounts so that all such Stock Units become fully vested and payable prior to any such event. ARTICLE XI MISCELLANEOUS 11.01 Funding of Benefits -- No Fiduciary Relationship Benefits shall be paid either out of the Trust or, if no Trust is in existence or if the assets in the Trust are insufficient to provide fully for such benefits, then such benefits shall be distributed by the Company out of its general assets. Nothing contained in the Plan shall be deemed to create any fiduciary relationship between the Company and the Participants. Notwithstanding anything herein to the contrary, to the extent that any person acquires a right to receive benefits under the Plan, such right shall be no greater than the right of any unsecured general creditor of the Company, except to the extent provided in the Trust Agreement, if any. 11.02 Right to Terminate Employment The Company may terminate the employment of any Participant as freely and with the same effect as if the Plan were not in existence. 11.03 Inalienability of Benefits No Participant shall have the right to assign, transfer, hypothecate, encumber or anticipate his interest in any benefits under the Plan, nor shall the benefits under the Plan be subject to any legal process to levy upon or attach the benefits for payment for any claim against the Participant or his spouse. If, notwithstanding the foregoing provision, any Participant's benefits are garnished or attached by the order of any court, the Company may bring an action for declaratory judgment in a court of competent jurisdiction to determine the proper recipient of the benefits to be distributed pursuant to the Plan. During the pendency of the action, any benefits that become distributable shall be paid into the court, as they become distributable, to be distributed by the court to the recipient it deems proper at the conclusion of the action. 11.04 Claims Procedure (a) The Participant, his spouse or the authorized representative of the claimant shall file all claims in writing, by completing such procedures as the Committee shall 15 17 require. Such procedures shall be reasonable and may include the completion of forms and the submission of documents and additional information. (b) If a claim is denied, notice of denial shall be furnished by the Committee to the claimant within 90 days after the receipt of the claim by the Committee, unless special circumstances require an extension of time for processing the claim, in which event notification of the extension shall be provided to the Participant or beneficiary and the extension shall not exceed 90 days. (c) The Committee shall provide adequate notice, in writing, to any claimant whose claim as been denied, setting forth the specific reasons for such denial, specific reference to pertinent Plan provisions, a description of any additional material or information necessary for the claimant to perfect his claims and an explanation of why such material or information is necessary, all written in a manner calculated to be understood by the claimant. Such notice shall include appropriate information as to the steps to be taken if the claimant wishes to submit his claim for review. The claimant or the claimant's authorized representative may request such review within the reasonable period of time prescribed by the Committee. In no event shall such a period of time be less than 60 days. A decision on review shall be made not later than 60 days after the Committee's receipt of the request for review. If special circumstances require a further extension of time for processing, a decision shall be rendered not later than 120 days following the Committee's receipt of the request for review. If such an extension of time for review is required, written notice of the extension shall be furnished to the claimant prior to the commencement of the extension. The decision on review shall be furnished to the claimant. Such decision shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions on which the decision is based. 11.05 Disposition of Unclaimed Distributions Each Participant must file with the Company from time to time in writing his post office address and each change of post office address. Any communication, statement or notice addressed to a Participant at his last post office address on file with the Company, or if no address is filed with the Company, then at his last post office address as shown on the Company's records, will be binding on the Participant and his spouse for all purposes of the Plan. The Company shall not be required to search for or locate a Participant or his spouse. 11.06 Distributions Due Infants or Incompetents If any person entitled to a distribution under the Plan is an infant, or if the Committee determines that any such person is incompetent by reason of physical or mental disability, whether or not legally adjudicated an incompetent, the Committee shall have the power to 16 18 cause the distributions becoming due to such person to be made to another for his benefit, without responsibility of the Committee to see to the application of such distributions. Distributions made pursuant to such power shall operate as a complete discharge of the Company, the Trustee, if any, and the Committee. 11.07 Governing Law The Plan and all Election Agreements shall be construed in accordance with the Code and, to the extent applicable, the laws of the State of Texas excluding any conflicts-of-law provisions. December 14, 2000 ATTEST: APACHE CORPORATION /s/ Cheri L. Peper /s/ Jeffrey M. Bender - --------------------------------- ------------------------------- Cheri L. Peper Jeffrey M. Bender Corporate Secretary Vice President, Human Resources 17 19 ANNEX A APACHE CORPORATION DEFERRED DELIVERY PLAN STOCK BONUS AWARD PROVISIONS From time to time, grants of stock bonus awards for specified numbers of Stock Units (each a "Stock Bonus Award") may be made to Participants under the terms of the Plan. Capitalized terms used in this Annex A shall have the meaning set forth in the Plan or herein, as the case may be. Grants of Stock Bonus Awards shall be made by the Committee. The Stock Units covered by each Stock Bonus Award shall be credited to the Participant's Account maintained under the Plan. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, select the Participants to receive Stock Bonus Awards. For each stock Bonus Award, the Committee shall: o specify the date of grant and number of Stock Units granted; o designate the vesting provisions; and o establish such other terms and requirements as deemed necessary or desirable and consistent with the Plan. Each Stock Bonus Award shall be evidenced by a written agreement containing the particular provisions of such award and in such form as the Committee shall determine. Upon the grant and/or vesting of each Stock Bonus Award, the Participant shall make appropriate arrangements with the Company to provide for the amount of all applicable federal, state and local income and other tax withholding requirements. As used in the Plan, the phrase "income from the grant of a Stock Bonus Award" shall mean the amount calculated by multiplying (a) the number of Stock Units covered by the Stock Bonus Award, times (b) the Fair Market Value of the Stock for the date of grant. Except as set forth in this Annex A and/or in the applicable written agreement, each Stock Bonus Award and the Stock Units related thereto shall be subject to all other terms and conditions set forth in the Plan. A-1 EX-10.30 9 h84997ex10-30.txt OUTSIDE DIRECTORS' RETIREMENT PLAN 1 EXHIBIT 10.30 APACHE CORPORATION OUTSIDE DIRECTORS' RETIREMENT PLAN (As Amended and Restated February 8, 2001) APACHE CORPORATION (the "Company") established the Apache Corporation Outside Directors' Retirement Plan (the "Plan"), effective as of December 15, 1992 (the "Effective Date"), to provide eligible non-employee Directors of the Company ("Outside Directors") with certain retirement and death payments. The purpose of the Plan is to advance the interests of the Company, its subsidiaries, and its stockholders by continuing to attract and retain outstanding individuals as Outside Directors and to stimulate the efforts of such individuals by giving suitable recognition to services which will contribute materially to the success of the Company. ARTICLE I ELIGIBILITY, PARTICIPATION AND CONTRIBUTIONS 1.1 Eligibility and Participation. (a) Each Outside Director on the Effective Date shall be eligible to participate in the Plan on that date. Subsequently elected Outside Directors shall be eligible to participate in the Plan as of the date their Service begins. An eligible Outside Director shall become a participant ("Participant") upon receipt by the Company of a completed Participation Agreement, the form of which is attached hereto as Annex A. (b) At any time on or prior to the effective date of a Participant's Retirement, but not thereafter, the Participant, by completion of a new Participation Agreement, may: (i) change his or her Beneficiary Designation, with such change becoming effective upon delivery to the Company of such new Participation Agreement. (ii) change his or her Benefit Election, with such change becoming effective on the date six months following delivery to the Company of such new Participation Agreement, provided that such change shall not become effective if the Participant is not holding office as an Outside Director on such effective date. 1.2 Contributions. All amounts payable under the Plan shall be paid from the general assets of the Company. Nothing contained in the Plan shall be deemed to create any fiduciary relationship between the Company and the Participant. Any rights of the Participant under the Plan shall be no greater than the right of any unsecured general creditor of the Company. 2 ARTICLE II RETIREMENT PAYMENTS 2.1 Retirement Payments. (a) A Participant who Retires with four or more Quarters of Service shall be entitled to receive payments under the Plan for a term of years equal to the number of Quarters of Service credited to the Participant at Retirement divided by 4, with any fraction (a "Service Fraction") rounded up to the next whole number. The annual amount of such payments shall equal 66-2/3 percent of the Participant's Annual Director's Retainer, except that the amount payable in the final year of the term shall be determined by multiplying the Service Fraction, if any, times 66-2/3 percent of the Participant's Annual Director's Retainer. (b) "Annual Directors' Retainer" shall mean the aggregate annual amount of an Outside Director's board retainer fee payable pursuant to Section 1 of the Company's Non-Employee Directors' Compensation Plan (or comparable section of any successor plan), whether or not all or a portion of such amount is deferred or delayed. Such amount shall be determined as of the date a Participant Retires or, in the case of payments pursuant to the provisions of Article III, as of the date of the Participant's death. (c) "Quarter of Service" shall mean the aggregate total full months of Service as an Outside Director divided by 3 and rounded up to the next whole number but in no event shall any Participant's Quarters of Service exceed 40. (d) "Retirement, Retired or Retires" shall mean a Participant's ceasing to hold office as an Outside Director, for any reason other than death, on or after the attainment of age 60. (e) "Service" shall mean: the aggregate total, not to exceed 120, of (i) the number of full months beginning on or after July 1, 1992 (whether or not consecutive) that a Participant held office as an Outside Director, whether or not a Participant at the time, and (ii) 1/2 the number of full months prior to July 1, 1992 (whether or not consecutive) that a Participant held office as an Outside Director; provided, however, that a Participant who, as of the Effective Date, has held office as an Outside Director for an aggregate total of 15 years shall automatically be credited with 120 full months of Service. 2.2 Retirement Payments Following Change in Control. In the event of a "change in control" of the Company, as defined in Section 1(c) of the Company's Income Continuation Plan (as in effect on the Effective Date without regard to whether such Income Continuation Plan remains in effect or is subsequently amended), any Participant whose Service as an Outside Director terminates on or after the date of such change in control shall be deemed as of such date of termination, or if 2 3 later, upon attainment of age 60, to have Retired and shall be entitled to the payments provided hereunder. 2.3 Method and Time of Payment. Unless a Participant elects the optional form of payment pursuant to Section 2.4, payments hereunder shall be paid quarterly as of the last day of March, June, September and December for the period determined in accordance with Section 2.1(a). Quarterly payments to a Participant shall be paid in cash and shall begin as of the payment date next following the date the Participant Retires. If a Participant dies before completion of the payments for the period determined in accordance with Section 2.1(a), death payments shall be made to the Participant's Spouse or Beneficiary to the extent provided in Article III. 2.4 Optional Form of Payment. In lieu of the quarterly payments to which a Participant would otherwise be entitled hereunder, a Participant may elect, at the time of signing a Participation Agreement for the Plan, to receive a cash lump sum payment in an amount which the Committee calculates as the net present value of the payments to which the Participant would otherwise be entitled under the provisions of the Plan determined using a series of annual payments and an annual interest rate equal to the rate on ten-year treasury bonds/notes as reported in The Wall Street Journal published on or most recently prior to the effective date of the Participant's Retirement. Any such lump sum payment shall be made within 90 days following the Participant's Retirement. ARTICLE III. DEATH PAYMENTS 3.1 Death Payments for Participants. (a) If a Participant, who has not elected a lump sum payment under Section 2.4, dies after Retirement but prior to receiving all of the annual payments to which the Participant would otherwise be entitled hereunder, and is survived by a Spouse or Beneficiary, the Spouse or Beneficiary shall be entitled to receive the remaining payments which would otherwise have been payable to the Participant until the earlier of (i) the death of the Spouse or Beneficiary, or (ii) the completion of such payments in accordance with the provisions of Article II. (b) If a Participant dies while holding office as an Outside Director and after attaining age 60 and after being credited with 40 Quarters of Service pursuant to Article II, and is survived by a Spouse or Beneficiary, the Spouse or Beneficiary shall be entitled to receive the payments which would otherwise have been made to the Participant until the earlier of (i) the death of the Spouse or Beneficiary, or (ii) the completion of such payments in accordance with the provisions of Article II. 3 4 (c) Payments to a Spouse or Beneficiary hereunder shall be made at the same time as payments would have been made to the Participant. (d) "Spouse" shall mean the lawfully married spouse of a Participant at the time of the Participant's death. (e) "Beneficiary" shall mean the individual designated by the Participant in his or her Participation Agreement in effect at the time of the Participant's death. 3.2 Lump Sum Death Payments. (a) If a Participant who has elected a lump sum payment dies after the Participant's Retirement but before the receipt of such payment, the lump sum shall be paid to the surviving Spouse or Beneficiary, or if none, to the estate or the personal representative of the Participant. (b) If an Outside Director, who has not completed a Participation Agreement, dies while holding office as an Outside Director and after attaining age 60 and after being credited with 40 Quarters of Service pursuant to Article II, and is not survived by a Spouse, the payments which would otherwise have been made to the Outside Director if he or she had been a Participant shall be paid to the estate or the personal representative of the Outside Director in a lump sum calculated pursuant to Section 2.4 hereof. ARTICLE IV ADMINISTRATION, AMENDMENT AND TERMINATION 4.1 The Management Development and Compensation Committee. The Plan shall be administered by the Management Development and Compensation Committee (the "Committee") of the Company's Board of Directors. All administrative duties, including but not limited to the power to interpret the Plan and to decide any dispute, shall be carried out by the Committee, which shall have full discretion and authority hereunder. All claims under the Plan shall be filed with the Committee, and the decisions made by the Committee shall be final and binding on all persons having or claiming to have rights under the Plan. 4.2 Termination or Amendment of Plan. The Plan may be terminated or amended at any time through action of the Company's Board of Directors. No termination or amendment, however, shall reduce the payments (a) to a Participant or a Participant's Spouse or Beneficiary where a Participant has already reached Retirement or (b) to which a current Participant is or may become entitled, based on such Participant's Service and Annual Director's Retainer as determined on the effective date of such termination or amendment. 4 5 ARTICLE V. MISCELLANEOUS 5.1 Inalienability of Payments. No Participant shall have the right to assign, transfer, hypothecate, encumber or anticipate his or her interest in any payments under the Plan, nor shall the payments under the Plan be subject to any legal process to levy upon or attach such payments for any claim against the Participant or the Participant's Spouse or Beneficiary. 5.2 Notices. Any notice required or permitted to be given under the Plan shall be in writing and shall be given by first class registered or certified mail, postage prepaid, or by personal delivery to the appropriate party, addressed: (a) If to the Company, to Apache Corporation at its principal place of business at 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400 (Attention: Office of the Secretary) or at such other address as may have been furnished in writing by Apache to a Participant; or (b) If to a Participant, at the address indicated below the Participant's signature on his or her Participation Agreement, or at such other address as may have been furnished in writing by a Participant to Apache. Any such notice shall be deemed to have been given as of the second day after deposit in the United States Postal Service, postage prepaid, properly addressed as set forth above, in the case of mailed notice, or as of the date delivered in the case of personal delivery. 5.3 Disposition of Unclaimed Payments. Any communication, statement or notice addressed to a Participant at his or her last post office address, as provided to the Company under Section 5.2 hereof, will be binding on the Participant and the Participant's Spouse or Beneficiary for all purposes of the Plan. If the Company cannot ascertain the whereabouts of any person to whom a payment is due under the Plan within three years from the date such payment is due, such payment shall be cancelled on the records of the Plan and the amount thereof forfeited to the Company. 5.4 Governing Law. The Plan shall be governed by the laws of the State of Texas. 5 6 Dated: February 8, 2001 APACHE CORPORATION ATTEST: By: /s/ Cheri L. Peper By: /s/ Jeffrey M. Bender --------------------------------- ------------------------------- Cheri L. Peper Jeffrey M. Bender Corporate Secretary Vice President, Human Resources 6 7 ANNEX A APACHE CORPORATION OUTSIDE DIRECTORS' RETIREMENT PLAN PARTICIPATION AGREEMENT This Agreement is made and entered into by and between APACHE CORPORATION (the "Company") and [DIRECTOR NAME] (the "Participant") pursuant to the Apache Corporation Outside Directors' Retirement Plan (the "Plan"). The purpose of this Agreement is to provide for the election by the Participant of the form of benefit payable by the Company to the Participant under the terms of the Plan, and to allow for designation of a beneficiary by the Participant. BENEFIT ELECTION Pursuant to the terms of the Plan and the Participant's election, the Company agrees to pay such benefits as are due to the Participant, using the form the Participant has indicated below by marking an X in the blank immediately preceding Option A or B: ______ A Participant's Retirement Benefits shall be paid to the Participant in a SINGLE LUMP SUM PAYMENT pursuant to Section 2.4 of the Plan. ______ B Participant's Retirement Benefits shall be paid to the Participant in a SERIES OF QUARTERLY PAYMENTS pursuant to Section 2.1 of the Plan. BENEFICIARY DESIGNATION The Participant hereby designates --------------------------------------------------------------------- (Print Name and Relationship or, if no designation made, print "N/A") as the Participant's beneficiary under the terms of the Plan. If the Participant is married as of the date of this Agreement and the beneficiary designated above is not the Participant's spouse, the Participant's spouse must consent to such designation by signing the "Consent to Beneficiary Designation" set out below. 8 It is understood and agreed by the Participant and the Company that at any time on or prior to the effective date of the Participant's retirement, BUT NOT THEREAFTER, the Participant, by completion of a new Agreement, may: (iii) change his or her Beneficiary Designation, with such change becoming effective upon delivery to the Company of such new Agreement. (iv) change his or her Benefit Election, with such change becoming effective on the date six months following delivery to the Company of such new Agreement, provided that such change shall not become effective if the Participant is not holding office as an Outside Director on such effective date. This Agreement is made as of this ____ day of _______________, _______. APACHE CORPORATION PARTICIPANT - ---------------------------------------- ------------------------------------ BY: JEFFREY M. BENDER [DIRECTOR NAME] ITS: VICE PRESIDENT, HUMAN RESOURCES ------------------------------------ SOCIAL SECURITY NUMBER ------------------------------------ ADDRESS ------------------------------------ CITY, STATE, ZIP CODE CONSENT TO BENEFICIARY DESIGNATION I understand that if the Participant designates a beneficiary other than his or her spouse, the spouse must consent to such designation. I hereby consent to the beneficiary designated on page 1 of this Agreement. - ------------------------- ------------------------------------ Date Signature of Spouse Page 2 of 2 EX-10.31 10 h84997ex10-31.txt EQUITY COMPENSATION PLAN NON-EMPLOYEE DIRECTORS 1 EXHIBIT 10.31 APACHE CORPORATION EQUITY COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS AS AMENDED AND RESTATED SEPTEMBER 14, 2000 Apache Corporation, a Delaware corporation (the "Company"), established the Apache Corporation Equity Compensation Plan for Non-Employee Directors (the "Plan"), effective as of February 9, 1994, for those directors of the Company who are neither officers nor employees of the Company (the "Directors") and authorized a maximum of 50,000 shares of the Company's common stock, par value $1.25 per share (the "Common Stock") for issuance thereunder during the term of the Plan, which shares consist entirely of treasury stock. 1. Each Director shall receive automatic and non-discretionary grants of restricted stock ("Restricted Stock Awards") on the terms and conditions set forth under the Plan. Each Director receiving a Restricted Stock Award shall enter into an agreement (a "Restricted Stock Agreement") in such form as the Board of Directors of the Company (the "Board") or a duly authorized committee of the Board (the "Committee") shall determine to be consistent with the provisions of the Plan and which may contain additional terms and conditions relating to the Restricted Stock Awards. In the event of any inconsistency between the provisions of the Plan and any Restricted Stock Agreement, the provisions of the Plan shall govern. 2. The Committee shall be responsible for the administration of the Plan. However, the Committee shall have no authority, discretion or power to (i) select the Directors who will receive Restricted Stock Awards, (ii) determine the terms of the Restricted Stock Awards to be granted pursuant to the Plan, the number of shares of Common Stock to be issued thereunder or the time at which such Restricted Stock Awards are to be granted, (iii) establish the duration and nature of Restricted Stock Awards, or (iv) alter any other terms or conditions specified in the Plan, except to administer the Plan in accordance with its terms or to comport with changes in the Internal Revenue Code, the Employment Retirement Income Security Act, or the rules and regulations promulgated thereunder. Subject to the foregoing limitations, the Committee is authorized to (A) interpret the Plan, (B) prescribe, amend and rescind rules and regulations relating to the Plan, (C) provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company, and (D) make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan. The Committee's authority shall include, but not be limited to, the right to make equitable adjustments in the number or kind of shares subject to outstanding Restricted Stock Awards, or which have been reserved for issuance pursuant to the Plan but are not then subject to Restricted Stock Awards, to reflect changes in the number or kind of outstanding shares of Common Stock due to any merger, recapitalization or other extraordinary or unusual event. 3. If the Company shall at any time increase or decrease the number of its outstanding shares of Common Stock or change in any way the rights and privileges of such shares by means of the payment of a stock dividend or any other distribution upon such shares payable in Common Stock, or through a stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Common Stock, then in relation to the Common Stock that is affected by one or more of the above events, the numbers, rights and privileges of the following shall be increased, decreased or changed in like manner as if they had been issued and outstanding, fully paid and nonassessable at the time of such occurrence: (i) the shares of Common Stock which have been reserved for issuance pursuant to the Plan but are not then subject to Restricted Stock Awards, and (ii) the shares of Common Stock subject to outstanding Restricted Stock Awards granted hereunder. 2 4. Beginning on July 1, 1994, and on July 1 of each fifth year thereafter through and including July 1, 2009 (each, an "Award Date"), each Director shall receive a Restricted Stock Award of 1,000 shares of Common Stock. Any Director elected to the Board of Directors subsequent to an Award Date shall receive a Restricted Stock Award of 1,000 shares of Common Stock on the next July 1 following the date of such election (a "Special Award Date"); provided, however, that if such July 1 is an Award Date, such Award Date will constitute such Director's Special Award Date. No Restricted Stock Awards shall be granted to any Director subsequent to July 1, 2009. 5. Restricted Stock Awards shall vest at the rate of 20 percent per year on each of the first through the fifth anniversaries of each Award Date or Special Award Date, as the case may be. Restricted Stock Awards, whether vested or unvested, may not be sold, assigned, pledged, hypothecated, transferred or otherwise disposed of as long as a Director is serving as a member of the Board. All restrictions on Restricted Stock Awards shall lapse on the first business day following the date on which a Director ceases to be a member of the Board; provided, however, that the unvested portion of any Restricted Stock Award shall be automatically forfeited at such time. 6. Notwithstanding the foregoing, effective as of May 1, 2000, the unvested portion of any Restricted Stock Award shall be automatically vested upon a Director's retirement from the Board or upon a Director's death while still serving as a member of the Board; provided, however, that the Director (i) is at least 60 years of age and has completed at least ten years of service as a Director at the time of retirement, or (ii) has completed at least ten years of service as a Director at the time of death. 7. Certificates issued pursuant to Restricted Stock Awards shall be registered in the name of the recipient Director and shall bear an appropriate restrictive legend referring to the terms, conditions and restrictions applicable to such award. Certificates issued pursuant to Restricted Stock Awards shall be held by the Corporate Secretary of the Company until the award, or portion thereof, has vested and all applicable restrictions thereon shall have lapsed. As a condition of any Restricted Stock Award, each Director shall have delivered to the Corporate Secretary of the Company a stock power, endorsed in blank, relating to the Common Stock issued pursuant to a Restricted Stock Award. A Director shall have all voting, dividend, liquidation and other rights of a stockholder of the Company with respect to the shares of Common Stock issued pursuant to any Restricted Stock Award, notwithstanding that all or a portion of such award shall be unvested, subject to the restrictions described in the preceding paragraph. 8. The Board may at any time terminate, and from time to time may amend or modify the Plan; provided, however, that no amendment or modification may become effective without approval of such amendment or modification by the stockholders of the Company, if stockholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements, or if the Company, on the advice of counsel, determines that stockholder approval is otherwise necessary or desirable. The Plan is expressly intended to comport with Rule 16b-3(c)(2)(ii) (or any successor provision) as promulgated under the Securities Exchange Act of 1934, as amended, and any ambiguities in the construction of the Plan or any Restricted Stock Agreement shall be resolved so as to effectuate such intent. September 14, 2000 EX-12.1 11 h84997ex12-1.txt STATEMENT OF COMPUTATION OF RATIOS 1 EXHIBIT 12.1 APACHE CORPORATION STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (IN THOUSANDS)
(UNAUDITED) 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- EARNINGS Pretax income from continuing operations(1) $1,203,681 $ 344,573 $ (187,563) $ 258,640 $ 200,195 Add: Fixed charges excluding capitalized interest 116,190 90,398 78,728 78,531 68,091 ---------- ---------- ---------- ---------- ---------- Adjusted Earnings $1,319,871 $ 434,971 $ (108,835) $ 337,171 $ 268,286 ========== ========== ========== ========== ========== FIXED CHARGES AND PREFERRED STOCK DIVIDENDS Interest expense including capitalized interest(2) $ 168,121 $ 132,986 $ 119,703 $ 105,148 $ 89,829 Amortization of debt expense 2,726 4,854 4,496 6,438 5,118 Interest component of lease rental expenditures(3) 7,343 5,789 3,808 3,438 3,856 ---------- ---------- ---------- ---------- ---------- Fixed charges 178,190 143,629 128,007 115,024 98,803 ---------- ---------- ---------- ---------- ---------- Preferred stock dividend requirements(4) 33,386 24,788 2,905 -- -- ---------- ---------- ---------- ---------- ---------- Combined Fixed Charges and Preferred Stock Dividends $ 211,576 $ 168,417 $ 130,912 $ 115,024 $ 98,803 ========== ========== ========== ========== ========== Ratio of earnings to fixed charges 7.41 3.03 --(5) 2.93 2.72 ========== ========== ========== ========== ========== Ratio of earnings to combined fixed charges and preferred stock dividends 6.24 2.58 --(5) 2.93 2.72 ========== ========== ========== ========== ==========
- ---------- (1) Undistributed income of less-than-50%-owned affiliates is excluded. (2) Apache guaranteed and is contingently liable for certain debt. Fixed charges, relating to the debt for which Apache was contingently liable, have not been included in the fixed charges for any of the periods shown above. (3) Represents the portion of rental expense assumed to be attributable to interest factors of related rental obligations determined at interest rates appropriate for the period during which the rental obligations were incurred. Approximately 32% to 34% applies for all periods presented. (4) Represents the amount of pre-tax earnings that would be required to cover preferred stock dividends of $20.0 million in 2000, $14.4 million in 1999 and $2.0 million in 1998. (5) Earnings were inadequate to cover fixed charges and combined fixed charges and preferred stock dividends by $236.8 million and $239.7 million, respectively, due to the $243.2 million write-down of the carrying value of United States oil and gas properties. EX-21.1 12 h84997ex21-1.txt SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21.1 PAGE 1 OF 2 APACHE CORPORATION - LISTING OF SUBSIDIARIES AS OF FEBRUARY 28, 2001
EXACT NAME OF SUBSIDIARY AND NAME JURISDICTION OF UNDER WHICH SUBSIDIARY DOES BUSINESS INCORPORATION OR ORGANIZATION - ------------------------------------------------------------ ------------------------------------- Apache Corporation (New Jersey) New Jersey Apache Aviation, Inc. Delaware Apache Delaware LLC Delaware Apache Finance Louisiana Corporation Delaware Apache Foundation Minnesota Apache Gathering Company Delaware Apache Holdings, Inc. Delaware Apache International, Inc. Delaware Apache North America, Inc. Delaware Apache Finance Pty Limited Australian Capital Territory Apache Australia Management Pty Limited Victoria, Australia Apache Australia Holdings Pty Limited Western Australia Apache Qarun Corporation LDC Cayman Islands Apache Louisiana Holdings, LLC Delaware Apache Overseas, Inc. Delaware Apache Abu Gharadig Corporation LDC Cayman Islands Apache Argentina Corporation LDC Cayman Islands Apache Asyout Corporation LDC Cayman Islands Apache Bohai Corporation LDC Cayman Islands Apache China Corporation LDC Cayman Islands Apache Darag Corporation LDC Cayman Islands Apache East Bahariya Corporation LDC Cayman Islands Apache Enterprises LDC Cayman Islands Apache Faiyum Corporation LDC Cayman Islands Apache Matruh Corporation LDC Cayman Islands Apache Mediterranean Corporation LDC Cayman Islands Apache Poland Holding Company Delaware Apache Eastern Europe B.V. Netherlands Apache Poland Sp. z o.o. Poland Apache Umbarka Corporation LDC Cayman Islands Apache Oil Corporation Texas Burns Manufacturing Company Minnesota Apache Energy Limited Western Australia Apache Northwest Pty Ltd. Western Australia Apache Carnarvon Pty Ltd. Western Australia Apache Dampier Pty Ltd. Western Australia Apache East Spar Pty Limited Western Australia Apache Harriet Pty Limited Victoria, Australia Apache Kersail Pty Ltd Victoria, Australia Apache Miladin Pty Ltd Victoria, Australia Apache Nasmah Pty Ltd Victoria, Australia Apache Oil Australia Pty Limited New South Wales, Australia Apache Airlie Pty Limited New South Wales, Australia Apache Varanus Pty Limited Queensland, Australia Apache Pipeline Pty Ltd Western Australia
2 PAGE 2 OF 2
EXACT NAME OF SUBSIDIARY AND NAME JURISDICTION OF UNDER WHICH SUBSIDIARY DOES BUSINESS INCORPORATION OR ORGANIZATION - ------------------------------------------------------------ ------------------------------------- Apache West Australia Holdings Limited Island of Guernsey Apache UK Limited England and Wales Apache Lowendal Pty Limited Victoria, Australia Apache Transfer Company Delaware DEK Energy Company Delaware DEK Energy Texas, Inc. Delaware DEK Exploration Inc. Delaware Apache Finance Canada Corporation Nova Scotia, Canada Apache Canada Management Ltd Alberta, Canada Apache Canada Holdings Ltd Alberta, Canada Apache Canada Management II Ltd Alberta, Canada DEK Petroleum Corporation Illinois Apache Canada Ltd. Alberta, Canada DEPCO, Inc. Texas Heinold Holdings, Inc. Delaware Phoenix Exploration Resources, Ltd. Delaware TEI Arctic Petroleum (1984) Ltd. Alberta, Canada Texas International Company Delaware Apache Khalda Corporation LDC Cayman Islands Apache Khalda, Inc. Delaware Apache Qarun Exploration Company LDC Cayman Islands Phoenix Resources Company of Qarun Delaware Nagasco, Inc. Delaware Apache Marketing, Inc. Delaware Apache Transmission Corporation - Texas Texas Apache Crude Oil Marketing, Inc. Delaware Nagasco Marketing, Inc. Delaware
EX-23.1 13 h84997ex23-1.txt CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report included in this Form 10-K into Apache Corporation's previously filed Registration Statements on Form S-3 (Nos. 33-53129, 333-39973, 333-57785, 333-75633, 333-90147 and 333-32580), Form S-4 (No. 33-61669), and Form S-8 (Nos. 33-31407, 33-37402, 33-53442, 33-59721, 33-59723, 33-63817, 333-04059, 333-25201, 333-26255, 333-32557, 333-36131, 333-53961, 333-31092 and 333-48758). /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Houston, Texas March 19, 2001 EX-23.2 14 h84997ex23-2.txt CONSENT OF RYDER SCOTT COMPANY L.P. 1 [Ryder Scott Letterhead] EXHIBIT 23.2 Consent of Ryder Scott Company, L.P. As independent petroleum engineers, we hereby consent to the incorporation by reference in this Form 10-K of Apache Corporation to our Firm's name and our Firm's review of the proved oil and gas reserve quantities of Apache Corporation as of January 1, 2001, and to the incorporation by reference of our Firm's name and review into Apache Corporation's previously filed Registration Statements on Form S-3 (Nos. 33-53129, 333-39973, 333-57785, 333-75633, 333-90147 and 333-32580), on Form S-4 (No. 33-61669), and on Form S-8 (Nos. 33-31407, 33-37402, 33-53442, 33-59721, 33-59723, 33-63817, 333-04059, 333-25201, 333-26255, 333-32557, 333-36131, 333-53961, 333-31092 and 333-48758). /s/ Ryder Scott Company, L.P. Ryder Scott Company, L.P. Houston, Texas March 19, 2001 -----END PRIVACY-ENHANCED MESSAGE-----